The battle over the domestic DATCA has truly begun in earnest and in public
Two banker groups sued the U.S. challenging rules that require financial institutions to report information on accounts held by nonresident aliens that may be shared with 72 foreign governments.
The Texas Bankers Association and the Florida Bankers Association, in a lawsuit filed today against the Treasury Department and the Internal Revenue Service in federal court in Washington, said the rules are discouraging investment in the U.S. by nonresidents who fear their information may be shared with the governments of countries including Egypt, Pakistan and Venezuela.
The IRS bulletin they are talking about, is the DATCA lite, which was the first step in the push for a domestic DATCA. IRS bulletin 2012-20
Update: April 24, 2013 Here is a link to the PDF lawsuit filing.
Which has now been followed by Treasury’s addition of full FATCA reciprocity (DATCA) in the Obama’s 2014 budget Analytical Perspectives: See page 202 (spacing and highlighting below for clarity)
Provide for reciprocal reporting of information in connection with the implementation of the Foreign Account Tax Compliance Act (FATCA).—In many cases, foreign law would prevent foreign financial institutions from complying with the FATCA provisions of the Hiring Incentives to restore Employment Act of 2010 by reporting to the IRS information about U.S. accounts.
Such legal impediments can be addressed through intergovernmental agreements under which the foreign government agrees to provide the information required by FATCA to the IRS requiring U.S. financial institutions to report similar information to the IRS with respect to nonresident accounts would facilitate such intergovernmental cooperation by enabling the IRS to reciprocate in appropriate circumstances by exchanging similar information with cooperative foreign governments to support their efforts to address tax evasion by their residents.
The proposal would provide the Secretary of the Treasury with authority to prescribe regulations that would require reporting of information with respect to nonresident alien individuals, entities that are not U.S. persons, and certain U.S. entities held in substantial part by non-U.S. owners, including information regarding account balances and payments made with respect to accounts held by such persons and entities.
When Mark Twain posted that last night I thought whoopee, nice to see the FATCA beast being bitten on the behind by some homeland banker hornets. Let’s hope other states join in. I wish the Canadian Banker’s Association had threatened a lawsuit against the Canadian government to dissuade it from capitulating in any way to FATCA but instead CBA was cowered by the threat of the big 30% stick and urged “negotiation” of a FATCA IGA. The USA has hornets and Canada has doodlebugs.
For those who haven’t followed the history and development of DATCA over time, I recapped the entire DATCA story here…
I just sent this email to the author of the story…
Dear Tom Schoenberg,
Yours is an interesting story, but not sure you know how BIG of a story this is…
FATCA compliance costs are blowing back on US shores.
The battle for domestic FATCA reciprocity (domestic DATCA) has started in earnest and in public.
The IRS bulletin they are talking about, is the ‘DATCA lite’ regulation, which was the first step in the push for a full blown info sharing domestic DATCA imposed on US financial institutions (USFIs)
It is part of the Treasury and IRS plan, to replace the original FATCA regulations with FATCA inter-government agreements called IGAs, which are controversial and come with dubious legal authority, and promise reciprocity to entice governments to sign up. But, they can’t really do that.
First step was this regulation
See IRS bulletin 2012-20 http://1.usa.gov/11sGZsl
This is the second. Unreported in the media, but Treasury’s has followed up with this addition of full blown FATCA reciprocity (DATCA) in the Obama’s 2014 budget Analytical Perspectives:
http://1.usa.gov/12YGdoG
See page 202 (spacing and highlighting below for clarity)
“Provide for reciprocal reporting of information in connection with the implementation of the Foreign Account Tax Compliance Act (FATCA).—In many cases, foreign law would prevent foreign financial institutions from complying with the FATCA provisions of the Hiring Incentives to restore Employment Act of 2010 by reporting to the IRS information about U.S. accounts.
Such legal impediments can be addressed through intergovernmental agreements under which the foreign government agrees to provide the information required by FATCA to the IRS requiring U.S. financial institutions to report similar information to the IRS with respect to nonresident accounts would facilitate such intergovernmental cooperation by enabling the IRS to reciprocate in appropriate circumstances by exchanging similar information with cooperative foreign governments to support their efforts to address tax evasion by their residents.
