Quotulatiousness

June 27, 2014

FATCA puts “private-sector assets on a bonfire so that government can collect the ashes”

Filed under: Bureaucracy, Cancon, Law, USA — Tags: , , — Nicholas @ 00:02

In The Economist, a look at the looming deadline for non-US financial institutions to start turning over all their data on their US clients to the IRS:

FATCA stands for Foreign Account Tax Compliance Act, an American law passed in 2010 to crack down on the use of offshore banks, particularly in Zurich and Geneva, to hide taxable assets. The law, part of which takes effect on July 1st, is the most important and controversial development in decades in the international fight against tax evasion. It is feared and loathed by moneymen because of its complexity, its global reach and the high cost of compliance. One senior banker denounces it as “breathtakingly extraterritorial”.

The US government is so worried that US citizens are stiffing them for “their share” that they’re willing to risk blowing up the financial lives of millions of Americans living and working in other countries just to get those theoretical “missing” taxes. I started to type “ironically”, but I really mean “typically” the measure will cause great hardship for law-abiding Americans and do little to inconvenience the scofflaws.

The financial industry is struggling to work out which funds, trusts and other non-bank entities count as “financial institutions” under the law. There is also confusion over who is a “US person”. The definition is broad and includes not only citizens but current and former green-card holders and non-Americans with various personal and economic ties to the United States. Some Canadian “snowbirds” who travel to America for part of each year could be caught in the net, says Allison Christians, a tax professor at McGill University. As the complexities of implementation have grown apparent, the American authorities have had to extend several deadlines. Banks, for instance, will get a two-year moratorium on enforcement as long as they are striving to comply.

FATCA has already sent a chill through the 7m Americans who live abroad. Thousands have been told by their local banks and investment advisers that they no longer want their custom because it is too much hassle. Many others will now have to spend thousands of dollars to straighten out their paperwork with the IRS, even if they owe no tax (and most do not, since they will have paid a greater amount abroad, which counts as a credit against tax owed in America).

[…]

FATCA is about “putting private-sector assets on a bonfire so that government can collect the ashes,” complains Richard Hay of Stikeman Elliot, a law firm. Mark Matthews, a former deputy commissioner of the IRS now with Caplin & Drysdale, another law firm, argues that the effort put into hunting offshore tax evaders is disproportionate: the sums they rob from the public purse “look like a pinprick” compared with other types of tax dodging, such as the under-declaration of income by small businesses.

January 27, 2014

FATCA and the “toxic citizen” problem for Americans working abroad

Filed under: Bureaucracy, Law, USA — Tags: , , , , — Nicholas @ 11:04

Emma Elliott Freire explains why she and other Americans living and working in other countries feel like they’re being treated as “toxic citizens”:

The [travel] books tend to emphasize romance and adventure. As an American who is actually living abroad, though, I’ve found that the reality is quite different. My fellow Americans back home sometimes regard me with suspicion, and I feel like my government considers me a “toxic citizen.”

The US is one of two countries in the world that taxes its citizens on the income they earn while living abroad. The other is Eritrea. Every single other country bases its taxation on residency, i.e., you only pay taxes where you live and work.

Americans are required to file an annual tax return with the IRS when they’re abroad — even if they don’t owe any money. They’re also required to file a form called an FBAR to declare their foreign bank accounts. An undeclared account incurs a $10,000 fine.

As you might expect, international tax accountants get a lot of business from Americans. One tax accountant based in Amsterdam told me his American clients take their filings very seriously. “If they get the IRS going after them, they have a real problem,” he says.

His clients are the savvy ones, though. In my experience, many Americans who move abroad are not aware that they need to file. The US government does precious little to inform its citizens of their obligations in this area. Over several years, I’ve been informally asking Americans I meet abroad if they file their US taxes. Most of them told me they don’t. They only file and pay taxes in their country of residency. They assume that’s enough. But, in fact, they have unwittingly become lawbreakers. If they move back to America, they could find themselves in quite a bit of trouble.

The IRS is enforcing new rules passed in 2010, which extend US taxation laws to non-US banks that deal with American citizens. To no great surprise (except perhaps to the legislators themselves), a side-effect of this is that many banks are closing existing accounts and refusing to accept new business from American would-be customers:

The IRS is currently implementing a new law called the Foreign Account Tax Compliance Act (FATCA). Basically, FATCA requires every bank in the entire world to report the account information of its American clients. So every bank in the world is becoming an agent of the US government. It’s still unclear how FATCA can be implemented because in some countries it violates national privacy laws. However, FATCA stipulates that any foreign bank that fails to comply will be subject to a 30 percent withholding tax on its US income.

November 2, 2013

FATCA may have significant (negative) influence on Canadian law

Filed under: Business, Cancon, Law, USA — Tags: , , , , — Nicholas @ 11:00

In Maclean’s, Erica Alini tries to explain just what the US Foreign Account Tax Compliance Act (FATCA) is, and why Canadians should be very concerned about it:

To say that FATCA is controversial is an understatement. The law is so complex and onerous to implement that some foreign banks have reportedly kicked out their U.S. clients in order to avoid dealing with it. Americans living abroad are queuing to give up their U.S. passports over it. The other problem with FATCA is that it asks foreign banks to do things that are often illegal in their home countries, such as passing on certain private information.

