I have been waiting for someone else to pull this important FATCA development out of the comments made earlier in the day and make a blog posting of it. I guess it might as well be me.
Accounting Today’s Michael Cohn has reported on this quoted knee slapper for why FATCA is being delayed:
Given the groundswell of international interest in FATCA, we are providing an additional six months to complete agreements with countries and jurisdictions across the globe, before withholding begins,” said Treasury Deputy Assistant Secretary for International Tax Affairs Robert B. Stack in a statement. “The high volume of international participation in this effort represents a quintessential race to the top. Every additional country we bring on board means we are one step closer to winning the fight against offshore tax evasion.
Note who this Robert B Stack is….. Frequent and regular readers of IBS should know who he is.
He was the one that was trotted out for public testimony at recent EU Parliament Public hearings on FATCA. If you did not hear his comments or read them, you should at least listen to what he has to say about the Administration’s efforts to provide reciprocity for those they are coercing into signing IGAs. Here is the last part of his answer to questions toward the end of the hearing.
And finally on reciprocity, we would simply point out that under our IGAs that are reciprocal, the IRS agrees to exchange information on interest, dividends and other income that is already collect, which is substantial and in some cases more extensive than what has to be, uh, reported under FATCA.
The US recognizes the importance of reaching equivalent levels of exchange, uh, under all our law, that we are getting from other jurisdictions. And the administration has included in its budget proposal a provision that would permit U.S. Financial Institutions to make such equivalent exchanges.
Under the U.S. political system, uh, different from some Parliamentary systems, we need to work that through Congress but we are um, we are committed to doing that. Once we’ve done that, to go to the question of beneficial ownership in Delaware, once we have equivalent levels of exchange, we would expect our own financial institutions would be required to look through entities and report on individuals just as non U.S. institutions are required to do under our IGA.
Notice that he doesn’t mention anything about Congress recognizing the need for equivalent levels of FATCA exchange, or that this was the intention of Congress when they passed FATCA. But nevermind, Treasury and the Administration plan, by ‘hook or by crook’ , to impose a DATCA on all U.S. Financial Institutions (USFIs), on that he is quite clear! Time will tell if he gets his wish, but Representative Posey thinks not and is calling for a moratorium on FATCA enforcement and FATCA IGAs as we should know from the July 4th message of cheer that was posted by @Calagary411
As for the delay, frankly I think that the June 23rd letter to Treasury from SIFMA and American Bankers calling for FATCA to delayed had more to do with this than anything else.
Number 1 on the list was…
1. Further relief is necessary regarding the January 1, 2014 effective date in order to avoid over-withholding due to delays in the promulgation of essential guidance.
7. Foreign branches of U.S. banks should not be subject to two parallel regimes. (§1.1471-2(a)(2)(v)) (IE FATCA rules and FATCA IGA rules)
You can read all of their other reasons for delaying here
Bottom line: Coming on the heels of ObamaCare regulation delays, the IRS is overwhelmed with a regulatory mess of their own making, and this fiasco is not ready for primetime yet.
Moral of the story: it’s really, really difficult to get an international tax regime going on a unilateral basis. There is a story in this about the difference in making a unilateral rule first, and then repeatedly changing it to fix all the problems that inevitably arise, versus sitting around in international networks trying to make sure the rule will work first, before trying to implement it internationally. Empirical project for international law buffs!
Finally, I would be remiss if I didn’t draw your attention to one other part of the Accounting Today story. This shows to me that Michael Cohn is trying to be more than a Treasury scribe and regurgitate their press releases verbatim. I have been critical of him in the past for that, and I do think he is being more careful now to give balance to his reporting. It never hurts when the contra view gets the last word in an article. 🙂
This is not surprising,” Jim Jatra, who runs the anti-FATCA Web site RepealFATCA.com, wrote to Accounting Today. “Treasury’s timetable for getting IGAs signed is far behind schedule. Treasury’s explanation for the delay—‘the groundswell of international interest in FATCA’ —‘is absurd on its face. If there was such a ‘groundswell,’ why would they need another six months to try to push everybody into IGAs? This is just a poor excuse for the fact that there isn’t a groundswell, that on the IGA front they’re behind where they expected to be at the end of 2012. ‘Every additional country we bring on board’—or fail to have brought on board yet—means they have to contemplate trying to enforce FATCA directly, of which Treasury is even more terrified of than the FFIs are. Congressman Bill Posey’s July 1 letter to Secretary Lew knocking the legs out from under promises of ‘reciprocal’ information from the US removed what little credibility this policy had. The Department should heed Mr. Posey’s advice to suspend FATCA’s enforcement and negotiation of further IGAs until this misguided law can be overhauled, or better yet, repealed.
