PolicyMic Rand Paul 2016: Fight Against Tax-Haven Bill Could Hint At Presidential Run PolicyMic introduced a bill to repeal parts of the Foreign Account Tax Compliance Act (FATCA), a bill passed in 2012 to cut down on offshore tax evasion.
BDO can help you make provisions for IRS FATCA, the compliance act designed to prevent tax avoidance by wealthy US persons (# FATCA will take effect from July 2013 but preparations for the deadline are complex.
Facebook (FB) revealed on Thursday that it would not come up with its own smartphone or OS, quashing speculation that the social media giant was bound to join the bandwagon of companies daring to battle on in the smartphone w...
lTaxing the Wealthy Is Not So Easy New York Times The rampant inquisitiveness is an extension of a trend begun with the passage in the United States in 2010 of the Foreign Account Tax Compliance Act, or Fatca, a law seeking similar information about...
Shifting our attention to our Friendly Neighbor to the North, is there a “Rand Paul Moment” brewing in Canada, where the rights of up to a million Canadian citizens and the economic and sovereign interests of that country are threatened by a financial “drone strike” by the U.S. Treasury Department?
FATCA compliance costs for the world’s financial institutions are astronomical, and Canada’s banks are hoping that the federal government will negotiate an intergovernmental agreement (IGA) with the Americans that would allow them to report data on U.S. citizens to Canada Revenue Agency, which in turn would send it to the IRS. The U.S., to facilitate this approach, has written a Model Agreement to be used as a template for these bilateral tax agreements.
But a major obstacle to all this is Canada’s Charter of Rights and Freedoms, which prohibits (Section 15.1) discrimination based on several criteria, including “national or ethnic origin.” Constitutional expert Peter Hogg has pointed this out in a five-page letter to the Finance Department, which is co-ordinating the IGA negotiations with the US.
“In my opinion, the procedures mandate by the Model IGA are discriminatory in a way that would not withstand Charter scrutiny,” Hogg says in his letter. “These procedures effectively treat individuals differently, and adversely, based on an immutable personal characteristic, specifically citizenship. If Parliament were to enact legislation authorizing and permitting this type of differential and adverse treatment, the legislation would contravene the equality protections in section 15 of the Charter.”
Hogg’s letter goes on to point out that Section 1 of the Charter allows governments to impose reasonable limits to Charter provisions, but then argues “… any argument attempting to use Sec. 1 to justify limitations on the equality rights would be extremely weak. The objective of ensuring compliance with U.S. tax laws is probably not important enough to justify breaches of the Canadian Charter, and even if it was … the measures contemplated (by the U.S.) are grossly disproportionate to the objective.”
There are about one million people in Canada — the vast majority Canadian citizens — who have connections to the U.S. in one way or another. Some are “accidental” Americans — born in Canada to parents who are (or were) U.S. citizens; Americans who left the U.S. decades ago and thought they automatically renounced their U.S. citizenship when they became Canadians; and border babies — people born to Canadian parents in the U.S. who came home as infants.
Writes Whiteley: “Should Canada decide not to sign an IGA, the banks will be left to their own devices and will have to make their own deals with the IRS — a vastly more complicated and expensive process.” But, again, if Professor Hogg is right, in the absence of an IGA, Canadian banks won’t have the option of making their own deals with the IRS, because directly supplying the information demanded under FATCA would itself constitute a violation of the very same Canadian laws.
The upshot? It remains to be seen if a fever of adherence to the rule of law will break out in Canada. But if it does, officials in Ottawa may find themselves faced with a politician’s (and banker’s) worst nightmare: having to do the right thing. Instead of capitulating to Washington’s demands, Ottawa would be forced to find the courage to look American Treasury officials in the eye and inform them of countermeasures – including WTO and NAFTA remedies, as well as lawsuits in American courts – they can expect if the U.S. Treasury were foolish enough to take the unwise, not to mention illegal (under international customary law and trade agreements), step of trying to expropriate 30% or Canadian institutions’ lawful income in reprisal for FATCA “recalcitrance.”
Meanwhile, in the rest of the world . . .
Turning from Canada, a must-have country for Treasury to force into the FATCA corral, other countries essential to a worldwide FATCA regime are looking even more doubtful.
