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.
Good stuff – toi, toi, toi, as we say here! 😉
@Swisspinoy
There’s certainly similarities between the whipping of slaves and OVDI as the only option for many who’ve found themselves having run afoul of the IRS. There are many metaphors, none favourable (can you think of any?). I call it cleansing by fire.
Clearly, the US government has a slave-owner mentality: the beatings will continue until morale improves!
@bubblebustin, one is favourable (at least for now), and that is that one can buy their freedom for $450!
Wouldn’t surprise me if our diaspora’s duo of disaster Schumer-Levin tried putting even more roadblocks in the way of what they consider to be too easy a route to freedom.
The next step on the path to emancipation will no doubt be an underground railroad for those who can’t buy their way our of US personhood. What would that underground railroad look like?
At the going rate of things, both Schumer and Levin will be promoted to president and at the same time.
Here is a snip of a comment made to jack’s blog:
@Swisspinoy
Bono was on Fareed Zacharia’s show today and said that many people in the world love the “idea of America”. Maybe the idea of America flies on the wings of those who leave, regardless of their worth.
Apparently the US Consulate in Vancouver doesn’t believe in Stacks’s “Myth No. 3: Some claim that Americans living abroad will give up their U.S. citizenship because of liabilities and burdens created by FATCA.”. See:
http://isaacbrocksociety.ca/2013/10/09/expatriation-appointments-at-vancouver/comment-page-1/#comment-571538
Why else would they now be providing faster processing for people to give up US citizenship and also providing details about how to do so?
Or I should have said: The Vancouver Consulate apparently doesn’t believe it is a myth.
More excellent Myth busting by Victoria and Lynne on International Tax News out of the UK..
FATCA Reality Check
This should probably have a link of its own on ISB…
Well done ladies, yet again….
Then add to that this from The Economist….
Loopy tax rules spur expats to renounce their American citizenship
Between the two there is a lot to throw back at Treasury!
@ Just Me
Victoria and Lynne’s latest is on this thread …
http://isaacbrocksociety.ca/2013/10/10/fatca-reality-check-the-voices-of-lynne-swanson-and-victoria-ferauge-as-published-in-tax-news-global-tax/
Maybe someone could ping this thread to that thread? “FATCA Reality Check” is another great antidote to the “Myth vs. FATCA” absurdity.
@Em…
Thanks. Just getting back to the computer tonight, and saw that it was posted which is great.
@bubblebustin: The next step on the path to emancipation will no doubt be an underground railroad for those who can’t buy their way our of US personhood. What would that underground railroad look like?
One speculative thought: desperate people might start trying to get themselves declared dead in absentia by U.S. probate courts. By way of example, here’s an amusing recent case: “You’re still legally dead, judge tells Fostoria man“. He only tried to fight the death ruling because it had invalidated his Social Security Number and so he couldn’t work or get a driving licence… but if you’re not using your SSN anymore, well, there you go 🙂
@Eric
What a bizarre story and food for thought. I’m sure there’re many an American who’ve left the country and been declared dead without actually being so, but unless they’re living off the financial grid FATCA will exhume them. Imagine your bank’s reaction if you presented them with a death certificate to exempt you from FATCA reporting!
A project that loses its leadership without adequate planning is often slowed and even crippled until new management is brought in. I have been thinking about this regarding the FATCA rollout and its top manager, Robert B. Stack, Deputy Assistant Treasury Secretary for International Tax Affairs. Due to his age, 58, his relatively meager Treasury salary and the certain frustration in rolling out FATCA and agreeing FATCA IGAs, it can be expected that he will be a short-timer and could be expected to return to private practice sooner rather than later. Also, due to the slow agreement of IGAs and the current US Federal government shutdown, it can be expected that the FATCA implementation date of 1 July 2014 will be pushed out.
Stack joined Treasury in March 2013 from the Washington DC law firm, Ivins, Phillips & Barker, a smallish law firm located near the White House that focuses exclusively on tax matters, where he had been a partner and for which he had worked since 2007. Prior to his joining this law firm, he was at the blue-blooded WilmerHale law firm for 16 years, where he likely achieved partner status (unconfirmed).
