Author Archives: Deckard1138

Thanks to noone for spotting this significant new article from the South China Morning Post. This may be one of the first examples of non-FFI’s applying full 30% withholding directly to the salaries of overseas Americans – in this case, US pilots working for Cathay Pacific.  Until now, most attention has been focussed on the role of foreign financial institutions, but now we see the first tangible signs of how FATCA will permeate the entirety of international business relations and reporting practices. How soon before NO Americans can work outside the compound, completing the self-destructive process whose beginnings Roger Conklin remembers so well from his days as a Telecoms executive?

Cathay to withhold US pilots’ wages for taxes

Airline says new laws are forcing it to hand over 30 per cent of salaries to American authorities

Cathay Pacific Airways is to start withholding about 30 per cent of its American pilots’ salary every month and pass the money to the US tax authorities together with the pilots’ personal information this year.

While the airline told the South China Morning Post the move was designed to comply with US tax regulations, its decision has been challenged by legal and tax experts in Hong Kong.

They said companies in Hong Kong had no obligation to fulfil demands made by a foreign government because of the two different jurisdictions.

Lawyer Albert Luk Wai-hung said that if the airline observed the US regulations, the affected pilots could sue the airline for underpaying them because part of their salaries would not find its way into their pockets. That could violate the spirit of their contracts.

“The company also cannot pass their employees’ personal information to any third parties without their consent,” Luk said, pointing to the Personal Data (Privacy) Ordinance.

At the centre of the controversy are two US tax regulations – an income tax withholding requirement in the Internal Revenue Code and the Foreign Account Tax Compliance Act.

Patrick Yip, a national financial services tax leader at Deloitte Touche Tohmatsu, said the tax withholding law required overseas companies which hired US citizens to withhold an amount of tax and pass it to the US Internal Revenue Service. It applies to US citizens who make more than US$97,600 a year – about HK$63,000 a month.

“But practically, Hong Kong and the US are two jurisdictions so I have never seen any companies here which comply with this law,” Yip said, adding there would be no penalty even in the case of non-compliance.

“Even the US companies in Hong Kong which have US employees don’t do it … no wonder the pilots have such big reactions because no one has ever heard about it.”

Cathay will start withholding tax from the second quarter of the year, and pilots said it would affect 300 to 500 of them – up to 18 per cent of cockpit crew.

The pilots said they already had to pay Hong Kong and US taxes, but before Cathay changed its policy they could file US taxes themselves once a year.

CPA Australia’s divisional president for Greater China, Ronald Yam, and the chair professor of accounting at the University of Hong Kong, Amy Lau Hing-ling, said they had not heard of a local company withholding US employees’ taxes.

As for Fatca, it was passed into law in 2010 but will only take effect in July this year.

The anti-tax evasion law requires foreign financial institutions such as banks to declare to US tax authorities the foreign holdings of anyone liable under US tax.

“The US Internal Revenue Service is actively seeking airlines flying into the US to ensure they are fully compliant with all US income tax requirements,” Cathay said. “As an international airline flying into the US, we are working with the IRS on this compliance.”

Cathay added that no disclosure of information would be made to the IRS without “notifying” the pilots.

Yip, an expert on Fatca, said that if Cathay did not comply, the US tax authorities would withhold 30 per cent of its US-source income.

He said it was “strange” that the tax authorities had demanded airlines declare pilots’ financial details because airlines were not financial institutions.

Two American pilots employed by Cathay said the plans would create cash-flow problems for them. They also said that filing tax was a complex matter and they were concerned they might pay more than they should.

Robert Wood reminds us who’s the boss off the ice:

Canada Defeats U.S. In Hockey & Gold Tally, But Not At FATCA

Hockey rivalries and FATCA all in one convenient package – this should generate some interesting comments.