The proposal would provide the Secretary of the Treasury with authority to prescribe regulations that would require reporting of information with respect to nonresident alien individuals, entities that are not U.S. persons, and certain U.S. entities held in substantial part by non-U.S. owners, including information regarding account balances and payments made with respect to accounts held by such persons and entities.”
Make no mistake about it. This is a new complex compliance condition and new expense and burden that Obama is proposing for ALL US financial Institutions (USFIs) was created solely by Treasury on its own initiative, with the FATCA IGAs. This WAS NOT provided for in FATCA legislation in the first place!
Notice, they are asking for more regulatory authority? But given how Treasury as gone about FATCA implementation, do you think Congress is in the mood to give it to them? Especially when they begin to see that the cost all the FFIs have been complaining about is now blowing back on U.S. Shores and USFIs.
I think some countries are waking up to the IGA game, as indicated by the Norway IGA, where Norway will not provide info until US reciprocal info is provided via this DATCA. Is treasury, with the new provision in Article 6 setting the battle for DATCA with a new Congress in 2014 which they hope will be Democrats again?
The BIGGER story is that FATCA is begetting DATCA and then begetting a global GATCA. That is the mission. This lawsuit, is the opening salvo of the push back against these plans, never provided for in the original FATCA legislation..
Interesting development to watch…and will look for more comprehensive coverage from you..
If you are interested, here is the documented history of DATCA developments I have been following for some time…
This auto tax and reporting regime, is the BIGGEST world wide development on tax issues in the history of mankind, and I can say that without hyperbole. Sadly, it is rarely covered in U.S. Media. Thanks for the reporting that you do…
Best Regards.
Lot of coverage of this story. No mention of the “F” word here, making it difficult for anyone to know what to search for to get a background on this new exchange of information legislation.
http://newsandinsight.thomsonreuters.com/Legal/News/2013/04_-_April/Banker_associations_sue_U_S__over_account_reporting_rule/
http://www.reuters.com/article/2013/04/19/us-usa-tax-lawsuit-idUSBRE93I02D20130419
For true reciprocity to reign the U.S. must be forced to report on the financial accounts of non-U.S. citizens who are resident within U.S. borders. This is what the U.S. is demanding of foreign financial institutions with respect to American persons who are not resident within the U.S. Either that or the U.S. government must remove renounce the illogical position that U.S. persons are considered to have dual tax residency- one within their actual country of residence and a fictional one within the U.S. Anything less puts the U.S. in a superior position to the non-U.S. signatory to the FATCA IGA.
@recalcitrantexpat
You are absolutely right. It shouldn’t matter that those countries that exercise residency based taxation don’t have any parallel use for the information…yet.
Gotta love Texas and Florida. They are always the first to stand up to the federal government these days.
@bubblebustin
I just posted a comment on that Reuters story, along the lines of what I wrote the Bloomberg journalist. Now, it is in moderation and we shall see…
BTW, I think we focus too much on the fact of differring residency based systems vs Citizenship taxation as it relates to reciprocity. Countries could indeed want information on their Citizens whether or not they are living and resisdent in the USA.
Let me explain…
As I have observed in NZ, they are changing how they tax their residents, so that if Kiwis go to America to take a job, say as a nurse, and still maintains a home in NZ, they are going to continue to consider them Tax resident in NZ, even if they are working and have long term residency in the States.
This is a back door de facto Citizenship taxation that they are moving towards, and so, they WOULD love to have better reciprocal information on their Citizens working and living in US, but not paying taxes on their foreign earnings back to NZ, as they may soon be required to do. (if you now live in NZ, you, as of ~5 years ago, have to pay taxes on your foreign earnings under a fair dividend rate, irrespective of realized gains.)
So, don’t be surprised that IRD asks for reciprocal information on their Citizens living in the US having accounts in U.S. Financial Institutions sent back to them via a FATCA IGA agreement.
They, the IRD, will then determine if that person has jumped through the hoops appropriately to have actually given up Tax residency in NZ and NOT subject to NZ taxes on foreign earnings while they are living and working in the US. If I read the IRD regs right, it would be a case by case situation, and could ensnare a lot more Kiwis than those living and working abroad right now realize.