Consider these salary statistics:
Average partner income at WilmerHale: $1.2 million
Washington DC average compensation for law firm partner: $798,000
Average US compensation for law firm partner with 51-200 attorneys: $425,000 (but DC law firm partners are generally the third highest paid in US after Silicon Valley and NYC attorneys)
US Federal government «Executive Schedule» (ES), Level IV: $155,500 to Level II: $178,700 (the grade level for Deputy Asst Treasury Secretary has not been determined but it is likely a Level IV or III, but possibly a Level II).
Two relevant quotes:
1) «Lawyers who leave big firms for government take big pay cuts – but almost always make up the difference when they return to public practice.»
2) «DC lawyers are about power and prestige; NYC lawyers are about money.»
The previous Deputy Assistant Treasury Secretary, Manal Corwin, held this position for four years, returning to KPMG at the calculated age of 49.
Prediction: Stack, who at age 58 does not have a lot of runway left for his career, will return to private practice within a year or so. A large law firm, but possibly his last law firm, will pick him up as a partner with a big salary where he can work as a FATCA specialist and, most importantly, as a rainmaker for his new firm.
Why is this important to IBS: Anything we can do to help move him along before he has built sufficient continuity into his team should help to further delay the FATCA rollout. Projects that lose leadership without adequate planning lose momentum, slowing or crippling a project.
@Innocente
I went searching for anything that would indicate what morale is like over at the Treasury and found this at JDSupra Law News. What are big US law firms saying about FATCA?
Denis Kleinfeld: FATCA – Predictions of Implementation Failure Proving True
Denis Kleinfeld, Of Counsel to Fuerst Ittleman David & Joseph, is one of the nation”s most prolific writers in the field of International Tax Planning, and in recent years has focused his attention on the Foreign Account Tax Compliance Act (“FATCA”), and the United States government”s widely publicized struggles to implement it. The following are excerpts from his article, “FATCA – Predictions of Implementation Failure Proving True,” published in IFC Review earlier this year:
The threat of FATCA enforcement has impacted every jurisdiction in the world and the global financial industry is quaking with fear. The US Justice Department has taken the position that the entire non-US financial industry is potentially part of a continuing criminal conspiracy with some US individuals and multi-national companies to evade US income tax. The Justice Department has unilaterally forged ahead to obtain indictments and convictions over prominent foreign banks, bankers, and some of their US customers. The United States justification for claiming the moral high ground is that it is merely seeking to have all US taxpayers pay tax as required under US law.
FATCA is not happening in a political vacuum. There is a history of difficulties in Congress with enforcing its income tax system on the taxpayers as well as problems with the Internal Revenue Service (IRS) administering the burdens placed on it…
Then FATCA took on a life of its own, spinning out of control. The Law of Unintended Consequences proves true once again. A whole new tax lexicon was created with terms that are nearly incomprehensible even to US tax professionals much less to non-US tax advisors and those who do not speak the American form of the English language. Hundreds of pages of regulations were issued in short order and thousands more are expected to follow. The entire concept of international automatic financial information reporting is dependent on developing software and technology that does not yet exist.
Understandably, foreign financial institutions (FFIs) and governments are all finding implementation of FATCA seemingly impossible for a growing list of reasons. Prominent among these reasons are: the direct cost of compliance, lack of effective cybersecurity, increased exposure to new and yet undefined institutional, director and officer liability and unavailability of insurance, customer resistance, inability of foreign countries to receive reciprocity in agreeing to an intergovernmental agreement (IGA) with the US, inability to cope with the US tax complexity, and an accelerating lack of trust in the United States. On the other hand, tax professionals, consultants, IT, forensic, marketing, and all the other service providers to the financial industry see FATCA as being a gold mine for fees.
There are no reliable estimates of the direct costs to the private financial sector or to governments who implement the FATCA regime. Even without considering its complexity, the reality is that the cost of establishing FATCA will remain unquantifiable for both government and private industry if for no other reasons than FATCA may very well be substantially amended, repealed or replaced. Legislation has already been entered into Congress to repeal it. The Treasury Department has declared a second delay of FATCA. This time it”s for six months, purportedly to allow for the Treasury to complete IGAs with countries across the globe before the withholding of tax begins. As of now, there is no final and definitive FATCA structure upon which to make cost computations. When FATCA was passed in Congress, the House Ways and Means Committee (which controls tax policy) did not do any cost/benefit analysis.
