Interesting FATCA comment letter

I wanted to post an interesting FATCA comment letter below that deals with many of the issues we discuss here.

http://bsmlegal.com/PDFs/vonKoppenfels.pdf

There is additional letter to from ACA. In it they acknowledge the IRS has told them that to exempt accounts of US Person’s in their countries of residence if effectively to defeat the purpose of FATCA as passed by Congress. So in some sense I don’t know where this will go. Still no comment letter yet from the Canadian Bankers Association. I get the gist though overall that FATCA will be delayed by one year (If for anything do to issues on the US side of things) and the ability to be a “recalcitrant” account holder as permitted by local law will be allowed for a significant period of time.

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44 thoughts on “Interesting FATCA comment letter

  1. This is interesting, though her research seems to deal exclusively with US-born USCs.

  2. Tim said: “In it they acknowledge the IRS has told them that to exempt accounts of US Person’s in their countries of residence if effectively to defeat the purpose of FATCA as passed by Congress.”

    Was the Democratic controlled Congress that passed FATCA so scared that US residents would get on a plane to anywhere and never come back that they had to resort to this? Makes you wonder what other laws they had up there sleeves that they were afraid of a mass exodus.

  3. I think I’ve figured it out. If they were really after US residents hiding money in foreign accounts there are ways to get at them without turning the whole banking world upside down. You could just confiscate their US assets.

    They are really after rich Americans who have chosen to reside in other countries because they’re unhappy with what’s been happening in the US. They probably liquidated all their US assets before leaving. That’s why Congress came up with this God awful FATCA.

    Have I lost my mind or is this the real reason for our misery?

  4. I actually don’t see ACA solution as working in terms of allowing accounts under 1$ Million from being reported if they are bona fide overseas residents. In Canada for example under current law if you walk into a bank lets 1.5 Million CAD Cash the bank has to open account for with only your name, address, occupation, and drivers license. As much as ACA’s suggestions would be helpful to everyone here i.e. no one has over a million dollars I would as a matter of principle prefer they were not taken and instead create a messy fight between Canada and the US over recalcitrant accounts. The principle problem is in Europe unlike Brazil, Canada, and Australia banks can simply under present law close your account on a whim basically.

  5. I’ll note though you will get asked about the source of the funds and they bank will report you FINTRAC but there is nothing under Canadian law that allows them to ask for nationality. To be fair to ACA they strictly work in the US political context here at IBS we are much of a foreign oriented group.

  6. @OMG, if that is true, then at least it should mean they’ll be mainly targeting rich expats worth over, say, $2,000,000. That’s not a huge amount these days, but it rules out minnows for the most part.

    I think they might have been tempted to audit me for my large number of British mutual funds, except that it would probably take too long for the amount of hours it would require them, so wouldn’t be cost-effective. Might be different if I’d been worth several million with a lot of that still in the states

    They will hopefully consider it enough of a punishment that I’ve had to pay a large sum in double taxation, especially as I will have had to live with up to six years uncertainty during the audit window. They would say that my sleepless nights are the price I’ll have to pay.

  7. I actually participated in the survey above. I am a bit dissapointed that she didn’t include the results of a question about renouncing US citizenship (I apologise If I just didn’t see it in my reading of the results). Otherwise, the survey was interesting to take and I found the results to be somewhat surprising (for me at least), especially the large number of people who say that they are “very unlikely” to take on another nationality, combined with the almost 70% who consider themselves to be “American Expatriates” and not immigrants. It seems like a lot of people view their stay abroad as temporary, but then you read about people who have been overseas for decades still acting like they never left home?

    I guess I just don’t understand how someone can live overseas for so long and not have an interest in obtaining a new nationality or at least feel a desire to become fully integrated where they live. According to her results almost 80% of those surveyed have lived outside of the US for 3 years or more, and 60% for over 6 years. I would understand people being reluctant to naturalise somewhere like China or Russia, but the vast majority are based in EU countries or Canada and still a third won’t try for a second passport…?

  8. @Mona

    The $50,000 and $1 Million thresholds are actually pretty meaningless in real life operations of banks. There is nothing under Canadian law that actually makes these number at all relevant in terms of opening account. In fact to take the 1.5 Million CAD is example if you come into legitimate possession of that type money and call the RCMP or Ontario Provincial Police ask what to do with it the first thing they are going to recommend is you get it into a bank immediately and they will help by sending a police cruiser to escort you.

