http://www.treasury.gov/connect/blog/Pages/Myth-vs-FATCA.aspx
Myth vs. FATCA: The Truth About Treasury’s Effort To Combat Offshore Tax Evasion
The Foreign Account Tax Compliance Act (FATCA) is rapidly becoming the global standard in the effort to curtail offshore tax evasion. This month’s G-20 communique marked another important milestone; highlighting the importance of global tax transparency and a renewed commitment to work towards an international standard for the exchange of tax information.
For years, there has been concern about the so-called “tax gap” – the difference between the tax dollars that are owed under the law, and those that are actually collected. Offshore tax evasion is a significant contributor to the tax gap. FATCA establishes a process for foreign financial institutions (FFIs) to report information about U.S. account holders to the IRS.
Treasury developed intergovernmental agreements (IGAs) to implement FATCA effectively. These IGAs will require all of the relevant FFIs in a jurisdiction to report information about offshore U.S. accounts – a reporting obligation that will help the IRS catch tax evaders. Yet despite the clear, positive benefits of FATCA, many continue to make misleading claims about its implementation and impact. Here are the facts on FATCA:
Myth No. 1: Some claim it’s overly costly and burdensome due to complex regulations and difficult to meet reporting requirements.
FACT: Treasury and the IRS have designed our regulations in a way that minimizes administrative burdens and related costs. Specifically, the regulations were intentionally designed to appropriately balance the scope of entities and accounts subject to FATCA with due diligence requirements, while also phasing in the related obligations over several years. For example, the final regulations exempt all preexisting accounts held by individuals with $50,000 or less from review. For similar accounts with less than $1,000,000, an FFI is only required to search the account information that is electronically available. In many cases, FFIs are permitted to rely on information that they already must collect for local anti-money laundering and know-your-customer rules.
Many of these cost-saving simplifications were the result of comments received from affected financial institutions and foreign governments, which helped us to tailor the rules to achieve the policy objectives of the statute without imposing undue burdens or costs.
Myth No. 2: Some claim that U.S. citizens living overseas will become outcasts in the international financial world.
FACT: FATCA withholding applies to the U.S. investments of FFIs whether or not they have U.S. account holders, so turning away known U.S. account holders will not enable an FFI to avoid FATCA. We expect that many, if not most, of the governments implementing FATCA through IGAs will require their financial institutions to identify and report on all non-resident account holders, not just U.S. account holders.
Those governments agree with FATCA’s policy objectives, and want to facilitate the collection of information about the offshore accounts of their own residents. For example, 19 countries have already announced a pilot project to exchange account information about each other’s residents that will be collected by the governments in line with FATCA’s due diligence and reporting procedures. FATCA is quickly becoming the global standard for automatic information exchange and we expect the number of jurisdictions that choose to implement the same reporting procedures for all offshore accounts to continue to grow.
Myth No. 3: Some claim that Americans living abroad will give up their U.S. citizenship because of liabilities and burdens created by FATCA.
FACT: FATCA provisions impose no new obligations on U.S. citizens living abroad. Instead, FATCA’s withholding obligations fall on institutions making payments to FFIs, and the due diligence and reporting requirements fall on the FFIs themselves.
U.S. taxpayers, including U.S. citizens living abroad, are required to comply with U.S. tax laws. Individuals that have used offshore accounts to evade tax obligations may rightly fear that FATCA will identify their illicit activities. Yet a decision to renounce U.S. citizenship would not relieve these individuals of prior U.S. tax obligations, and might well create additional U.S. tax obligations for certain citizens and long-term residents who give up citizenship or residency.
Myth No. 4: Some claim that countries are opposed to FATCA, in part because the legislation could force foreign banks to violate laws in their own countries.
FACT: Treasury’s decision to implement FATCA through IGAs that are respectful of the individual laws and customs of partner jurisdictions has contributed to the significant international interest in participating in FATCA compliance efforts. The two FATCA model IGAs incorporate a two-pronged approach: under the first model, FFIs report to their respective governments who then relay that information to the IRS; or, under the second model, they report directly to the IRS to the extent the account holder consents or such reporting is otherwise legally permitted, supplemented by government-to-government cooperation to facilitate reporting on non-consenting accounts. These model IGAs offer alternative frameworks for information sharing that abides by local laws.
The success of this approach is evidenced by the international response to this legislation. To date, Treasury has signed 9 IGAs and has reached 15 agreements in substance, including with Malta, Bermuda, and the Cayman Islands. We are also engaged with over 70 additional countries and expect to conclude negotiations with several others soon.
