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Thursday, January 26, 2012

Why You Should Care About FATCA

There is a petition up on that is calling for the repeal of FATCA (Foreign Account Tax Compliance Act), the U.S. law which has terrible ramifications both for the U.S. and all other countries.  It would require foreign banks to report the account information of all U.S. persons (U.S. citizens and Green Card holders) to the American IRS and imposes draconian fines on foreign entities for non-compliance.

Some of the Americans in the homeland I've talked to about this argue that this is a necessary evil and how else is the U.S. to find "tax evaders?"  Well, that does kind of assume that Americans abroad are criminals and must prove that their checking, savings, retirement and children's college funds have not been established for nefarious purposes. One would think that the burden would be on the U.S. government to prove that something criminal has indeed taken place and it is very hard to see what an American expatriate is doing wrong when he or she sets up a savings account for a minor child at a local bank.

Some of the Europeans I've talked to have said simply that this is an American problem and since they are not Americans it does not concern them.

I hate to be the bearer of bad tidings, my friends, but this legislation concerns everyone in all countries.  Jean-Jacques Rommes, head of the Luxembourg Banking Association, explains why in this presentation given to Democrats Abroad not too long ago.  Here are the different victims of this law and the impact it will have on them:

European (and all other) countries:  It is an affront to national sovereignty because it by-passes local governments.  It is nothing less than the application of American law to people living in other countries with all the inconvenience for local citizens and potential conflicts with local law.  How would Americans feel if Canada, Mexico or France demanded that U.S. banks report directly to their tax agencies over the head and without the consent of the U.S. government?

Europeans:  Europeans (and people in all other countries) will have to prove to their banks that they are not American citizens or Green Card holders.  Imagine that.  A French person, for example, will have to prove to their local bank that they have no connection to the U.S. (not born in the U.S., no U.S. born parent and no lengthy periods of residence in the U.S.)  In addition to this, all banks that comply with FATCA must update their IT systems and the costs will be very high indeed.  Who do you think is going to pay for this?  Certainly not the U.S. government or U.S. citizens in the homeland.  No, the cost will be borne by all account holders (my French neighbor, for example, or my former colleagues) at that bank whether it is the BNP, the Caisse d'Epargne or any other non-US bank.

Americans Abroad:  U.S. persons will be discriminated against.  Their accounts will be closed by banks that do not wish to take on the administrative burden of having U.S. clients.  Americans abroad will become "toxic liabilities" to be shed as quickly as possible.  American businessmen and women in overseas companies will see their authority over company funds stripped from them.  Any American wanting to start a business venture with a non-US company will be gently but firmly told to take his expertise and his money somewhere else.

Americans in the U.S.:  The impact on the American economy cannot be overstated.  There will be a massive disinvestment of foreign capital and assets out of the United States.  FATCA gives foreign companies and investors a very good reason to avoid the U.S. entirely.  This means fewer jobs for Americans.  This means fewer opportunities for American business.  The result of FATCA will be Americans and American companies shut out of the globalization game (which may actually be very much to the benefit of America's competition, like China or the EU, in the global marketplace).

The Repeal Fatca petition was started by Rami S. who was kind enough to share her motivations with me for getting involved in fighting FATCA:
I am an American citizen by birth, and have had the broadening experience of living most of my life outside of the US. I have many beloved family members still in the US, and a far-flung and international clan, ever more international with each marriage it seems! My roots are deep enough to be a "daughter of the American Revolution", and, with each generation, there has been in and out migration. To me, this is a fact of modern life -- and life long before the modern era!
I value my American citizenship, I identify as an American. I passionately love the geography of my birthplace... I am as active politically as I can be, from abroad, because I think America needs and benefits from the influence of its citizens who contribute an international, global perspective as a check to isolationism and insularity. We are all connected, in every way...
FATCA and FBAR are policies that radically trespass the normal bounds of international tax law and victimize expats, who, appreciated or not, are valuable citizens...
I could not have said it better myself.  I urge each and every one of you, U.S. person or not, to sign this petition and send a clear message to the U.S. Congress and President Obama.  The petition is here.

Once you've done that head over to the American Citizens Abroad site and the Isaac Brock Society to see how you can get further involved.

If you are an EU citizen the following MEP's and activists are challenging FATCA and trying to get a debate started in the European Parliament.  Send them an email:  Jan Philipp Albrecht (Germany), Rui Tavares (Portugal), Raül Romeva i Rueda (Spain), Judith Sargentini (Netherlands), Cornelia Ernst (Germany), Miguel Portas (Portugal), Marisa Matias(Portugal), Sophia in ‘t Veld (Netherlands), Sylvie Goulard (France), Sonia Alfano (Italy), Alexander Alvaro, Baroness Sarah Ludford (United Kingdom), Theodoros Skylakakis (Greece), Ramon Tremosa i Balcells (Spain), Philippe De Backer (Belgium), Jens Rohde (Denmark), Stanimir Ilchev (Bulgaria), Giommaria Uggias (Italy).

And, if you are an American citizen, register to vote!


Victoria FERAUGE said...

And here is an excellent letter from Jeff D. Tomas in Switzerland to the Swiss president about FATCA and all its ramifications for Swiss citizens and American residents.

Tim said...

Over at Isaac Brock Society several people just received new letters from Canadian Finance Minister Jim Flaherty indicating Canada is still strongly opposed to FATCA as currently constructed basically saying there is no change in position since last fall. So it seems like we are going to get much closer to a trainwreck than many of the experts predicted. I do find it interesting that Canada seems to be taking a bigger role on this than Europe.

One thing I find interesting is to the existent the big four accounting/consultanting firms are essentially boosters for FATCA almost discouraging anyone from complaining to their home country governments at the risk of "upsetting" the US. You see all these videos of FATCA impelementation experts basically implying yes FATCA is a horrible thing but it has happen or else their will be some type of global economic collapse.

Berliniquais said...

This can't be as bad as that, can it? Am I so naive? Such piece of legislation sounds plain evil to me. Do you really mean that I, a Frenchman living in Berlin (Berlin, Germany, not "Berlin, New Hampshire" or all other possible "Berlins" in the US), have to go to my German bank, prove that I have nothing to do with the US apart from a couple of trips, and bear the costs of this??? All this in the name of fighting tax evasion, in the country where Warren Buffett legally pays some 17% in taxes or Mitt Romney a paltry 14%??? Sorry for the gross generalisation in this sentence, but to me, if you're American and have enough millions, paying taxes at all is almost optional.

Victoria FERAUGE said...

Yes, indeed, this is pretty much the result of what is being proposed (actually demanded by) this nifty bit of extra-territorial legislation. Pretty cheeky, isn't it?

Actually I think what would be the most realistic scenario is that the bank will ask you, on your honor, if you have ties to the US and you will sign in blood that you do not. But they have to be very careful because the fines for missing a US person and not reporting them are very high. The question really is how much due diligence are they willing to do and what risks are they willing to take? This is why some banks are simply closing the accounts and washing their hands of the whole business.

The EU has, of course, expressed its "grave concern" but what appears to be happening is that they are prepared to cut a deal provided there is reciprocity. This would mean American banks being forced to rat out EU citizens with accounts in the US.

This could get very interesting. :-)