  9. At some level I appreciate what ACA is doing but I am more focused on things here in Canada regarding FATCA. I tend to want a big train wreck more than I want some lousy compromise. That has to do with the fact I suppose I am Canadian citizens who is primarily interested in protecting the sovereignty of my country. The mistake the US has made is not even offering a few measly crumbs to expats to get them to be quiet. In the past the FEIE was effectively that measly crumb except now a lot people want to get rid of it and it does nothing to mitigate FATCA. I do feel sympathy for those of you in Europe that have lousy consumer protection law in banking. The EU Commission has already published that 30 million EU citizens don’t have a bank account in Canada 98% of all Canadians have accounts.

  10. @Don Pomodoro – the US ex-pats who don’t apply for a second “quality” citizenship are selling themselves short – everything to gain nothing to lose. Some ex-pats still get caught up about this “un-American” business about second citizenships. It’s one thing taking a second citizenship, it’s quite another for the US trying to trap people because we don’t like the rules of the club.

    Another point – when you’re abroad long enough the “US” changes in your mind and you come to realise there’s other places in the world you can be happy and make a living.

  11. @all- anything short of the revocation of citizenship based taxation is no answer at all. It is not right that U.S. citizens who reside outside of the U.S. should be considered to still be under U.S. jurisdiction. Living with an IRS ankle bracelet around my finances is for me no way to live. Having my investment decisions dictated to by a parasitical, and spiteful government is not freedom.
    Yes, ACA does try to work within the system as best it can but no one should have to be told how much wealth they can accumulate before they are treated like a criminal. That doesn’t sound like capitalism to me.
    The U.S. government is no more than a stalker, and I believe that in the majority of jurisdictions stalking is considered a criminal act.

  12. @recalcitrantexpat

    I agree with you. That’s why I want to make sure all of us make our voices known in Ottawa that anything short of revocation of citizenship based taxation is unacceptable from a Canadian perspective. I also think it needs to made absolutely clear that those people born in the US who became Canadian citizens before 1986 are still solely Canadian citizens and should not have to enter some voluntary disclosure program no matter how lenient. My hunch is the US is going to delay FATCA for one year and then water down some parts of it such as raising the account limit from 50,000 to lets say 500,000 for non US resident(what ACA is suggesting). They may also tinker around with reporting levels on FBAR. All of this will be really appealing even to those in Ottawa following the issue. However, we here at IBS need to make our voices heard that this is NOT enough when the time comes.

  13. @ Tim
    I agree. Citizenship based taxation is unacceptable. Here’s part of what I wrote to Flaherty (no response yet from his office) …

    I would like to see Canada stand up completely to the USA and condemn its practice of citizenship based taxation because it violates the sovereignty of countries all over the globe and I believe particularly so in Canada which has a long standing reciprocal tax agreement with the USA. After all, Susan Rice, US Ambassador to the UN, hypocritically felt inclined to condemn Eritrea because of its “diaspora tax”. There are too many people (up to 1 million living in Canada by some accounts) who are experiencing confusion and desperation as FATCA draws ever closer. Some people are still blissfully unaware of 1040s, FBARS, 8938s and FATCA. “Accidental” US citizens often fall into that category but they are at risk too, even if they don’t know it yet. Please do whatever you can, as quickly as possible, to relieve our anxieties before Canadian Health Services start to feel the burden of we “minnows” who have found ourselves entangled in the large net cast by the IRS to supposedly nab the “whales” of US tax evasion. We ordinary folk do not have the resources to wiggle free like the wealthy who can simply hire expensive advocates to win their release.

  14. I doubt if the USA will change its citizen based taxation. They think there is money there…Perhaps they would think twice if every country would do the same. Can you imagine how many alien residents with green cards and dual citizens are living and working in the USA? And then can you imagine the American Banks having to send reports in all their accounts?… Not to saying anything about how these people would respond… I lived and worked in the USA 30 years and during this time I did not have to file an Income Tax Return to Brazil. So, it is easier for the USA to have FATCA when they know that this is unilateral and will not affect their banks, They are offering only to send reports of foreigners who have US bank accounts but reside in their countries. This is not the same as FATCA. it is a much smaller number.

  15. “My hunch is the US is going to delay FATCA for one year and then water down some parts of it such as raising the account limit from 50,000 to lets say 500,000 for non US resident(what ACA is suggesting).”

    @Tim
    My hunch is that the $50k requirement remains. I think they will make the withholding a little bit less onerous, as Geithner’s secondary (primary?) role of late is propping up the world’s banking systems. Once he tweaks that withholding on just one or two banks alone will cause a liquidity crisis in the world money markets, there will be some kind of fudge.

    My hunch is that the 50k threshold will be lowered the deeper into the muck US finances sink.

