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.
RE: the FXI Tax Posts — My goodness. Just Me just wrote the book of FATCA truth and threw it at the Stack-0-Lies.
Brockers can and have countered every Myth/Fact Stack put out but the easiest thing to do is to take his nonsense and substitute Fact for Myth and Myth for Fact, then delete “Some claim that”. That pretty much sets the record straight.
Clever, Em and so much more accurate. Just Me too drew parallels to the Orwellian world FATCA has become.
@Em…
Oh, someone noticed. I was betting that Jim Calvin would NOT let it out of moderation. I was wrong. A surprise if not a miracle, as I did take some pointed comments about the FATCA Compliance Complex, of which he is a member in good standing. At least he was willing to let it see the light of day, so I have to acknowledge it. 🙂
Perhaps even the FCC suspects that there’s something rotten in the state of Denmark, and rather than be blindsided is willing to listen to the canaries.
I had gone back and checked to see if the treasury twits were still there. It took awhile to refind them, but It seems that they did not untwit themselves.
@Calgary 411
And the original article is still there at
http://www.treasury.gov/connect/blog/Pages/Myth-vs-FATCA.aspx
It didn’t work when I clicked on yours, but it comes up for me with the above
Mark,
It was not the current “Myths” but the 2011 article, Expedited Opt-Out Needed for OVDI Participants Who Owe No Tax, By Robert B. Stack and Douglas M. Andre, that did not work last night. Both links work now. So I still say to Mr. Stack:
The comments are a lot better than Mr. Stack’s attempts at inventing the “Truth”.
coincidence? 2 Days after tweeting AT USTreasury from nom-de-plume accounts, the Hotmail account is closed until I provide a mobile number.
(I triggered the megadata-to-microdata conversion process.
Looking at the comments, one can see that a relative of mine who lives in the United States was verbally harrassed simply because I express opinions about FATCA. So, FATCA is now beginning to threaten our families who still live in the US in response to opinions expressed about FATCA.
I have updated the FBI Internet Crime Complaint with this latest event.
To bring all this to a head …. I guess that what should happen is that FATCA be put on hold until DATCA is IMPLEMENTED in the USA reporting all financial accounts of persons doing business of any sort or retirement cottages or whatever in the USA who have indicia of ties to other countries, non US Birth Places or citizenships or work permits or visas to live in other countries … these people must all be approached to sign off on the reporting of their accounts and financial affairs to the countries (plural) to which they have information that connects them. Let us see how long the US residents and outsiders who invest in the USA tolerate that sort of behavior. Would the US media carry the story of the revolution?
This is a duplicate posting from the more recent BBC thread, but appropriately belongs here too…
If anyone is looking for some ideas for a good analytical point by point ‘myth buster’ response, this NON IBS poster at FSI had a good one to build on or adapt…
PJM says…I looked at Mr. Stack’s comments, on behalf of Treasury regarding the alleged 7 “Myths” and noted my evaluation of his remarks for each of the 7 as follows:
Read them all here….
http://www.fsitaxposts.com/2013/09/25/myth-vs-fatca-truth-treasurys-effort-combat-offshore-tax-evasion/#comment-275
1.) FATCA was signed into law in March of 2010. The text of the law is 20 pages long. It took Treasury nearly 3 more years to issue the so called “Final Regulations” which are 543 pages long. It then took Treasury an additional 9 months to issue 36 pages of amendments to correct and clarify the so called “Final Regulations”. Somehow Treasury now interprets a few concessions in the initial search criteria to be substantial relief in compliance burdens/costs. The fact of the matter is without these changes, implementation would be incomprehensible in any time frame.
Additionally, throughout the legislative process and the subsequent 3 and a half years, neither Treasury nor any other part of the government nor anyone else has completed and published any kind of credible or otherwise cost/benefit analysis with respect to FATCA. It is therefore impossible for Treasury to make any sensible or realistic claim to achieving “…the policy objectives without imposing undue burdens or costs.”
