New Flophouse Address:

You will find all the posts, comments, and reading lists (old and some new ones I just published) here:

Friday, June 14, 2013

New Rules

Americans take a lot of criticism for their supposed ignorance about what their government is really up to but Europeans aren't much better.  "All politics is local," said Tip O'Neill, what people really care about is what is of direct concern to them and the communities in which they live.  Their level of concern and interest wanes with distance which can be geographical or psychological.  This is just as true of the inhabitants of Limoges, France as it is of the people in Port Angeles, USA.

And that's fine.  There are only so many hours in the day and aren't things like family, friends, work and the garden much more important than following the goings-on of distant bureaucrats and lawmakers?  It does make me smile, however, to hear a Frenchman talking about "those damn bureaucrats in Brussels" which reminds me of my childhood and the grumbling against "those damn bureaucrats in Washington."

I do try to pay attention to what's going on where I live both at the member state level (France) and at the superstate level (the EU).  Some of that stems from genuine interest (my undergraduate degree is in Political Science) but surely the fact that I am an immigrant has a lot to do with it.  There is a certain insecurity that comes with that status - a residency card does not make one the equal of a citizen - and it seems prudent to pay attention.

And, oh my, is there a lot to watch here in Europe.  The EU is and isn't a "United States of Europe."  All of the member states are sovereign states and most have existed for centuries.  For much of that time, they have been at odds with each other.  Borders have shifted back and forth, as well as the balance of power, depending on what era you're talking about.  Nothing quite like that ever happened in the U.S. which was founded relatively recently as a settler colony (or colonies) with people from those warring European states.  Some U.S. states (provinces) were independent early on in American history.  Texas, for example, and even today Texans like to point this out often and at great length.  As someone who comes from one of the other 49 states, can I say how boring this gets after awhile?  And do they understand how many of us, when they threaten to secede, are cheering them on?  Oh, please do.  Please turn yourself into an autonomous buffer state between the rest of us and part of that southern border.

Back to the EU.  So here you have 27 sovereign nations that have decided to come together and somehow they have to come up with common rules everyone can live with.  And that's precisely what they have been doing slowly but surely.  So slowly that many EU citizens seem completely unaware of what they've cooked up.  Just for fun, here are some examples that I follow regularly but when I try to talk about them with my friends and family here in France, they have no idea that these things were ever on the table, much less that EU laws and directives have actually been passed that are binding on them and that their national legislation (local laws) is being adjusted accordingly.

EU Blue Card:  This is an EU-wide immigration scheme very similar to a U.S. Green Card designed to draw highly qualified migrants to the EU.  It was proposed back in 2007 and was implemented in the member states in 2011/2012.  It offers very generous terms for work and residency in the EU and allows for mobility between member states.  A migrant can get a Blue Card in France and then move on to work in Austria, for example.

If you are a non-EU citizen interested in living and working in Europe, the EU has an immigration portal meant to help third-country nationals who wish to migrate here and have skills of interest to EU companies.

Cross-border Inheritance:  This one is pretty radical.  It offers nothing less than the right to choose the law under which you wish to have your assets distributed after your demise.  If you are French and you live in Germany, for example, you can choose either French law (nationality) or German law (domicile).  It even goes so far as to cover third-country nationals like myself.  I can, in theory, choose American succession law over French law even though I live in France and am married to a Frenchman.

Cross-border marriage:  Another fairly radical one concerning matrimonial property regimes is being negotiated. Divorce and custody were already the object of new regulations called Brussels II bis.   The Rome III Regulation allows cross-border couples to choose the law under which they wish to divorce.  Now the EU is looking at the issue of marital property regimes of cross-border (international) couples.  The Commission proposal is here.

I strongly urge all cross-border couples and their families in the EU to look into this legislation.  These rules were designed with you in mind and they impact you directly.

Social Security:  This goes back to a directive that was issued in 1992 (92/49/EEC) on insurance.  It allows EU citizens to opt out of public social insurance regimes and to purchase private insurance instead either in that EU member state or another.  Is it really possible to "quitter la sécu"?  Yes, but it's not easy and very few try.  To say that it is strongly discouraged would be an understatement but under EU law one does have the right to do this.