  16. The US will water down FATCA regulations just enough until it becomes palatable to the international financial community. Now this could be higher limits, not passing data for resident “US persons” abroad, higher net worths, but somewhere in the data there will be a group of people whose data will get passed. Probably very high income or very high net worth indivduals. The US will say don’t worry, you see, we’re only after the whales, the minnows can swim freely, we’re not interested TODAY.

    The target for the US is to “establish” the princple at some level. Once that has been achieved the US can slowly tighten the net little by little until someday virtually all financial transactions minnow or whales are caught in the net.

    What the world has to do is not allow the US establish thi FATCA principle at any level. Our banking data is “ours” and doesn’t belong to US authorities for the purposes raising the US Treasury tax.

    Every penny, cent, centieme, or centavo the US taxes above and beyond what the local country would’ve taxed is stealing from another country’s tax base. This is the princple the US has to learn. If you want to raise tax do it inside of your own borders.

  17. @John

    I am beginning to believe the only redress will be through the courts at least in Europe. Unfortionately I don’t believe the British Bankers Association is on your side.

    http://bsmlegal.com/PDFs/BBA_Final_response_to_the_FATCA_Proposed_Regulations.pdf

    According to what I have heard of discussions people have been having with US Treasury any attempt by them to exempt non resident US accounts would essentially by gutting the whole intent of the law. I do think here in Canada there are real legal problems involved in terms of Charter(our constitution and bill of rights once the government gets invovled which is the end goal of the US). My advice would be lawyer up.

  18. @gentleman’s rapier;
    re”My hunch is that the 50k threshold will be lowered the deeper into the muck US finances sink.”
    and @john,
    re: “The target for the US is to “establish” the princple at some level. Once that has been achieved the US can slowly tighten the net little by little until someday virtually all financial transactions minnow or whales are caught in the net.”

    I think you’re right.
    That is often a tactic – set it into place, cause lots of money to be involved in the set up – then justify not dismantling it because of the cost. Lower the thresholds once it’s in force – too late to stop it.

  19. @badger
    @john

    The interesting thing I just came across despite reading this a million times is if you look at the US EU5 joint statement there are two interesting lines about recalcitrant account holders.

    3. In addition, as a result of the agreement with the FATCA partner described above, FFIs established in the FATCA partner would not be required to:
    a. Terminate the account of a recalcitrant account holder;
    b. Impose passthru payment withholding on payments to recalcitrant account holders;

    So it appears that individuals in the EU5 five countries can choose to be “recalcitrant” account holders permanently. The section on passthru payments is actually NOT related to US source income. So it would appear the option as a matter of UK law would remain to be a UK resident recalcitrant account holder and accept withholding on whatever undefined US source income you have. My thought when I first read this agreement was somehow the UK would as a matter of UK law force everyone to somehow report their nationality status to HMRC. However it appears in the UK that the option of being recalcitrant will be permanent(Under the actual FATCA regs all recalcitrant account holders are supposed to be closed out by 2016).

  20. This is actually a pretty interesting comment in BBA(British Bankers Association) FATCA comment letter

    The FATCA regime differs from the QI regime insofar as it does not anticipate or require customer consent as it is dealing with recalcitrant account holders; rather it requires the FFI to impose a financial penalty on that customer. In the UK and other jurisdictions such a penalty applied as a withholding tax on behalf of a foreign government would be illegal. Even in the event that a U.S. withholding agent was interposed between the source and the FFI to apply the withholding tax on behalf of the FFI, the FFI would still be illegally instructing the withholding agent to withhold.

  21. Obama keeps saying the rich need to pay their fair share but I read on a website that keeps stats on stuff like this that if the 1% left the US all the remaining 99% would have to have their taxes increased by 62% to make up the difference.

    I wonder how many of the 1% have already left the US quietly.

  22. @Dom Pomodoro It seems like you have cognitive dissonance regarding these expatriate’s who don’t want other citizenship, is it really that hard to believe that an American actually likes their country? The tax thing aside American citizenship is not one of the bad one’s to have.

  23. @whoaIt’sSteve- the tax thing is the crux of the matter when you live outside of the States. It is amazing to think that people would actually rather suffer “the slings and arrows” of the IRS rather than to live with dignity.
    What the IRS and citizenship based taxation do is to relegate you to a life of absolute poverty, if you are to live by the rules. There is no dignity or freedom in being a U.S. citizen if you reside outside of the U.S. And today I don’t believe that there is any freedom associated with life in the U.S.A. When your government has the power to put you in indefinite detention without a trial, NDAA, then your citizenship isn’t worth much. And to think that the U.S. has the nerve to criticise China for doing the same thing as is is built into NDAA.
    Even the title of this Act shows the imperialistic nature of the U.S. North America and the U.S. are not equivalent references. The U.S. has a habit of forgetting that it shares this continent with two other countries. I don’t believe that Canada asked to be included in the totalitarian legislation?