In September 2013, G-20 leaders committed to the automatic exchange of information as the new global standard, and endorsed the development of a single model for this exchange, which is expected to be based on the FATCA IGAs.
Myth No. 5: Some claim that FATCA will generate a backlash from foreign governments who view this as an overreach of U.S. law.
FACT: FATCA has received considerable international support because most foreign governments recognize how effective FATCA, and in particular our intergovernmental approach, will be in detecting and combatting tax evaders. G-8 leaders recently acknowledged the central role of tax information exchange, stating in their June 2013 communiqué: “A critical tool in the fight against tax evasion is the exchange of information between jurisdictions,” and urging that “[t]ax authorities across the world should automatically share information to fight the scourge of tax evasion.”
Myth No. 6: Some claim that FATCA will unfairly expose FFIs to heavy penalties before they have the necessary mechanisms in place to comply.
FACT: We recently announced a six-month extension to our withholding and account due diligence requirements because we recognize that FFIs need sufficient time to register for, understand, and implement their due diligence and reporting processes. Those requirements will now start on July 1, 2014. This extension exemplifies our commitment to ensuring that foreign jurisdictions and FFIs have sufficient time to properly prepare so that the law can be implemented effectively.
Myth No. 7: Some claim that FATCA aims to use foreign banks as an extension of the IRS.
FACT: Individuals making this claim have confused reporting responsibilities with actual enforcement. The objective of FATCA is the reporting of foreign financial accounts held by U.S. persons or certain entities with U.S. owners. This law only requires FFIs to share information about financial accounts held by U.S. taxpayers, similar to what is already required of U.S. financial institutions; it does not include an enforcement component for those FFIs.
@Steve Kraus
That’s a great idea.
@Tim
He’s going to have to try harder than that to find something scarier than keeping US citizenship.
“Individuals that have used offshore accounts to evade tax obligations may rightly fear that FATCA will identify their illicit activities. Yet a decision to renounce U.S. citizenship would not relieve these individuals of prior U.S. tax obligations…”
We know that it’s likely that the vast majority of renunciants are long-term expats and already tax compliant, so to lump us together with those who “evade tax obligations” is solely intended to obfuscate and give the impression that those who are renouncing are attempting to shirk their responsibilities – when in fact probably the opposite is true.
The question begs though, could a great number of people be renouncing with no consideration of the tax part of the equation?
Oh and by the way, the IRS estimate and calculation and research methods re quantifying the ‘tax gap’ that Stack refers to is currently being criticized by TIGTA:
http://www.accountingweb.com/article/tigta-report-irs-tax-gap-estimate-needs-improvement/222414
They also have NEVER done a cost-benefit analysis of FATCA – or quantified with any usefulness the amount of the poorly quantified ‘tax gap’ is actually due to ‘offshore’ ‘foreign’ accounts, or make any meaningful distinctions between the portion attributable to individuals vs. corporations. http://thefranco-americanflophouse.blogspot.ca/2013/07/fatca-project-audit.html http://americansabroad.org/files/1813/6500/6764/fatcasubmission.pdf http://www.gao.gov/products/GAO-12-484
So any statement by Stack to prove the efficacy of FATCA is also disingenuous. And FATCA does nothing to address ‘aggressive’ ‘tax avoidance’ by US corporations parking assets offshore.
And the masterful Hill article by Victoria and Blaze refutes Stack’s claim that FATCA does not impose any additional or significant compliance burden on individuals http://thehill.com/blogs/congress-blog/foreign-policy/313775-fatca-simple-premise-gone-terribly-wrong .
Everyone,
You might want to check this out from the very same Robert Stack in private practice in 2011.
http://www.ipbtax.com/media/publication/171_01_30_12%20OVDI%20Article%20Stack%20Andre.pdf
Badger did it! I got short of breath just reading it.
CanuckDoc, I can’t argue that and I know that he could have been simply referring to the existing paperwork and again, to expats who would continue to have assets there because somethings are simply not portable.
But I think my tendency to see sinister shadows speaks to the damage the USG has done in terms of trust. I simply don’t trust them.
@Tim
Big change after the government chip was inserted. Hard to believe it’s the same person.
With the US Treasury Dept resorting to tripe like this, the falsehoods and absurdities of which make you involuntarily roll your eyes, it smacks of desperation. Like FATCA is not unfolding as the egocentric and exceptional bully assumed it would, so they’re using absurd spin.