“19. We commend the progress recently achieved in the area of tax transparency and we fully endorse the OECD proposal for a truly global model for multilateral and bilateral automatic exchange of information.
We are committed to automatic exchange of information as the new, global standard and we fully support the OECD work with G20 countries aimed at setting such a new single global standard for automatic exchange of information.
We ask the OECD to prepare a progress report by our next meeting, including a timeline for completing this work in 2014.
We call on all jurisdictions to commit to implement this standard. We are committed to making automatic exchange of information attainable by all countries, including low-income countries, and will seek to provide capacity building support for them.
We call on all countries to join the Multilateral Convention on Mutual Administrative Assistance in Tax Matters without further delay. We look forward to the practical and full implementation of the new standard on a global scale.
All countries must benefit from the new transparent environment and we call on the Global Forum on Exchange of Information for Tax Purposes to work with the OECD task force on tax and development, the World Bank Group and others to help developing countries identify their need for technical assistance and capacity building.
We are looking forward to the Global Forum establishing a mechanism to monitor and review the implementation of the global standard on automatic exchange of information. We urge all jurisdictions to address the Global Forum’s recommendations and especially the fourteen where the legal framework fails to comply with the standard without further delay.
We ask the Global Forum to draw on the work of the FATF in connection with beneficial ownership, and also ask the Global Forum to achieve the allocation of overall ratings regarding the effective implementation of information exchange upon request at its November meeting and report to us at our first meeting in 2014.”
From: Communiqué of Finance Ministers and Central Bank Governors, Moscow
And what is their formal position on the inevitable ‘unintended consequences’ and fallout when the already predatory citizenship-based extraterritorial system of the US hits the residence based systems of every other country in the world (apart from Eritrea?). What scale of collateral damage
have they agreed is acceptable?
US CBT is not compatible with worldwide RBT but the USA still demands an automatic information “exchange”. This means that all countries automatically send all their information to the USA and the USA automatically decides to send nothing back.
@Em, you made me laugh with ; “This means that all countries automatically send all their information to the USA and the USA automatically decides to send nothing back.”
Em, I can we repeat your line? And I think it would make a great heading for the next thread about the impossibility that the US will ever provide even a faux or pseudo-reciprocity.
Sure, as long as you don’t mind that I keep a Best of Badger file. You come up with so much good stuff that I want to keep as much as possible where I can find it easily. (I’m not good at remembering which thread things appear on.)
What could be better than Em and Badger’s postings? Em and Badger collaborating!
according to several sources the details of a FATCA IGA with France is nearly ready
and to be signed this autumn
Thanks Em and bubblebustin, I already think of it as a collaborative effort here where we inspire and support each other.
So, 19 could just be summarized to “We believe in GATCA!”
Surprising no mention of FATCA, isn’t it? Some acknowledgement that it should be the model on which to base the GATCA or some sort of language like that. Hummm Is that so the U.S. Population and Congressman won’t make a connection?
OECD unveils new plan to cut tax evasion
I believe the acronym would be MCMAATM (pronounced mick-mattam) See more at:
Asia slow to sign up to IGAs for Fatca implementation
To read more of this risknet article, copy and paste the title into google news…
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This recent Tax Analyst questions The Power of Delay. Does the Executive have the power to delay FATCA and ObamaCare.
Notice Victoria’s comment.
No matter the merits of FATCA or ACA or any of the issues getting in the way of implementation, he does make a good point….
Just another example of the ‘O’ Administration having to delay implementation of one of their BIG plans…
A Limit on Consumer Costs Is Delayed in Obamacare
A familiar refrain…????