As a first in the mainstream international media, Reuters financial reporter Patrick Temple-West has picked-up on and expanded on a story commented on earlier by Nigel Green, CEO of deVere Group: China (the world’s second largest economy after the U.S.), along with Hong Kong (a “Special Administrative Region” of China, and a top financial center), are also unlikely to sign IGAs or permit institutions to submit to the IRS’sdiktat. Writes Temple-West:
The success of a broad U.S. crackdown on offshore tax dodging will be determined in part by China's cooperation, but talks with Chinese officials are making little headway, former U.S. Treasury Department officials and tax professionals said.
FATCA requires foreign financial institutions to tell the United States about Americans' offshore financial holdings.
One obstacle in the Chinese talks is likely that China wants, in return, more tax information than U.S. officials are willing to share about Chinese citizens who have assets in the United States, accountants and tax lawyers said.
China - the world's second-largest economy - is seen by some tax experts as an important participant if the U.S. Foreign Accounts Tax Compliance Act, or FATCA, is to work effectively, especially in Asia. [ . . . ]
China is seen as a critical part of the FATCA puzzle not only due to the country's own global economic prominence, but also because of its sway over Hong Kong, a major money center.
The Hong Kong Association of Banks said in a statement: "FATCA is an issue highly relevant to Hong Kong ... We have been and will closely follow relevant developments, in discussion with the Hong Kong Government."
The Financial Services and the Treasury Bureau of Hong Kong did not respond to questions.
It was unclear whether Hong Kong may be able to negotiate an IGA on its own with the United States. Hong Kong became part of China in 1997, but retained its own currency and local government. [ . . . ]
Foreign countries have pushed, with limited success, for reciprocal information sharing, but generally IGAs have not allowed an equal two-way sharing of taxpayer information.
With IGA negotiations in mind, the Obama administration is considering asking Congress for the power to require more disclosure by U.S. banks of information about foreign clients' accounts to those clients' home governments.
The IRS this year started giving some foreign governments information about interest payments earned by their citizens in U.S. bank accounts. This has already raised privacy concerns.
Adding to prospects of a BRICS-based opposition to FATCA, it now appears that Russia has broken off IGA talks with the U.S. and will forbid its institutions to comply. Writing in iExpats.com, Lisa Smith reports (“FATCA Hits The Buffers In Russia”):
Now Russia has stepped up to say implementing FATCA is illegal in the country as the rules are contrary to Russian and international laws.
The Russian Foreign Ministry has also declared that the country’s financial institutions would break local laws if they enter into any agreement with the IRS.
The Bank of Russia has backed up the Foreign Ministry’s stance and said that FATCA undermines the principle of equality among sovereign states.
One of the reasons why is [that there is] no similar agreement for US-based financial institutions to reveal the details of its foreign clients to other governments.
This is somewhat surprising, as Russia has earlier indicated not only its willingness to work with Washington on FATCA compliance but to help round up support from the other BRICS countries (notably China and India). In addition, recently President Vladimir Putin called for legislation prohibiting Russian officials from being allowed to hold foreign bank accounts at all, to hinder hiding corrupt assets abroad, and probably would have liked to have reached an equitable deal with Washington. But when it became clear that FATCA is not a bilateral cooperative agreement, no matter how the IGA is dressed up, but a unilateral imposition by Washington on the rest of the world, Moscow correctly concluded that sovereignty and the rule of law must prevail.
If China (and Hong Kong) and Russia stay firm in putting their independence and sovereignty first, and especially if even Canada willy-nilly does likewise, it’s not too soon to state that FATCA already has been exposed as a failure. The question then would be, how much damage is the U.S. Treasury Department willing to inflict on the United States and on the global financial system in a vain attempt to vindicate this badly misguided approach to tax enforcement? And second, will countries that already have “drunk the FATCA Kool-Aid,” starting with theUnited Kingdom(the first countryto sign a “reciprocal” Model 1 IGA) andSwitzerland (the first to sign a “nonreciprocal” Model 2 IGA), realize they’d been “had” and stop action on ratifying the agreement?
After FATCA, Swiss Government Tackles Money Laundering too Forbes Switzerland agreed to play ball with FATCA, the once controversial U.S. law that obligates foreign banks to report on American account holders.
Treasury Department's Promises of U.S. 'Reciprocity' Dead By James George Jatras for RepealFATCA.com In a major game-changer, Senator Rand Paul (Republican of Kentucky) today introduced a bill to repeal mandates of ...