It’s really sad propaganda of the sort the Chinese news outlet “Xinhua News” often resorts to. I was willing to give benefit of the doubt to a degree but, it is clear now that he knows a lot has been left out of his “fact sheet” *propaganda* Some of it is outright untruths but, what is left out allows a carefully crafted message to appear that has nothing to do with the realities of FATCA.
Dear US Treasury,
Thank you for attempting to justify your actions. You wrote:
On 09.09.2013, the Swiss media wrote: “US citizens cannot find a bank account in Switzerland anymore”
The fact of the matter is that I renounced US citizenship in response to national origin discrimination (a US federal crime) resulting from US policy outside of US jurisdiction. If this national origin discrimination had not occurred, then I probably wouldn’t have renounced US citizenship yet. If you or any American politician had contacted me and explained to me that you will provide me with banking services in the case that I am denied such because of US citizenship, then I would also not have renounced US citizenship. Yet, neither you nor any American politician cared about my situation. Thus, I renounced US citizenship to protect myself from the negative consequences of your actions.
You wrong that Americans living abroad only renounce US citizenship to be “relieved of prior U.S. tax”. This is a myth and it is an inaccurate one. However, such makes it clear that you are willing to cause harm to the innocent and justify such, proving that my renunciation of US citizenship was fully justified.
So, dear IRS, thanking you for providing evidence proving that the renunciation of US citizenship is justified, regardless of taxes.
PS. Currently, one of your beloved FATCA advocates is stalking me, posting personal information with the hope that I’ll be fired from my job or that my family will be murdered due to the false accusation that I’m a “terrorist” or a “tax cheat”. As such, I’ve filed a complaint with the FBI. If this persists, then I’ll also file a complaint with the local police, initiating a criminal investigation on FATCA.
So, dear US Treasury, is it really necessary that your advocates stalk me simply because I express opinions and experiences, and given that such stalking is the direct result of your actions, are you really so sure that your actions are justified? I realize that you have the power to destroy the working poor and to squash the innocent. Is that what FATCA is all about?
@bubblebustin,
re; Stack “He’s going to have to try harder than that to find something scarier than keeping US citizenship.”
Very well said. I like the image alot.
It’s too bad we don’t have anyone that we know with graphic arts/editorial cartooning skills. I picture graphic representations of what you said. Or, an expat family (wearing Canadian maple leaf t-shirts and standing on a map of Canada, cowering in fear under the upraised and cloaked arms of a vampiric figure with an Uncle Sam hat that says FATCA. The figure is wearing the usual Uncle Sam striped outfit, but with is brandishing a dark scalloped Dracula cloak, and has prominent fangs menacing the little family. Or perhaps a scale with the US passport on the side of the balance that is as far up in the air as possible. On the other side of the balance is FATCA, dragging the scale down as far as it can go and resting on the ground.
Having a US citizenship relationship with FATCA is scarier and more menacing than giving up the US passport if you weigh it out.
Or referring to YogaGirl’s words about lost trust. The Canadian family being menaced by the US Uncle Sam vampire can see that the word bubble coming from the US FATCA vampiric figure says; ‘trust me’.
Or a tanker truck with the US flag and the words FATCA on the side – parked next to/under a sign that says ‘Welcome to Canada’, – and a hose is hooked up going in to the tank filling it up, but liquid is pouring forth from another hose, siphoning out, nozzle pointed into a bottomless pit in the shape of the US – labelled US National Debt?
Or an ordinary figure with a maple leaf shirt sitting strapped to a chair and hands shackled – while a hooded figure labelled looms over them with pliers labelled FATCA?
Great imagery Badger.
I picture a globe with the head/body of a giant vampire IRS squid situated in the USA. The squids tentacles reach out all over the globe. They are slamming boxes full of forms on prostrated victims, grabbing peoples’ savings, threatening others to fork up tax penalties and snatching babes with “Property of the USA” stamped on their foreheads away from their terrified parents. There would be US flags with OBEY emblazoned on them planted all over that globe.
I actually wrote that ages ago but now I would add Mr. Stack applauding that vampire squid.
@Tim, thanks for the article by Stack. There may be more?
Here is another link I found with a bit of general info; http://www.ipbtax.com/firm-news-123.html
@Em, I like the vampiric squid menacing the globe. Perhaps we’ll find an inspired Brocker with the skills to render that in graphic form.
He hired the MOVEon speechwriter used to feed Robert Reich. The Bobs Show.