Stay tuned, the world maybe coming to like the U.S. Citizenship taxation idea faster than the U.S. realizes why residency based system is better…. There is a morphing going on, I think….
For true DATCA reciprocity reporting must be not only for non US citizens, but also for dual US/non US citizens living in the US. As I understand it the Obama proposal in the budget does not go that far. As such, reciprocity under a Norway IGA per FATCA should not include dual US citizens living outside the US (or at least in the country of their non US citizenship). Thoughts?
Gotta love this phrase used in the Obama budget, page 202; ….”reporting to the IRS information about U.S. accounts”..
“US accounts”. Though the assets are generated, originated, earned and held entirely outside the US. Though many of us are actually citizens and permanent residents of a non-US country. Many were born dual outside the US, and have never set foot there. And in the case of the ex-greencard holders and the duals, the US status is not even salient where we actually live and earn and pay taxes to our home countries.
Badger – it’s these kind of incorrect and misdiscriptive statements to Congress – ‘US Accounts” that needs to be brought out into the light by ACA and optimally the media. I can only hope that ACA writes to Congress to point these issues out in the Obama budget.
@Steve, I too hope that ACA challenges the wording. I’m sure that the phrase was used deliberately. They say ‘US accounts’ because they mean that any and all assets and accounts owned by anyone they define as having ‘US taxable status’ no matter where they are in the world, and no matter their other citizenship. They believe that we belong to the US – and thus our Canadian or other non-US made assets are to be called “US accounts”. They often say that we haven’t paid our ‘fair share of taxes’ – as if US tax was the only tax that we should consider – deliberately ignoring and omitting the full set of taxes we pay where we live (and may have been born or naturalized). And of course only the taxes the US deigns to recognize are credited. That leaves out anyone in a country with a different tax system, and also consumption taxes like the Canadian PST, GST and HST as well as municipal and property taxes. They say “US citizen” and ignore the salience of dual born abroad status – elevating the unwanted and unsought US citizenship over that of the non-US country on whose soil we live, and may have been born.
If they meant to say the ‘foreign’ or non-US accounts of US residents, they could have said that. The insanity and inaccuracy of the US calling my local Canadian accounts ‘foreign’ gets me every time. It is all in relation to the US, and not in relation to the owner of the account – and so can never be resolved in our favour – we stubbornly continue to be born and live permanently in ‘foreign’ countries, and deposit our ‘foreign’ wages in our local ‘foreign’ banks.
@Steve Klaus
Haven’t got time to digest your question fully, and try to answer it, but I have put the exact words of the Obama budget in my submission to the House Ways and Means Tax Reform Committee…
After those words, I said this….
Notice how broad based this reciprocal reporting is that they are proposing, and then notice the blank lines as to cost estimates or revenue projection for the next 10 years!
Like FATCA, in its original legislative form, there was no cost vs benefit analysis of these few lines, but at least with FATCA there was the projection (WAG) from the JCT that it would raise a meager ~ $800 million a year, while it had NO estimate on the cost to raise that revenue!
Now, with such a MAJOR proposal like this, buried in the budget, to bring FATCA reciprocity compliance complexity back home, without any estimate as to the cost of this compliance initiative IS JUST STAGGERING.
Make no mistake about it. This is a new compliance condition and new expense and burden proposed which was created solely by Treasury on its own initiative, and was NOT provided for in FATCA legislation in the first place!
Do you know that, do you care? Fair question, I think.
Administration costs alone on the IRS would be very very expensive. To require all US financial institutions (USFIs) to provide similar level of reciprocal information on all Non Resident Aliens (NRAs) living around the globe that is similar to what FATCA requires on all Foreign Financial Institutions (FFIs) on all U.S. Persons irrespective of where they reside is amazing enough. To casually set up the mechanism for this to happen on domestic shores, in the form of a DATCA, and have it buried so deep in the budget speaks volumes to what is wrong with our entire tax compliance efforts and the endless creation of more complexity.