Without the benefit of any analysis, Treasury is in no reasonable position to suggest there is some kind of “Myth” regarding cost and complexity.
2.) It is well known that US citizens, resident in a number of countries are being denied banking and investment services. While turning US account holders away might not completely enable an FFI to avoid FATCA, it will substantially reduce the compliance burdens and costs. This issue has been well documented in various articles in the media and by organizations such as American Citizens Abroad. It is therefore quite disingenuous to suggest this real problem is some “Myth”.
To assert that “FATCA is quickly becoming the global standard for automatic information exchange… ” is simply FALSE. FATCA is based on Citizenship Based Taxation (CBT), involving gathering information on US citizens and other so called ‘US Persons’ not Residency Based Taxation (RBT). There is a very considerable difference between CBT and RBT and 19 countries are NOT involved in any project to exchange information on a CBT basis. Indeed, the US and Eritrea are the only countries on earth that practice CBT. Treasury’s comments here suggest that all this new founded intergovernmental cooperation is about exchanging information on each other countries residents. If FATCA was in fact a measure to detect foreign accounts of US residents, not ‘US Persons’ resident anywhere, then most of the objections around the world would melt away.
Treasury’s comments here are again disingenuous and crafted in a way to deceive.
3.) Treasury’s assertion is absolutely FALSE. US Citizens abroad must file Form 8938 as a result of FATCA. This filing essentially requires US Citizens abroad to register their assets with the IRS unless assets are held in the US. In most cases their assets are held in the country of residence. Not only is this a new requirement imposed on US Citizens abroad, as a result of FATCA, but it is also an intrusion that Treasury and Congress should know that homeland citizens and residents would not tolerate being imposed on them for their assets in the country of residence (i.e., the U.S.).
In addition, it is well know and has been the subject of recent media coverage that there is a substantial increase in expatriations since FATCA came into existence. In 2013, the trend is accelerating.
4.) It takes an enormous stretch of the imagination to believe Treasury’s IGA approach is motivated by respect for other countries laws and customs. The truth of the matter is that Treasury and the IRS simply do not have the wherewithal, organization, capacity or budgetary resources to establish and maintain individual contractual relationships with hundreds of thousands of FFIs and to monitor and enforce compliance within those FFIs. It is also highly unlikely Congress would appropriate substantial news funds to attempt doing so. Treasury also knows that to force so many FFIs to comply without the support of their home governments would indeed force them to violate privacy and discrimination laws and/or constitutional provisions. While FATCA has yet to be proven to be implementable, it is clear that there would likely be no chance of implementation without getting agreement from and assistance from other governments. In additions the IGA approach is also a way to offload e
nforcement and administrative costs to the various foreign jurisdictions.
International interest in participating in FATCA is primarily motivated by the threat of 30% withholdings of USD payments, not IGAs.
In their comments here, Treasury fails to mention that their IGAs are subject to legal challenges in the US by the Texas and Florida Bankers Associations. In addition some members of Congress are openly questioning Treasury’s authority to enter into these IGAs. It should be further noted there is no mention of any such concept (IGAs) in the legislation itself.
Finally, getting 9 signed IGAs (many not yet supported by enabling legislation), at this stage, only 9 months from the latest extended implementation date is hardly a measure of success. It seems highly unlikely that the other more than 150 jurisdictions around the world will ‘sign on’, let alone pass enabling legislation or settle inevitable court challenges in the next 9 months.
5.) Canadian Finance Minister Jim Flaherty, in a letter to several publications did in fact outline the Canadian Government’s objections to FATCA and labelled its enforcement as a “…waste of resources on all sides.” He also indicated that “FATCA has far-reaching extraterritorial implications. It would turn Canadian banks into extensions of the IRS and would raise significant privacy concerns for Canadians.”