The Centre for Freedom and Prosperity (CF&P), a US-based organisation which seeks to “promote economic prosperity by advocating competitive markets and limited government” is one of the high-profile critics of America’s soon-to-be implemented Foreign Account Tax Compliance Act (FATCA). This controversial new piece of legislation, say its opponents, will be financially detrimental to the vast majority US citizens living abroad.
Here the President of the CF&P, Andrew F. Quinlan, shares his FATCA concerns in an exclusive interview with iexpats.com.
You, and the Center for Freedom and Prosperity, have been vocal opponents of FATCA. Why do you feel this new piece of legislation, which aims to catch tax evaders, ought to be repealed? Why are you lending your support for the anti-FATCA campaign?
First and foremost, the law simply doesn’t do what it is purported to do. Rather than target actual tax cheats, it burdens all Americans living and working abroad as if that were tantamount to criminality. As a result of FATCA’s sweeping new burdens, American expats are now toxic assets. Unwanted by foreign banks and financial institutions, and hounded by a government that has scapegoated them for problems created by the profligate spending of politicians, it’s not a good time to be making a living as an American abroad.
Overall, FATCA is just an affront to the principles and mission of the Center for Freedom and Prosperity. It violates the fundamental financial privacy of millions of Americans, eviscerates the most basic and long standing concepts of national sovereignty, and seeks to limit tax competition by controlling the free flow of capital. Furthermore, the economic harm to the US in terms of lost investment, and just to the world economy as a whole, may far outstrip the minimal “revenues” expected to be collected by the government.
Simply put, it is not properly the responsibility of the entire world to chase down every last potential dollar for US politicians to waste, all the while footing the bill for the pleasure.
If FATCA is such a wholly damaging piece of legislation, why was it passed in the first place?
I don’t think most members of Congress had any clue what they were voting for. FATCA was slipped into an unrelated, so-called stimulus bill at a time when Congress was desperate to show they were doing something – anything – to alleviate joblessness. It was included to pay for the bill’s other provisions and politically was seen as free money. Expats aren’t, unfortunately, considered a politically threatening constituency.
Furthermore, the law was never debated and no hearings were held to expose its many downsides. It was just taken at face value as targeting tax cheats, and who can be against that? The few members who were actually aware of exactly what the law contained are the same misguided folks who think that tax competition is harmful, and that the only fiscal problem in Washington today is that politicians haven’t yet confiscated enough tax dollars from the private sector.
Washington intends to implement FATCA on 1st January next year, do you feel the Treasury will manage to hit this target?
It would certainly be a first if they did, as they’ve missed just about every deadline up until this point. FATCA is a fatally flawed bill, in that its tax regime is essentially too draconian and complex to be enforced as written. That’s why the Treasury Department has shifted to a government-to- government approach and is now attempting to swindle nations into acquiescing their sovereignty to US tax collectors in the form of intergovernmental agreements (IGAs).
The question will be whether they are able to strong-arm or cajole enough governments into signing IGAs, and thereby bring enough institutions into FATCA compliance. If they aren’t able to do so, and there are indications that they are having trouble getting the number of IGAs in place that they had hoped, it will be very hard for them to hit the January 1st target.
What, in your opinion, will be the factors that are most likely to derail the FATCA project?
On the implementation side, the IGA process is a clear weakness. Treasury needs the IGAs to enforce the law. If foreign governments resist or demand real and substantive reciprocity, which they aren’t likely to get, enforcement is going to be extremely difficult.
There are political weaknesses as well. Congress may not care much about the pain inflicted on expats, but there are two things they do care about that are clearly working against FATCA. One is their “revenue,” and the other is their political authority.
The law already is only estimated to raise less than $1 billion per year. But because no real cost-benefit analysis was ever conducted, members of Congress may be surprised to learn that, due to capital flight and lost investment, even the direct costs to the government could exceed this total, much less the pain that will be felt across the economy as a whole. As these facts come out and the true costs of FATCA are revealed, pressure will grow to revisit the law.
The decision by Treasury to pursue IGAs also had the unintended consequence – though beneficial for FATCA opponents – of creating a wedge between Congress and the Executive branch. The law as written included no authority for intergovernmental agreements, and Treasury’s decision to chart a new course for both international and domestic tax policy, by promising to pursue reciprocation with similar requirements on domestic banks, is drawing the ire of members of Congress who don’t like ceding their lawmaking authority and are particularly sensitive to Executive encroachment.