  24. @recalcitrant The NDAA is bad, really bad, but Islamic extremism wanting to kill us all is even worse. Where is Canada included? I never saw anything about that.

  25. @whoait’ssteve- Canada and Mexico are subsumed in the first two words of the legislation’s title- North America.
    Would you rather have one group trying to kill you or two? Under the NADAA the U.S. government is just as much of a threat to your life, liberty and pursuit of happiness as is the Islamic extremist. And don’t forget that it is Obama, a supposed Constitutional lawyer, who believes that Americans are fair game when it comes to government sponsored assasination.
    Just because America is willing to shred its Constitution doesn’t mean that it can use FATCA and citizenship based taxation to demand that other countries do the same with their constitutions.

  26. I thought NDAA stood for National Defense Authorization Act. I couldn’t find references to North America anywhere.

  27. @recalcitrant I’m not worried about the US Government coming after me, I however have become concerned with all of you guys plight. I don’t think being negative about the US serve’s any purpose, and being bewildered that someone still loves the US even after spending years abroad seems to me to be like someone who has been living in an echo chamber of anti-American sentiment.

    There are people who really love the US, and sometimes they move abroad, why is it shocking that they wouldn’t feel they want or need to acquire a foreign citizenship?

  28. You’re right Steve, there are people who feel a very close attachment to their country of birth even after they’ve lived abroad for 30 or 40 years.

    My mother never became a Canadian citizen even though she worked here for 35 years. We’re originally from India. Everybody else in the family has Canadian citizenship but she doesn’t. We always thought she was strange but she lives in India now and feels like she never betrayed her first love.

  29. @whoait’ssteve

    Of course not – US citizenship is obviously better than many other citizenships to have. What I find impossible to believe, based on the survey results, was that so many of them could live years, decades even, in another country and that so many had no intention of taking on another nationality or officially integrating where they live even if it meant that they would be able to hold dual nationality.

    Tax issues aside, there is nothing to be lost by taking on another country’s nationality and everything to gain. In my opinion, the only thing stopping these expats from broadening their work opportunities and those of their children is misplaced patriotism. I think the main difference here is that Americans tend to view their citizenship as an “allegiance”, whilst in Europe we have “nationalities”. I was born in the US to European parents, and I have always viewed myself as holding various nationalities, not allegiances.

    Holding a second nationality also offers a layer of protection from government abuse. All of the people who have already naturalised now have the choice of whether or not to renounce US citizenship, while those who have waited until now will be stuck in the IRS trap net for years to come with less protection than holding another citizenship or being able to renounce the US one would offer. Those with dual Canadian-US citizenship, for example, can safely retain both nationalities and be protected by the double taxation treaty by the Canadian government by virtue of holding Canadian citizenship. Single citizen “US persons” do not have the same level of protection.

  30. @Don Pomodoro
    Absolutely correct. I have 6 clients, born in the U.S. They have all lived in Canada anywhere from 12 years to 51 years. Three of them have never bothered to become Canadian citizens. They now really don’t have any choice, but to comply and file U.S. tax returns. If they choose not to do that, they won’t be protected by the Canadian government. One of them was actually ‘appalled’ that I had relinquished my U.S. citizenship 40 years ago when I swore a ‘renunciatory oath’ at the time of my Canadian citizenship ceremony. Although, I kept my mouth shut, I was equally as appalled that she lived in Canada for forty years and had never become a citizen of Canada. My thinking was and still is – how can you live in a country, enjoy what it offers and not want to be able to vote in its’ elections

  31. @omghesstillanamerican, whoait’sSteve- I know of at least one person in my church who is in a similar situation. The family is originally from Holland. Everyone in the family, including the husband, has become Canadian but she refuses to give up her Dutch passport. I also have a friend in the States who is Canadian but refuses to become an American even though the rest of her family is American.
    I guess that for me it wouldn’t be so much of an issue if it weren’t for citizenship based taxation. It is easy to remain the citizen of another country when that country doesn’t impose its laws on an extraterritorial basis. In the case of America though that is not the case.
    When your home country puts restrictions upon your life that relegate you to the status of second class in the place where you reside then keeping that country’s citizenship becomes a burden and a self inflicted wound.
    I know that there are many on this blog who refuse to give up their U.S. citizenship but in the end there are no rewards or pot of gold at the end of that rainbow. Involuntary suffering is one thing. But to set yourself up for a beating day after day is quite another.
    I guess that if you are single and you chose to endure the monetary injustice of citizenship based taxation and restrictions on personal movement then it is okay. But if you have any one who is dependent upon you I think that it is unfair to make them suffer along with you. Because suffer they will. Every dollar that you send to the U.S. is a dollar that you can’t give them. Every investment opportunity that the U.S. forbids as an associated opportunity cost that you will never regain.