Treasury wants to add this complication to a broad swath of the USFIs and that is way more than just banks, as it includes all kinds of entities like insurance agencies, brokerages, mutual funds, bond funds, hedge funds, etc, etc, etc. They mention this reciprocal data collection and reporting on NRAs who have money in USFIs so casually and so low key as if is just a small undertaking. Well it is NOT a small undertaking! IT IS HUGE! This is being proposed without any consideration of capital flight, what it would cost the USFIs to comply, and what it could mean for bank liquidity and reserve requirements.
This DATCA regulatory proposal means setting up mechanisms and managing them to report back to 193 individual cooperating countries around the globe. This has to be done in a manner that maintains individual tax identification number (ITIN) and account data security. It is a stunning endeavor, and probably not workable, no matter how much you spend and how good the intention is! We have enough problems with ID theft of SS numbers and homeland tax fraud as it is. We don’t need to take on the entire world right now and expand these problems globally!
This DATCA regulatory proposal means setting up mechanisms and managing them to report back to 193 individual cooperating countries around the globe. This has to be done in a manner that maintains individual tax identification number (ITIN) and account data security. It is a stunning endeavour, and probably not workable, no matter how much you spend and how good the intention is! We have enough problems with ID theft of SS numbers and homeland tax fraud as it is. We don’t need to take on the entire world right now and expand these problems globally!
Americans living abroad are naturally very concerned about the security of their data which under the Final FATCA regulations will soon rest in third party administrator (TPA) hands. Why do we need to have FFIs identify and round up all U.S. Persons around the world, just to catch a few homeland tax cheats?
It is stunning that a county so concerned about U.S. security following 9/11 would so glibly set up a world process that makes account data and addresses of its citizens around the world more accessible for hacking and falling into terrorist or thieves hands in the name of catching some homeland tax evaders. Now Treasury wants to extend that fatal security flaw of FATCA and make it apply to ALL residents of the globe who have funds invested in accounts in America! They want to shut down the U.S. Tax Haven. Heaven save us from the good intentions of our ideologues!
Action by Congress is urgently needed to STOP this totally misguided and very expensive effort.
With Treasury’s initiation of FATCA inter-government agreements (IGAs) as a FATCA implementation tool, Congress is being left out of the loop on these unique and legally dubious global agreements. It needs to step in.
Did the members of this Committee and its aides understand what FATCA implementation meant, and do they now agree with the direction Treasury has now taken it with the IGAs?
Was a domestic DATCA your intention when Congress voted for and passed FATCA inside the Hire Act in 2010?
I fear some well meaning Treasury and IRS ideologues have taken over U.S. international tax enforcement policy and are using FATCA as the ‘tip of the spear’ in a global agenda, cheered on by the OECD, to create a global GATCA of automatic tax data exchanges.
Is Congress really going to be complicit in this Orwellian world that is being created by Treasury without any further oversight? Are you really going to just give the Secretary of Treasury more regulatory power to impose a DATCA on the USFIs as part of this mission?
As some House members know, requests to Treasury to explain the regulatory action it has already undertaken is not well received. It has already imposed IRS Bulletin 2012-20 on USFIs, and has not responded satisfactorily to Congressman Boustany on his questions in this regard. Nor has it responded (to my knowledge) to Congressman Reichert as to what it is doing in regards to FATCA implementation.
Well, I guess your answers are in the Obama 2014 budget, and it shows how Treasury views their regulatory function. They basically have replaced the Tax Treaty process which is subject to an ‘Advise and Consent’ Congressional review, with an IGA Competent authority or Executive Agreement process. It excludes Congress from any additional oversight and then asks for more regulatory power.
With serious Constitutional issues being raised with this usurpation of Congressional prerogatives, you need to reign them in, rather than giving them more regulatory power. Otherwise, they will just stonewall your whimsical questions and complaints about their authority later, and while they ignore Congressional intent with continued hubris.
In our war on offshore tax evasion, rather than creating sweeping programs like FATCA, we need to be more specifically targeted with existing laws and DOJ efforts which are frankly more effective than this GREAT BIG COMPLEX global initiative that is carpet bombing the world with all its unintended consequences and collateral damage.
FATCA is begetting DATCA which will beget GATCA. Is this the future we want to leave for our children?
Finally, I hereby incorporate by reference ACA proposals for FATCA repeal. Please, Repeal FATCA NOW!