Automatic Information Exchange (The EU version of FATCA):  Talk of this has been around for a long time.  What the U.S. did with FATCA is something that politicians at the EU level have been dreaming of for a long time but there just wasn't enough support to launch something at that level.  FATCA changed the landscape and now the European Parliament thinks the time is right to push a similar system for EU citizens.  This proposed directive to amend "Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation"  was published right after the EP public hearing on FATCA and gives a framework for an EU version that builds on what has already been done, the European Savings Directive, for example, and the "DAC" which will require the automatic exchange of information between member states "on five categories of income and capital: employment, directors' fees, life insurance products not covered by other Directives, pensions and ownership of and income from immovable property.."  If passed, this new directive will expand the scope of the information to be collected to include "dividends, capital gains, other financial income and account balances."

My reading of this directive (and please feel free to correct me as I am not a tax expert or a lawyer) is that what FATCA does to U.S. Persons around the world, the  EU Automatic Information Exchange will do to EU citizens living in another member state.  So a Frenchman, for example, who lives in London or Berlin may have his financial information (income, account balances and so on) automatically sent to the French "fisc".  And if he's a U.S. Person as well?  He will have several states with seriously domestic budget problems looking through his personal finances and one does have to wonder what that will lead to.

This is going to be interesting for European banks and other financial entities.  Not only will they obliged to find U.S. Persons on their client list, they will also have to find and track those pesky German/French/British/Spanish Persons as well.  27 member states plus the U.S. - that's a lot of reporting.  It would not surprise me if some local banks in EU member states tried to wash their hands of ALL those damned foreigners (non-native EU citizens and third country nationals alike).

I respectfully suggest to my EU citizen friends that perhaps they might want to expand their definition of "local" and widen their circle of interest to include what's going on at the EU level.  Not all of the above apply to all but surely one or two have a direct impact on the lives of the EU citizens reading this post.  Grumbling about it after the fact is understandable (and a lot of fun, too) but that's not going to save any of us from the consequences, right?


Tim said...


My current understanding of the EU commission proposal is at this point at least it only effects EU residents lets say someone in France who has financial accounts in Belgium or the UK. A French citizen living in the UK with all of the proper residency docs from the UK government should be ok. This is all subject to further research on my part.

Tim said...

I also put an article on IBS discussing this rumored fight between Canada and Europe on tax.

FYI, Canada has the largest foreign born population of any G8 country.

What I thought was most interesting was the degree of anamiousity on some of the UK Conservative blogs that grassroots UK conservatives had towards David Cameron and the lauding they had of Stephen Harper.

Liking Stephen Harper is very much an acquired taste. Harper really has to be doing something for your personally to be likeable. There is no romance in Harper like Obama(or what Cameron) is trying to be.

Tim said...

The other thing I will mention is there have been and continue be significant discussion in the EU about banking supervision and regulation. This is an area where Europe has significant problems compared to the US. I know that that might seem odd but its true.

Remember the problems in the US system had to do with "non bank" institutions not the 7,000 plus FDIC insured banks. One of the things that is telling about the US system and its relative health vis a vis Europe is the FDIC puts on its website extensive financial data of all FDIC insured US banks. This same data is extremely difficult to find in Europe.

In Europe many of the biggest problems are still right smack dab in the core banking system. Additionally most US banks are reliant predominately on "retail" deposit under $250,000. EU Banks are mainly reliant on large institutional deposits way way over the deposit limit that will run at the first sign of trouble. The thing is many Europeans on the street don't realize this and think there system is just like the one in the US. I for one still believe the real reason the US is going along with FATCA is to protect the banks.

Tim said...

I meant to say the EU is going along with FATCA to protect the banks.

Victoria FERAUGE said...

@Tim, Some ambiguity here. This is the paragraph of interest:

3a. The competent authority of each Member State shall, by automatic exchange,
communicate to the competent authority of any other Member State, information
regarding taxable periods as from 1 January 2014 concerning the following items
which are paid, secured or held by a financial institution for the direct or indirect
benefit of a beneficial owner who is a natural person resident in that other Member

What's your interpretation?

Tim said...


Here is my thought:

3a. The competent authority of each Member State(member state the bank is in) shall, by automatic exchange,
communicate to the competent authority of any other Member State(same as below), information
regarding taxable periods as from 1January 2014 concerning the following items
which are paid, secured or held by a financial institution for the direct or indirect
benefit of a beneficial owner who is a natural person resident in that other Member
State(same as above other member state):

Victoria FERAUGE said...

@Tim, I think you're right. Thanks for clarifying. I hope to see more blog posts elsewhere about this directive. It's one to watch.