It has caused a stir in Canada as well, but the press here generally portrays it as something that affects only dual citizens and green-card holders. Given the number of Americans who live in Canada, that would be enough to make it a big issue (and a big headache for Ottawa). But the truth is FATCA has the potential to touch a much larger number of unsuspecting Canadians.

[…]

In general, what you get for signing an agreement to enforce FATCA is a pledge that the U.S. will do its best to share some of its information on your country’s potential tax cheats. You read that right: Not a duty to reciprocate your efforts, but a lame “we’ll try hard” promise. That’s because the U.S. government does not, at the moment, have permission to force U.S. banks to share information with foreign governments. Only Congress can change that.

That sounds bad enough, but it gets worse for Canada. We are the exception — the only country with which the U.S. has an automatic information-sharing agreement. Now, the trouble with FATCA is that it demands some new information: Not about the Canadian assets and incomes of people who live in the U.S. but about the assets and incomes of people who live in Canada but might have some ties to the U.S. While Canadian taxation, thankfully, is based on residency — you owe the CRA if you’ve been living in Canada — the U.S. has started demanding that its citizens file taxes regardless of where they live.

One of the unforeseen effects of this legislation is that it’s been making it much harder for US citizens to do business in other countries or to work in other countries for extended periods of time. If foreign banks refuse to allow US citizens to open accounts, you’re imposing significant costs and extra inconvenience on people who are in no way attempting to hide assets or income from the IRS. As with so many government initiatives, it probably won’t inconvenience actual criminals all that much, but will primarily impact ordinary — innocent — US citizens.

July 17, 2012

FATCA “may end up killing more U.S. jobs than all the call centers in India combined”

Filed under: Economics, Government, Law, USA — Tags: , , , , — Nicholas @ 09:52

Matt Welch on the worst bit of legislation for US workers so far:

That’s a line from this commendable Wall Street Journal column by William McGurn about the oft-lamented-around-these-parts Foreign Account Tax Compliant Act of 2010, or FATCA (rimshot). While President Barack Obama keeps hitting presumptive Republican presidential nominee Mitt Romney over offshoring and jobs, one of Obama’s most economically deleterious laws continues inflicting damage largely off the journalistic radar screen.

“Within the United States,” McGurn writes, “almost no American has heard of it. Save for the occasional article, it’s gone largely uncovered. And just like ObamaCare, the nastiest, job-killing aspects will not hit until after this November’s election.”

McGurn points out that FATCA was the revenue-generating side of the Hiring Incentives to Restore Employment Act of 2010 (HIRE! God, I hate these people….) — “a jobs bill dominated by tax breaks designed to get businesses to hire unemployed Americans.” So once again, government is “paying” for the economically dubious and morally spurious act of granting targeted tax breaks to favored corporations by screwing over the middle class.

July 10, 2012

American exceptionalism, especially in taxation

Filed under: Business, Government, Liberty, USA — Tags: , , — Nicholas @ 10:19

Mark Steyn on the unique American perspective on taxes:

Elsewhere in the world, there are two generally accepted bases for taxation: residency and source of income. Most countries tax you if you live within their borders, some tax you if you live elsewhere but earn money within their jurisdiction, but only America claims the right to tax you simply for being American — even if you, say, live in Belgium but drive over the border to work in Luxembourg every day. This is unique to the United States: Spain taxes you if you’re a resident of Spain; Slovenia taxes you if you’re a resident of Slovenia; but America taxes you if you’re an American who’s working as a teacher in Gabon. You’re at permanent risk of double taxation, and the fines for minor and accidental infraction are arbitrary and confiscatory.

As I say, no other developed country does this — although Eritrea does.

On January 1st 2013, all this gets worse. The FATCAT act (technically, it’s FATCA, but we all get the acronymic message) makes it not worth a foreign bank’s while to do business with Americans. I don’t just mean Mitt Romney’s chums in the Cayman Islands, but an American of modest means on a two-year secondment to Hong Kong requiring a small checking account with which to pay local utility bills — or a small businessman attempting to expand his distribution in Canada.

Maybe you don’t care about these people: Why can’t the business guy expand his business in Michigan or Idaho like true-blue Americans would do, etc? But at a time when America is ever more mortgaged to foreigners, making it more difficult for Americans to go out and earn money from the rest of the planet doesn’t seem a smart move. Unless you’re planning on making U.S. citizenship a combination food-stamp card. American exceptionalism and American isolationism are not the same thing.

More to the point, the 2008 “exit tax”, the existing foreign bank-account disclosure paperwork, the new FATCAT act, and even the recent habit of publishing the names of those who renounce citizenship are simply inappropriate in a free society.

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