The idea that a government run computer system containing private financial information can be secured from information theft is ludicrous on its face. Among high value financial targets which have been hacked is the Federal Reserve. Details as to banker”s login information, credentials, internet protocol addresses, and contact information on more than 4,000 banks were stolen. The Federal Government”s General Accountability Office reported as follows:
Cyber threats and incidents are increasingly prevalent. Threats to systems supporting critical infrastructure and government information systems are evolving and growing. These threats come from a variety of sources and vary in terms of the types and capabilities of the actors, their willingness to act, and their motives. For example, advanced persistent threats—where adversaries possess sophisticated levels of expertise and significant resources to pursue their objectives—pose increasing risks…
The many continuing cybersecurity challenges faced by the government highlight the need for a more clearly defined oversight process to ensure agencies are held accountable for implementing effective information security programs. Further, until an overarching national cybersecurity strategy is developed that addresses all key elements of desirable characteristics, overall progress in achieving the government’s objectives is likely to remain limited.
This information comes from GAO’s 2013 High Risk Report. This report is updated every two years, at the start of each new Congress.
No doubt cybersecurity should be an important factor in any governmental or private financial institution”s relevant cost/benefit and risk analysis before participating in FATCA.
Breaches of cybersecurity are going to bring fresh rounds of litigation against financial institutions. Possible actions include class actions, derivative lawsuits, and new waves of government actions such as securities enforcement to name but a few. FATCA compliance does not bring with it any waiver of liability or immunity from lawsuits or government actions. Clearly, if something is worth being taxed then it is worth stealing. Organising detailed private financial information for FATCA automatic information reporting is, to use an analogy, like teeing up a golf ball for a thief to take a swing at. While director and officer liability has not been given any consideration by government or financial industry advisors, it is hard to get around the fact that not only may there be institutional liability but also personal liability on the part of the institution”s officers and directors. The risk exposures to possible liability due to FATCA should be reviewed closely to determine if insurance coverage is available and at what premium cost.
Competition in the financial services industry is fierce. And that is putting it mildly. Customers want to have peace of mind when dealing with their financial affairs and a trusting relationship with their financial professionals. FATCA is directed towards the collection of US tax from people otherwise avoiding or evading paying. The tax compliance regime being imposed on the world by the United States is not designed to create good will with private institutional customers. What the customer thinks or feels is irrelevant. Each foreign financial institution will need to determine for itself whether its customers or clients will pay the additional fees and costs and agree with the potential disclosure to the government of deeply private information and secrets or they do not. It may reasonably be suspected that some FFIs and governments may determine that it pays for them not be involved in the FATCA system and thereby become attractive to customers who want to be free of any connection to the US tax system.
One form of the model IGA is designed as a one way information street. The other form of model IGA is supposed to work as a two way street. There is a problem with the second model IGA. The Treasury has no legal authority to make US institutions comply with FATCA for the benefit of foreign governments. Whatever reciprocity was promised in negotiations for the IGA, the Treasury is not able to deliver on it until the Congress passes legislation granting the legal authority. The Administration has proposed this change in its 2014 Budget proposal since the Treasury recognises the problem. For FFIs whose government has not yet signed an IGA or passed enabling legislation this becomes a serious dilemma…
There has long been a battle over the income taxation of domestic and foreign related transactions. FATCA appears to be only the latest. Prominent commentators have stated that the United States is in an income tax crisis which has now reached new depths. They have pointed out that the federal tax base is under “widespread assault.” For nearly the 100 years of the existence of the income tax in the United States Congress has been unsuccessful in reforming it. The spectacle of politicians pledging to overhaul the tax system is the recurring theme of every election. It is not tax evasion that has created the need for offshore tax havens. Tax havens exist because of the income tax system. Whether the totality of events of which FATCA has become a prominent feature will finally result in adoption of a more efficient and effective tax system world-wide remains to be seen. What can be said for now is that predictions that FATCA could not be implemented are proving true.
http://www.jdsupra.com/legalnews/denis-kleinfeld-fatca-predictions-of-92499/
Innocente – In terms of reconnaissance, I don’t think I’ve ever seen a Brock posting that rivals yours on Stack. Hereby is conferred on you the rare fifth star that designates a Guerrilla Great.