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More from SIFMA:
@bubblebustin, that SIFMA document, and others on their site is greatly at odds with Stack’s claim that FATCA does not make the FFI – ‘withholding agent’ an enforcement arm of the IRS and Treasury. It is all about the difficulty in being forced to interpret and apply the law, decide when withholding is necessary, avoiding their own penalty for getting it wrong, withholding when in doubt, etc.
That’s no myth they’re describing – sounds like ‘enforcement’ and an ‘extension of the IRS’ to me.
If we find Stack’s comments disingenuous, I’m sure that those financial institutions do as well.
So, whose ears was he really hoping to reach?
That’s a great question. Which audience is Stack-o-lies trying to reach? Let’s list the possibilities – lawmakers, so that they won’t repeal FATCA? Foreign financial institutions and their respective countries? Domestic financial institutions? US citizens, because we’ve got it all wrong? All of the above? The Treasury Department itself in an effort to increase morale for those who might be frustrated with executing the impossible?
The SIFMA report highlights the difficulties those at the FFI’s front lines will have in on boarding, falling just short of saying they’re expected to have psychic powers. When is someone in the driver’s seat going to admit that FATCA is just too ambitious?
That SIMFA document is revealing…
Rhetorical question… How can Treasury and Robert Stack ignore these points dated Oct 4th? They are on a forced vacation, so I guess that answers it. FATCA is hardly a simple 1099 process, is it? SIMFA concerns are mythical
1. The “reason to know” standard is excessively broad and should be substantially revised or its implementation delayed. (§1.1471-3(e)(4))
Summary of the issue:
• A FATCA withholding agent is liable for up to the entire amount of FATCA withholding, plus interest and penalties, if the agent fails to withhold the correct amount.
• Treasury has defined “reason to know” very broadly to include constructive knowledge of a wide variety of information that may be stored in paper or electronic files of the withholding agent, including documentation collected for anti-money laundering (AML) due diligence purposes, account opening or other customer account files. Id. -3(e)(4).
• Interpreting and relating such information to claims of FATCA status requires not only ready access to a large volume of information but a comprehensive understanding of the FATCA regulations and all of the relevant intergovernmental agreements and their
• The standard also requires that withholding agents exercise judgment in cases where information in the possession of the withholding agent might conflict with the payee’s claim of FATCA status.
• Under an example provided in the regulations, withholding agents would be required to assess the significance of information contained in financial statements, credit reports, or other documentation that might be considered by a “reasonably prudent person” to be inconsistent with an entity’s claim to be a non-financial foreign entity (NFFE) (such as documentation indicating the entity is an intermediary, rather than a beneficial owner).
• These new rules place an extremely high burden on withholding agents and represent a dramatic departure from the existing reason to know standards under Chapter 3 of the 3 Internal Revenue Code, which in the case of financial institutions are generally limited to address checks.
• Withholding agents can build processes around address checks. The final FATCA regulations go well beyond address checks and require withholding agents to perform
detailed legal analysis of a substantial volume of documentation, which in many instances would be nearly unachievable, especially by account on-boarding personnel
who lack legal and tax training.
• A similar problem arises with an address or payment to an entity that is outside the country in which the entity claims participating foreign financial institution (PFFI) or
registered deemed-compliant foreign financial institution (RDCFFI) status. The final regulations require the payee to be treated as a limited FFI, and no cure is allowed. Id. –
• Consequently, because of this extremely burdensome new requirement, and the lack of time or resources to hire and train personnel, connect information systems, and develop protocols for handling and interpreting of large volumes of information under the still evolving standards of FATCA, and because of the size of penalties for which withholding agents are liable, it is likely that withholding agents will be compelled to withhold in many cases because of their inability to establish a payee’s FATCA status with sufficient certainty.
• Excessive FATCA withholding will generate conflict between withholding agents and payees regarding the validity of FATCA representations.
• Even the prospect of such withholding could discourage foreign investors from buying United States assets.
Another request for FATCA delay, this time from a US government liaison group on behalf of withholding agents:
Thanks for that. I had not seen it yet. I have been busy with linkedin comments and email exchanges.. 🙂
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