Very eloquent Just Me.
And the lack of any even superficial cost/benefit analysis is stunning.
It is now the United States of Global Treasury and Internal/External Revenue, not the USA.
Just Me Says – – thank you for providing a reply and your well thought out submission to the Committee. I have written to the Bloomberg article’s author and pointed out that he has just touch the tip of the iceberg and referred him to ACA and IBS. I hope the lawsuits keep coming, and also hope that Canadians do the same to raise all of the many issues/questions about implementing FATCA before the Canadian courts.
@just me. The NZ taxation policy matches the Swedish tax treaty, and hazard-to-guess this is the standard tax treaty model for both USA and OECD.
A permanent home available for usage in USA makes one USA tax-responsible. A permanent home available for usage in Sweden makes one Swedish tax-responsible.
Sweden can be very agressive on those points. My intl tax advisor in Sweden is very aware of this. To get out of it, the home must be rented, or clearly-and-obviously a temporary summer home. An apartment or condo which is not rented out classifies as a home.
One can get a certificate from one country or Another which states that it is a tax resident of that country. This will help in the defense process if involved in a legal battle with tax authorities.
For some reason, this doesn’t seem to worry those that are already established as elite rich class. I have a neighbor with a full sized home on the ocean used seldom, runs an international supplier of sailing supplies, but is registered and lives in Switzerland. For him it appears to be no problem. Then again, he is a local hero and doubtfully anyone would want to bother him.
The athletes are Always up for question, as they move their Residences to Monaco. Top favorites are less likely to be questioned. The high jumper that smoked cigarettes and partied heavily was Always pursued by the tax authorities and the media—counting his Days and questioning his Swedish apartment.
@bubblebustin…
My comment was let out of moderation at Reuters…
@Mark Twain…
In NZ, renting the home out is apparently NOT going to let you off the hook. They are almost forcing a sale of the property, if I read the new regulations correctly. That said, I could have it wrong, and have downloaded a copy for reading during my traveling which begins on the 1st of May
@Steve Klaus
Thanks for writing that Bloomberg reporter too. I appreciate the effort. It seems like only real good publications like the Financial Times see the relationship of actions happening in Europe and around the world to FATCA and draw the bigger picture. FATCA was definitely the “tip of the spear” in the FATCAnatics global mission for a GATCA… I haven’t seen a story out of them about this lawsuit yet, but early days.
http://www.ft.com/intl/cms/s/0/095afdca-a90a-11e2-a096-00144feabdc0.html#axzz2QzSE6GmC
Then Reuters is totally clueless, or just can’t be bothered to see the bigger picture. Here was my comment there… http://reut.rs/11ORnse
@Badger. The ‘International’ Revenue Service is here to help! As for my submission, it will never be read by anyone, but I did try to spin a narrative they could follow, if they would.
that puts NZ in a new class: Residence-based taxation. If you own a Residence, you are taxed everywhere in the World no matter what you do. Only slightly easier to get rid of than getting rid of a US passport.
Just Me’s FATCA, DATCA, GATCA:
G-20 Pushes for Measures to End Tax Evasion — David Jolly
The Group of 20 countries called on Friday for a coordinated effort to stop international tax evasion, urging governments to systematically share bank data.
@Just Me
Your comment at the Reuters article really connects the dots on this story.
It will be almost amusing to watch how horrified FATCA’s creators well become as this monster is unleashed on themselves. FRANKENFATCA: be scared, America.
@Calgary
That’s a great catch and a significant development, the G20’s speaking in a concerted voice concerning FATCA. Should it have its own post?
@bubblebustin,
OK, will put it on as a post. I think it is significant too. That’s where Canada’s Finance Minister was on Friday.
@calgary411
Thanks for your alert on David Jolly’s piece. I have had email exchanges with him in the past, so just sent him an email about the Bankers Association lawsuit to be sure he sees the dots connected…
I just sent emails to both the Texas and Florida Bankers Associations wishing them luck in their fight against the IRS, US Treasury and the G20 nations and a link to:
http://www.nytimes.com/2013/04/20/business/global/g-20-pushes-for-measures-to-end-tax-evasion.html?_r=0