That bad man Stack O Lies
He thinks you’re stealing his hat, so he’ll take your life
“Myth No. 3: Some claim that Americans living abroad will give up their U.S. citizenship because of liabilities and burdens created by FATCA.” — Let the numbers of CLNs being issued speak for themselves on this. People are voting with their feet, but the State Department is hiding the figures and delaying the exit process.
Meanwhile, as this article Der Spiegel, reprinted in today’s Toronto Star, describes, the super rich are moving their money from banks inTO warehouses for fine art where FATCA can’t find it:
http://www.spiegel.de/international/business/art-as-alternative-investment-creates-storage-business-tax-haven-a-912798.html
At least it can now be said that the anti-FATCA message is being noticed at the highest levels. Will it change the U. S. determination to push FATCA through? I don’t think so.
The best that can be done is to put pressure on one’s country of residence to resist FATCA. It may be too late for a few countries, but as most countries have not signed an IGA, there’s still a great opportunity to fight FATCA.
For some reason I’m thinking of “Crouching Tiger, Hidden Dragon and the fight scenes that jump from house to house. On some houses (countries) the enemy strikes a blow, but in the end the forces of good win.
Bob’s been setting a true course every since he’s come on board!!
@Mark Twain, Stackolee, lol!
@yoga girl, all
“U.S. taxpayers, including U.S. citizens living abroad, are required to comply with U.S. tax laws. Individuals that have used offshore accounts to evade tax obligations may rightly fear that FATCA will identify their illicit activities. Yet a decision to renounce U.S. citizenship would not relieve these individuals of prior U.S. tax obligations, and might well create additional U.S. tax obligations for certain citizens and long-term residents who give up citizenship or residency.”
It’s a riddle that I think means that if you’re renouncing without reconciling your “prior US tax obligations” you’ll end up being a covered expatriate, creating additional U.S. tax obligations that you could have avoided if you’d had your tax affairs in order. Are there indications that a great number of people are doing this? Do people want freedom so badly that the tax consequences don’t matter, or are they just unaware of them? Can we assume that the rest of the world is as informed as we are, or do they not give a sh*t and just want out? Imagine the US’s tax collection arm having to deal with this internationally. Holy klausterfokken!
@Badger, Em
Interesting images. I’m beginning to view USP’s abroad more and more like refugees.
RE:” Myth No. 7: Some claim that FATCA aims to use foreign banks as an extension of the IRS”
I am pretty sure I remember articles saying that the banks and financial institutions and lawyers, and perhaps government officials abroad themselves were saying that. They would be concerned about the APPEARANCE and PERCEPTION of that even if not so much the real sovereignty issue. And with very good reason. I and others are not going to park assets or do business with a FATCA collaborator – even if no longer a US ‘taxable person’. I and others are not going to vote for the political party who signs on to an IGA. There will be a backlash for sure. We might be able to find some good quotes from all those archived FATCA commentaries and letters in the submissions made to the US, and relevant references (ex. http://bsmlegal.com/fatca-comments.asp ) . This would refute that it is only “some individuals” (which means those pesky USdeemed tax cheat drug lord terror funding money laundering expats). And really, if a bank acts as the face of the US – IRS by demanding that you identify your place of birth and certify your national origin, isn’t that acting as an AGENT, proxy, or extension of the IRS? If not, then why doesn’t the IRS do that directly? Because they can’t do some of these things extraterritorially except via the agency of other governments via an IGA, or by using the banks as proxies to collect and remit the information and the withholdings.
Perhaps that means that they’ve chosen to ‘address’ the ‘myths’ that they are most worried about, or that have gained the most credibility and traction. Or one that the governments they are trying to get IGAs with are most concerned about. After all, if I was a federal politician right now, I’d be worried if it looked as if I was acting as an agent of the US in oppressing my own citizens – who I had very good authority to know were already paying me a full set of taxes up front. And as for the claim that FATCA is designed to prevent all sorts of other heinous crimes, the implication is that my own home country is incompetent and letting over 1 million potential criminals go undetected and needs to enlist the help of the US to do so – on Canadian soil. Really, if Canada and other countries want to stop terror funding, money laundering, etc. by their own residents, they have lots of tools to do so and enact their own internal domestic laws. Sifting out only the dual US citizens and others deemed ‘US taxable persons’ to identify and report on is ludicrous if the aim is truly broadened into preventing terror-funding-moneylaundering-druglords – as Richard Harvey FATCA father urged them to do in order to make FATCA more palatable.
