The issue at hand is FATCA (the Foreign Account Tax Compliance Act) which would require foreign FFI's (banks mostly) to report the accounts held abroad by U.S. citizens. On the citizen side (folks like me) there is a new form to be filled out to report foreign financial assets over $50,000. This Form 8938 is in addition to (not a replacement of) the already little known and often misunderstood FBAR (Foreign Bank Account Report). Between FBAR and FATCA the reporting requirements are onerous and the penalties draconian. Non-compliance can result in a foreign entity's assets in the U.S. being seized and for American citizens they run the risk of having their life savings wiped out if they are audited and found wanting by one of the local IRS agencies abroad in Frankfurt, London, Paris or Beijing (yes, the American "fisc" is quite the international organization.)
FATCA is a road to hell in the service of at least one good intention. The original purpose seems to have been to expose American citizens living in the U.S. who might be hiding taxable assets abroad. Somehow in the making of this law it escaped the notice of Congress that there are around 6 million "regular folks" (Americans who live and work abroad as teachers, managers, nurses, and so on) who are directly and adversely impacted by it. An American living in London does not have bank accounts there to evade U.S. taxes - he or she has them in order to be able do manage such mundane tasks as getting paid and saving for retirement or paying rent and buying food. One very concrete and unfortunate consequence of this law is that European banks are dumping customers with U.S. citizenship as fast as they can. I can only cringe as I imagine the reaction of an overseas Americans to the news that he is no longer a valued customer but an annoyance to be reluctantly, but firmly, cast off lest his bank suffer the unpleasant attentions of the American IRS.
The heartening news is that, for the moment, their host countries seem to be on their side. Canada and the EU have already expressed their "concern" about FATCA (which I think is a diplomatic way of saying "Are you out of your minds?"). Many countries would have to revise their privacy laws to comply and there is no real benefit to them since U.S. banks do not seem inclined (and are under no obligation) to share the names and account numbers of their citizens hiding money in U.S. "low-tax" states.
However, Americans should not count too much on their host countries' support. I think it is very likely that one of the possible results of FATCA is that the U.S. government will make deals with other countries (over the heads of the U.S. states) to make U.S. account information available to foreign tax agencies. This would give foreign governments a stake in the game and a real incentive to pass their own new data collection and tax laws for their own diasporas. I believe it is already illegal for a French to have a foreign bank account abroad if he/she has not reported it to the French government. It might be very interesting (and perhaps quite lucrative) for said government to get their citizens' account information from, say, California...
As the deadline for implementation approaches, American citizens abroad are waking up and they are both fearful and furious. FATCA was the just the trigger and now there is an avalanche of discontent about a whole host of other issues: voting rights, discrimination, double taxation, citizenship rights, lack of representation. To get a feel for some of this anger I invite you to consult this selection of articles and sites:
- American Citizens Abroad (ACA) They are leading the charge from the heart of Europe with their Repeal FATCA Now! campaign.
- The Isaac Brock Society in Canada. "Liberty and Justice for All U.S. Persons Living in Canada and Abroad."
- Renounce U.S. Citizenship - "Stop Citizenship Based Taxation - Repeal FATCA."
- James Fallows FATCA series in The Atlantic: Fatca: The Menace You'll Hear About in 2012 (with links to articles in the New York Times and Wall Street Journal)
The Fatca Menace! (good selections from the mail he received in response to his first article with concrete examples of the impact to Americans abroad)
The Fatca Chronicles: Tales From China, Canada, and Estonia