While there is support amongst many governments for information exchanges for taxation purposes, it is doubtful that Treasury can show examples of specific support for FATCA’s CBT enforcement approach by foreign governments. Rather, some governments have agreed to IGAs through and because of the coercion of 30% withholdings. Again, Treasury’s statements here are false and misleading.
6.) On September 10, 2013, subsequent to making that extension, Treasury issued another 36 pages of amendments to the ‘Final’ regulations (543 pages long) which were issued on January 17, 2013. Many FFIs which have multiple systems in multiple jurisdictions, with multiple regulators, servicing multiple types of financial products in multiple different currencies are fully justified in their complaints of unfairness.
The issue is even further exacerbated by a lack of clarity as to if and when IGAs might be applicable in which jurisdictions.
Treasury’s response here is completely misleading and disingenuous and has nothing to do with any alleged “Myth”.
7.) Treasury’s assertion is FALSE. Their own regulations clearly require FFIs to go beyond reporting, but also become withholding agents in certain cases (e.g. recalcitrant account holders, non-participating FFIs, etc.). Also, the process of screening customers to determine if they are deemed to be US taxpayers or US persons in foreign countries is indeed forcing the FFIs to be extensions of the IRS. That claim, made by Canada’s Finance Minister and many others is not by any means a “Myth” and is confirmed by the FATCA regulations.
Anon’s posts appear to have been removed from http://www.fsitaxposts.com/2013/09/25/myth-vs-fatca-truth-treasurys-effort-combat-offshore-tax-evasion/
If FATCA isn’t the last straw, why the increase in people willing to pay big bucks for renunciation/relinquishment help? Why the sudden interest and growth of the renouncement support industry? They don’t provide these seminars as a public service. It is marketing.
http://www.moodystax.com/considering-renouncing-your-us-citizenship-now-may-be-the-time-to-get-out-2/
Oh, the ‘renunciation raptors’! Getting out may just become more profitable than going in for these specialized birds of prey.
Thank goodness there are so many articles and interviews out there now connecting US renunciations with FATCA to drown out Stack’s propaganda piece. The more our story gets told, the more he’s just going to look like a yes man for a hegemonic government.
what did Anon say that was so controversial?
@mark twain
Maybe it’s something they didn’t let out of moderation.
@Mark Twain, I had contacted the Asia-Pacific regional leader for FATCA and requested for the name of my relative living in the US to be removed, since he/she has nothing to do with the discussion and thus shouldn’t be mentioned.
FATCA isn’t causing the renunciations, DRAPETOMANIA is!
“Drapetomania was a supposed mental illness described by American physician Samuel A. Cartwright in 1851 that caused black slaves to flee captivity.”
Although many of us may not be descendants of the American slave, there is belief that the disease has its origins in Europe and was introduced to Africa by traders.
In the American “person”, early symptoms of Drapetomania are evidenced by delusions of being free to wander the world without restraint. Care should be made in treating the US person in this stage of the disease by striking a balance between kindness and punishment, both key to the US government’s success in being able to control the US person.
http://en.wikipedia.org/wiki/Drapetomania
I’m curious in learning how “whipping the devil out of them” evolved into OVDI. “D” certainly stands for “Devil” and “O” for “Out”.
Lynne Blaze and Victoria got published again, and this time in a Progressive outlet. Will the Left pay attention to his and recognize the impacts of their good intentions? Nah, I don’t think so either, but it might prick a few stereotypes. This should and probably will get its own post, but I am between computers and on the move, so thought I would just quickly put it up here…
We are not Myths…
http://www.opednews.com/articles/3/FATCA-We-Are-Not-Myths-by-Lynne-Swanson-and-Congress_Privacy_Privacy_Privacy-131006-69.html
and a post at Maple Sandbox: http://maplesandbox.ca/2013/fatca-we-are-not-myths/
Note: On bottom of page, go to Page 2, then on to Page 3.
Another great effort by Lynne and Victoria! Thanks.