Funds Europe reports on the decision by UTI International (Singapore) to “remove” its American investors because of FATCA’s compliance burden:

http://www.funds-europe.com/news/13346-we-had-to-exit-americans-because-of-fatca-uti-international

UTI International (Singapore) chief executive officer Praveen Jagwani says the asset manager had to remove American investors because of the compliance burden Foreign Account Tax Compliance Act (Fatca) brings.

The regulation requires financial institutions to use enhanced due diligence to identify US citizens that have invested in either non-US financial accounts or non-US entities.

Fatca, which will become effective this year, was launched with the intention to keep US citizens from hiding income. Asset managers face severe consequences if they fail to enter an agreement with the Internal Revenue Service.

The intent behind Fatca is to keep US persons from hiding income and assets overseas.

Speaking at a recent Funds Global Asia roundtable in Singapore, Jagwani says Fatca is the single most difficult act of regulation for the asset management industry.

“We offer a Guernsey-domiciled Indian equity fund and because of six American investors, our compliance cost has gone up significantly,” Jagwani says.

“In order not to penalise the remaining investors, we have unfortunately had to decide to exit the American investors.”

UTI International is a subsidiary of one of India’s largest asset managers, UTI Asset Management Company.

Margaret Harwood-Jones, managing director and global head of investors and intermediaries, Standard Chartered, another roundtable participant, says there is no place in the world where businesses can hide from the impact of any foreign regulation.

“Even when it is only half a dozen investors buried somewhere in a particular fund, they have to be fully identified and properly treated in order to comply with Fatca,” Harwood-Jones says. “The obligation to report, to comply with the plethora of new regulation is important yet onerous indeed.”

Reductio ad nauseam:

The Ottawa Sun, February 6, 2014

Here are links provided to me by a source within CRA.  Please read and provide your feedback. This is crucial information about how Canadian financial institutions will provide details about US Persons to the CRA and how Finance intends to introduce overriding legislation to enable it.  This is a must-read:

The CRA has prepared documents in response to the signing of the intergovernmental agreement (IGA) related to the Foreign Account Tax Compliance Act (FATCA) to help Canadians understand the implications of the agreement from an administrative perspective. This guidance is available on the CRA website at the following URLs:

http://www.cra-arc.gc.ca/tx/nnrsdnts/nhncdrprtng/menu-eng.html

http://www.cra-arc.gc.ca/tx/nnrsdnts/nhncdrprtng/menu-fra.html

In addition, Department of Finance has also now posted on its website the Legislative Proposals and Explanatory Notes Relating to the Canada-United States Enhanced Tax Information Exchange Agreement

http://www.fin.gc.ca/drleg-apl/2014/can-us-eu-0214-eng.asp

http://www.fin.gc.ca/drleg-apl/2014/can-us-eu-0214-fra.asp

A new article by Jessica Meek in Risk.net’s Operational Risk and Regulation examines how credit unions worldwide are being squeezed in the FATCA vise – whether they try to avoid it or not.

Credit unions wish Fatca ‘did not exist’

Fatca compliance burden stretching further

Credit unions will struggle to implement the US Foreign Account Tax Compliance Act (Fatca), warns Michael Edwards, vice-president and chief counsel at the World Council of Credit Unions (Woccu).

The regulatory burden associated with Fatca and the intergovernmental agreements (IGAs) intended to enforce it at a government-to-government level mean that credit unions are hoping that Fatca will be repealed, Edwards says.

“Credit unions around the world would prefer it if Fatca did not exist, mostly because of the regulatory burdens associated with complying,” he says. “Even on the US side, even though the Fatca statute never mentioned US banks or credit unions, in order to collect information to share with the foreign governments that are going to be signing or have signed IGAs to implement Fatca, US credit unions and banks are likely to be subject to the same reporting requirements as foreign ones.”

read more

Forbes’ Robert W. Wood is clearly feeling conflicted these days, as he asks:

Is Opposing FATCA Supporting Tax Evasion?

I’ll resist too much editorializing for now and simply urge as many Brockers and Sandboxers as possible to get over there and help Mr. Wood (and his trusty side-kick Lesperance) to get in touch with their inner consciences and come out forcefully on the right side of history.