And of course left out one of the most irrefutable objections – as the EU and Canada may have to address that the FATCA (and FBAR) reporting is done on people’s data that are NOT US ‘taxable persons’, they are just joint account holders and business partners. In some cases in the EU, it is only that they are married to a ‘US taxable person’ though the accounts are in a NON-US persons name. The US has been able to ignore that issue re the FBAR – because they can pick off individuals who object and hold them hostage (so their non-US spouses give in), but FATCA is a different story – it involves our home country governments in codifying and collaborating in the direct theft of the asset and account data that is jointly owned. Thus it makes banks and home governments into accomplices. They can’t very well come out and say: Warning! – if you own a joint account with a deemed ‘US taxable person’ that it is at your own risk of FATCA being misapplied to you as a non-US citizens and data collected where the co-owner of the data has NO obligation to report anything to the US. I mean right now, I think a very sensitive area is the US asserting that with FBARS they have the right to force us to report on our Canadian employer’s accounts and those of other non-US account owners. NO such right to that data exists outside the US, only the threats that force us to comply.
In refuting this particular ‘myth’, we can shine light on the already in force FBAR requirement that any deemed US person in Canada and around the globe is expected to bare all the account and personal data of our non-US employer – which would include Canadian government jobs at all levels. I have given the example of sensitive types of roles in workplaces outside the US where a US person might have to have signatory or co-signatory powers over other people’s accounts – as trustees, or treasurers, etc. and routinely have access to the asset and account information of people they owe a fiduciary duty to. If we point out that the US already expects and tries to force us to extraterritorially report on other non-US people – even where we could not possibly have any benefit or ownership – it shows that the US acknowledges NO limits – it already shows via the BSA FBAR how far it is willing to go – and FATCA goes farther.
Certainly other countries have to factor in the sensitive area of their appearance of being agents and proxies of the US and agents of the IRS against their own citizens.
@Em, Atticus and others who mentioned the JOINT account/asset issue, which I think I remember coming up in Sophie in’t Veld’s EU FATCA questions too – where Robert Stack was present. See here http://www.aaro.org/banking/402 ,,,”Sophie in ‘t Veld was the heroine of the day. She spoke forcefully and eloquently for honest EU citizens who would be caught up in this wide net thrown to capture rich tax evaders. She asked about the dual nationals and EU partners of U.S. persons. She complained angrily about the lack of transparency and wondered if the IGAs were even legal under EU law. She was most adamant about protecting personal data and the rights of EU citizens….”
I read this post just before going to bed last night – not a good idea!
This piece of BS writing definitely requires a rebuttal, with their ‘facts’ revealed to be myths, which shouldn’t be too difficult since they have the ‘facts’ wrong.
It was great to wake up and see that so many mosquitoes already on the job!
I am starting to think that mosquito swarm is not that great an analogy for what is going on here. This seems more like a spontaneous yet coordinated, co-operative effort driven by an invisible, yet over riding intelligence; perhaps ant colony would be a better descriptive.
This reality is confirmed in an article that Tony Gioventu, the executive director of the Condominium Home Owners Association of B.C. wrote after I had been in contact with him:
“U.S. citizens who live in Canada also have personal obligations of reporting to the Internal Revenue Service in the U.S., even though they are residents of Canada. It is important to understand that the sale of a principal residence in Canada is not tax exempt for U.S. citizens.
There’s more. If you have a U.S. citizen on your strata council who is also an authorized signing officer on your trust funds, that person is also required to report on their U.S. tax return whether they have any foreign bank or investment accounts.
The U.S. Bank Secrecy Act requires them to file a Report of Foreign Bank and Financial Accounts if they have a financial interest in, signature authority or other authority over one or more accounts in a foreign country, and the aggregate value of all foreign financial accounts exceeds $10,000 at any time during the calendar year.
While these are the personal issues of the U.S. citizen, the strata corporation may discover the release of the financial information of the strata corporation to a foreign government is in conflict with our privacy legislation.
Canadian strata corporations do not report to the IRS, so before any information of the strata corporation is released or published as part of the U.S. return, the strata corporation should seek advice on the risk of the release of personal information to a foreign government.
For more information, U.S. citizens may wish to go to americansabroad.org.”
http://www.timescolonist.com/condo-smarts-tale-of-two-tax-men-and-strata-corporations-1.178211
I know what you mean WhiteKat, my blood pressure did a spike too but because of the time difference I had at least a few hours to calm down before having to retire for the night. I really can’t stand the dismissive tone, blame the victim, and those who stand in FATCA’s way be damned attitude.
The mosquito analogy came from the belief that one person can make a difference, but I supposed that the same could be said about sleeping with an ant :-).