  32. @all
    Three days ago I had a ‘friend’ ask me for a loan to cover her rent and some other things. She told me she had gambled the rent money away at the casino. After being more than a bit shocked, my response was no. I felt quite guilty about my answer but have not changed my mind about it.
    Reading on our site, I realize that my friends ‘request’ is not unlike what the U.S. is expecting from many of us. They want us to help cover their debts and in a very real way, they have contributed to the mess they now find themselves facing ie ‘out of money’. Well, my answer to the U.S. will be the same as my answer to my friend – NO.

  33. I have a neighbor who I thought was my best friend. As I got to know her and her family better I came to the realization that I had been completely duped and she was the world’s biggest user.

    So I did what I always do when I want to get rid of somebody for good. I told her she was a really good person and I wanted us to remain friends but I needed to take a step back from our friendship. She said ok. I never called her again and she never called me, she lives right next door. I think she realized I had figured out her game and she should move on to using someone else.

    I think we should all do to the US what we do to friends who use and abuse us. Ignore them.

  34. @tiger I don’t think your analogy is entirely accurate. Big government leads to big spending leads to big taxes. And the US Federal Government is just simply too big, we are not unitary we are a federation, the sooner DC is brought down to size the better.

  35. @tiger,

    Re “Although, I kept my mouth shut, I was equally as appalled that she lived in Canada for forty years and had never become a citizen of Canada. My thinking was and still is – how can you live in a country, enjoy what it offers and not want to be able to vote in its’ elections”

    My exact sentiments. Canada is where I wanted to live, raise my family, earn my living, pay my taxes, volunteer my time to strengthen my community, and vote for government to represent me. It was my choice to become a Canadian citizen as this is where I would thrive and enjoy life with my family and I wanted to give back and contribute to my new country, Canada. I am a Canadian!

  36. @WhoaIt’sSteve,
    My answer is still the same- I don’t personally care how “big” the US government has become or what it’s financial ‘needs’ are – I have been a Canadian for 40+ years; I really don’t mind paying taxes to Canada, after all, they have educated my children, provided health care to myself, my children and my late husband when he needed it; perhaps, sometime in the future they will provide nursing home care to me. But I will be damned if the United States government will get one cent from me or my late husband’s estate. They can damn well tax their own residents and stay out of my country, my home.

  37. I know this thread has moved on to bigger and better things but offered here for its sheer entertainment value is the Eritrean Foreign Ministry’s response to Ms. Rice’s condemnation of its “diaspora tax”.

    The link to the whole response is here:

    http://www.biddho.com/

    Here’s a clip of the fun stuff:

    Eritrea has never used the Diaspora tax to “destabilize the Horn of Africa region or …. for purposes such as procuring arms and related material for transfer to armed opposition groups … “etc. as Op. 10 of Resolution 2023 presumes. Curiously enough, the limited revenues that accrue from this provision have been mystified and exaggerated beyond proportion. But irrespective of the actual amount, it must be underlined that the legality of the tax is robust and beyond any reproach. The domestic legislation that created the tax is noncontroversial; the social objective noble; and, standing at 2%, the amount is not onerous by any standards. As the proceeds of this tax are funneled towards providing social cushion for the dependents of martyrs of war and/or for national reconstruction and development, the individual contributions ought to be eligible for tax-deduction in the host countries that allow similar provisions for charitable purposes. In any case, it should not constitute a cause for official scorn or witch-hunting. And least of all, the United States cannot be hypocritical to cry foul and prevent Eritrea from collecting any tax from its citizens. The United States in fact levies full income tax from its citizens abroad. To this end, it routinely utilizes unorthodox means including divulgence by foreign banks of accounts held by US nationals via the Qualified Intermediary Programme; court summons issued by the US Department of Justice to foreign banks; international conventions that support the issuance of administrative subpoenas upon wealthy Americans; and, bilateral agreements with individual countries to solicit their assistance in both criminal and civil tax investigations by the IRS, to assess and ascertain the amount of collectable individual income tax.

    Is there no honor among thieves?

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