How likely is it that these factors will, ultimately, kill FATCA?
I wouldn’t put odds on it, but I’d say that it’s getting increasingly likely every day. We’ve been working hard to draw attention to this issue both among the public and on Capitol Hill. After conducting hundreds of meetings, we are optimistic that Congress is beginning to stir and the first real efforts to reverse FATCA are around the corner. Whether these efforts succeed will depend significantly on those most affected by the law and whether they are willing to rally behind any potential legislation, support organizations like CF&P and others resisting the law, recruit others to the fight, and just generally make a lot of noise.
Is there a general sense amongst lobbyists that time is running out? What more can or should be done in your opinion?
I wouldn’t say there’s a sense that time is running out, but from a practical point of view the law is most vulnerable before it’s fully established and implemented. As I said before, what’s really needed is for more folks to be involved however they are able. Part of that will also mean making it clear to domestic banks and even those Americans who do no banking overseas that they will be impacted as well.
How important is it that China – which is said to be stalling on signing up to FATCA – agrees to an intergovernmental agreement with the US on this issue? And what will happen to FATCA if the People’s Republic doesn’t sign up?
China is an important country because of their influence in the region. If China doesn’t get on board with FATCA – and it’s hard to believe that they will – that could lead to similar resistance from other Asian-Pacific countries. And if Singapore and Hong Kong don’t join, for instance, that will leave major financial centres outside of FATCA’s reach.
How is FATCA being presented in the US media? And how does this compare to coverage in other parts of the world?
Most US media is ignoring it, unfortunately, or when they do address the issue they paint it solely within the framework of pursuing tax cheats. There has been some coverage of the more destructive aspects of FATCA, but little on the bigger picture implications that will come from such a dramatic upheaval within the international financial sector.
Foreign media outlets have been more likely to cover the issue, but have proven gullible to spin from the Treasury Department. The lack of specific knowledge of the US political system in foreign media has aided the administration’s efforts to convince foreign governments to sign the IGA’s, because they think the entire US government shares the views of the Treasury Department, when in reality Congress not only has its own interests, but will have the ultimate say on whether the US provides reciprocal information, which many governments are demanding before signing any agreement.
Should FATCA be rolled out as the US hopes in January, what are the wider economic and/or regulatory consequences for the US / other nations?
The obvious economic implications from FATCA are the loss of jobs and investment to the US economy. It will also sabotage American competitiveness in the global economy, paving the way for China or other nations with less self-destructive rules to attract the investment and opportunities that once flowed to America.
Sadly that’s just the tip of the iceberg. There are already indications that other nations are looking at implementing their own FATCA systems. The fact that the US to this point has largely been alone in taxing extraterritorial earnings should come as no comfort for the future of tax policy. Other governments have not chosen territorial taxation because they understand it to be better, but because they simply lack the resources to pursue taxes across the globe. But if the US lays the groundwork for an international tax cartel through the FATCA model, it will provide cash-hungry politicians a ready excuse to revisit worldwide taxation, and we can thus expect tax policies all across the globe to get much worse.
Most politicians don’t choose good tax rules – in the rare instance when they do – because they understand and appreciate pro-growth economics; they do so when economic pressures compel them to, and only then. That’s why my organization is dedicated to preserving tax competition and committed to winning the fight against FATCA.
France Seeks Slower Pace of Negotiations for a US-Europe Trade PactNew York TimesMs. Bricq was speaking Monday not long after officials in Tokyo and Brussels announced the start of negotiations for a Japan-Europe free-trade area.
Here is what Tim promised yesterday. Arrow's article from Vancouver Sun: Compliance with FATCA May Violate Charter of Rights. Great news to wake up to this morning. Many thanks to Noble Dreamer for posting this under ...
iExpats.com Article by Lisa SmithAmerican legislation aimed at revealing the financial details of US taxpaying citizens around the world has hit another stumbling block as yet another country has baulked at handing over personal financial...
The IRS voluntary disclosure programs represent a portion of a larger push by the US government to identify United States taxpayers with undeclared foreign income and assets. The Foreign Account Tax Compliance Act ...