Innocente;
Inspired inquiry!
I had wondered over the last 2 years how it was that so many of those quoted were ex-IRS counsel who now worked for private industry, law firms and accounting/compliance firms like KPMG. Such a very porous membrane where IRS counsel and personnel passes over to the other side where their knowledge gained as insiders is then for sale. And, as Obama appointees and ambassadors demonstrate, private industry insiders pass back through the membrane into significant government positions. And, then back again into the private sector. What a rigged game it is. And what they always have in common is that their food is always us – for fees if we can afford to retain them, as compliance industry insiders – where our home country taxes and bank fees pay them, and if we are so unlucky as to actually be assessed with US taxes, those go to pay their salaries as political appointees and adversaries.
Today counsel works on behalf of corporate and wealthy individual clients pitted against IRS and Treasury. Tomorrow, counsel works on behalf of the IRS and Treasury as clients, pitted against ‘taxpayers’.
Those left without representation – either political or legal, are the ordinary disenfranchised ‘taxable persons’ abroad – who apparently are of interest to no-one and devoid of political value (except for briefly by the Obama camp in 2008 as a group singled out on their website as of ‘special concern’) – and are of interest only for their weight in penalty revenues that might be extracted, the propaganda quotient (to trot out as a convenient diversion and scapegoat to vilify and castigate instead of US homelanders and US corporations – re the US ‘tax gap’), and for the fees they might generate both in compliance and in non-compliance.
This is a rigged game.
I feel sorry for Robert Stack. Someday, a few years from now, he will be sitting out on his deck enjoying his comfortable retirement and he will think about what he has done with his life. Most of us will be able to point to some modest way in which we made the human condition better but he won’t have that. He’ll think about the years spent in offices helping the rich avoid paying their fair share of tax. And then the switch to government where we made the tax rules ever more complex yet porous for his wealthy clients. He’ll think about the millions of sleepless night and decimated retirement savings he caused his fellow Americans. He’ll recall the profitable switch back to the private sector for one final round of blood leeching. And then he will reach for his drink and it will taste sour.
So Robert it’s not too late – quit now while you still can. Open an organic farm, join an orchestra and volunteer for a local charity. It’s not too late to make something of your life.
Johnson, I doubt Stack will even find it in his little diamond crucible of a heart to even think of the millions he has harmed financially. He’ll sleep well because of three little words “He doesn’t care”.
American Citizens Abroad responds back to Robert Stack in a letter to him:
http://americansabroad.org/files/2713/8185/8145/Stack_letter_no_testimonials.pdf
@ The_Animal, Sometimes when people know on some level that they are ‘wrong’, it is hard for them to hear it, and easier to stick their fingers in their ears, like an insolent child, and pretend that they didn’t. Who hasn’t done that?
You could say it is because they don’t care, but really it is because they don’t want to admit fault…IMHO.
I am happy I am not Stack, and would rather be FATCA’d than be him right now, unless he is a sociopath in which case, you are right, he doesn’t care.
@WhiteKat
Look who they have as examples of adult behaviour – congress.
“Believe nothing until it has been officially denied” – Claud Cockburn.
Before you castigate Mr Robert Stack in a personal or ad hominem (or as my kid says “ad Eminem”) manner, keep this in mind…
Mr Stack’s profession is legal counsel, and he has been retained by Treasury as a kind of in-house legal counsel, to defend and argue Treasury’s interests. Despite the fancy title, he was hired for his skills as lawyer, and lawyer’s skills are focused on advancing client’s interests.
As counsel, a lawyer like Mr Stack is ethically obligated to argue effectively and convincingly and even passionately on his client’s behalf. He is NOT a judge, or mediator, or politician. He is not obliged to view a matter from all sides, and represent each view point in a balanced or fair way way. He is a hired expert legal warrior.
If Robert Stack left Treasury to return to private practice, and if his private law firm were engaged by a well-to-do plaintiff opposed to FATCA, he would be equally obligated to argue that client’s position. After all, his former firm Ivins, Phillips & Barker offered clients expert representation in their disputes in opposition to the IRS.
You would not expect a professional athlete traded to new team to go soft on former team-mates. For the time being Robert Stack is playing for Treasury, after years of playing against them.
He’s a lawyer; it’s his job.
@Wondering.
Good point, well said.