There is nothing inevitable about FATCA except that our grandchildren will surely be reading about it in school some day. There is still plenty of time to change the course of history, as Nelson Mandela taught the entire world. This is hardly the time to give up, and methinks Mr. Wood just needs a bit more cogent and positive encouragement. Remember, we’re all basically on the same side, so let’s start getting it together.

Nigel Green, CEO of the deVere Group, and a frequent critic of FATCA, calls the RNC resolution “a step in the direction of common sense”, as reported by Robin Amlôt in CPI Financial:

Republicans’ “common sense” fightback against FATCA applauded

A follow-up article from Patrick Temple-West at Reuters:

http://blogs.wsj.com/riskandcompliance/2014/01/24/republican-party-backs-fatca-repeal-resolution/

Some highlights:

Jan 24 (Reuters) – The Republican National Committee (RNC) on Friday called for the repeal of a U.S. anti-tax-evasion law, siding with big banks, libertarians and American expatriates that have criticized the Obama administration statute.

At its winter meeting in Washington, the RNC approved by voice vote a resolution in favor of abolishing the 2010 Foreign Account Tax Compliance Act (FATCA), set to take effect in July, marking the party’s first explicit attack on the law.

FATCA will require most foreign banks and investment funds to report to the U.S. Internal Revenue Service information about U.S. customers’ accounts worth $50,000 or more. The law was enacted after a scandal involving Americans hiding assets in Swiss bank accounts to dodge U.S. taxes.

Critics have blasted the law as an unfair government overreach and invasion of financial privacy.

“The Republican National Committee … urges the U.S. Congress to repeal FATCA,” said the measure, staking out a campaign position ahead of 2014’s mid-term elections.

On Wednesday, with the RNC vote expected to occur, a senior Treasury Department official said the vote would not hurt the administration’s efforts to implement FATCA via a web of tax information-sharing agreements with other countries.

Democrats Abroad has just released a new report from its FBAR/FATCA Taskforce. Overall, it looks like most of its policy ideas have been cribbed from ACA without any attribution.  Most unfortunately, the report’s authors can’t resist turning a disaster which cuts across party lines for all U.S. Persons abroad into just another excuse to take cheap partisan pot-shots as it concludes:

Republicans Abroad has been conspicuous by their absence in lobbying for reforms to FATCA.  Political operatives at the RNC have woken up to the issue and have formed a new entity called Republicans Overseas to make political capital out of a FATCA repeal effort.  They hope the movement will stir sentiment and drive overseas votes to Republican candidates and raise money.  Their plan is at best quixotic and at worst a blatant political ploy – in either case it is likely to fail given the commitment that regulators have demonstrated to implementing the law and the recognition in the US and globally that tax dodging must be stopped.

Here, then, is the text of this new missive:

Democrats Abroad marks the start of tax season (woo hoo) with a new report, copied below, from the Democrats Abroad FBAR/FATCA Taskforce.  This Task Force examines financial reporting requirements affecting Americans with accounts in foreign financial institutions and works to lessen their unintended adverse impacts on overseas Americans. We hope this report is helpful. Democrats Abroad supports government efforts to block and catch Americans avoiding tax through illegal means.  We also urge the government to recognize that most overseas Americans are honest citizens, not tax cheats or money launderers.

Important:  Please be reminded that we do not provide personal advice on US tax issues and obligations.

Please also go to the Task Force webpage on www.democratsabroad.org for more information on the Task Force and an archive of past communications about their work.  This is the link:  https://www.democratsabroad.org/group/da-international/fbarfatca-task-force-page-updated.

If you log in to www.democratsabroad.org you can join the FBAR/FATCA Task Force Group (See Email Notification Settings in the right hand column and click on “Notify me of postings of this group”) to post comments.  We welcome your comments on the website.

Katie Solon

International Chair

Democrats Abroad

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