So Where were the Journalist on the May 15th FATCA Public Hearing?

Since I did not see much in the way of in depth reporting on the FATCA public hearings of May 15th, I searched out the written testimony and sat down for a read this weekend.  Thought I would share a few observations, (not an exhaustive analysis) and the provide the entire document for your own reading pleasure, so you can draw your own conclusions.

After all the opening patronizing comments about supporting the goals of FATCA and thanking the IRS for “allowing” them to comment, the speakers got down to some pretty serious criticism and concerns about FATCA rules which are currently in a 388 page draft form.

Sadly, there was very little outright push back at all these extraterritorial compliance requirements, other than to say, by some, “we can’t do that!” Maybe those that stayed home are sending a message with their absence!

The strongest statements of what was wrong with FATCA, in my opinion came from Japan, Sweden and BlackRock.

The BIGGEST issue, that almost all expressed concern about was implementation delays. There is way too much uncertainty to spend a lot of money and IT time on something still unworkable and not final. The general consensus was that it would take 18-24 months from the point of finalization to implementation, if it was doable at all.

Here are a few selected classic quotes.

The Bank of New York Mellon, said “We support the goal of evasion of U.S. taxes ,ah, stopping the evasion of U.S.taxes –(Laughter) Sorry”

The Canada Banking Association said, “Financial institutions cannot be expected to start building systems until the regulations and the FFI agreements are finalized.”

The head of tax at TD Bank Group said   “We cannot even begin implementation in earnest until the regulations, intergovernmental agreements, and relevant forms are finalized.”

Brazil said,  “Regarding the deadlines, we think that after the rules are established for pass-though, we would need at least 5 years to be able to put operational systems in place.”

Sweden said, “The definition of financial accounts is unclear, and we have tested that on our lawyers, that they read the text of the regs and no one understands it.” (Laughter)

Also, in my reading of the comments, I was struck by the general pessimism about the rules and how unworkable they are. Many concerns about the unintended consequences and systemic risks to the international financial markets were expressed.

Certainly the KYC (know your client) and AML (Anti Money Laundering) regulations were mentioned by many speakers as a better method to be used in place of the obnoxious and unworkable documentation requirements of FATCA. There was much pleading for using Risk assessment models as a better way of assessing who needed to comply. There were also many pleas for this or that entity or group to be “deemed compliant” and lots of exemptions  requested.

For the readers interest, here is a non exhaustive list of comments I noted and jotted down.

-Rules unfairly favor U.S. banks over FFIs

-Need a risk based approach

-Due diligence inconsistent with AML/KYC

-Conflicts with local and foreign law

-unprecedented extraterritorial reach

-Documentation renewal and records very expensive, eliminates the convenience of opening an online account.

-Entity documentation should be made considerably less burdensome

-superannuation and retirement funds must be deemed compliant

-has some degree of inconsistency and unreasonableness

-Implementation should be delayed ~18-24 months after final regs.

-Treasury has not considered FATCA’s impact on investors, capital markets, and penalizes U.S. funds

-Extremely unreasonable and unfair that punitive withholding tax would be imposed

-Regarding Mutual funds- one-size-fits-all approach doesn’t work in practice

– FFIs will need to quarantine some branches/affiliates in countries where compliance cannot be achieved.

-Regs a step backward, unnecessary impediments, a very negative effect on U.S.
competitiveness, U.S. jobs, and U.S. capital markets.

-The definition of a “U.S. person” very complicated for IT support criteria.

-It’s another inconsistent and unreasonable aspect of FATCA.

-Impossible for financial institutions to meet required target dates

-Certain “so called” Entities are not really entities so need exceptions

-Unnecessary and costly duplication of effort and must be modified in the final regulations

– and many many more…


Thinking about what I read, you have to wonder what is the likelihood that the IRS is going to resolve all those problems in the short time left before the final Regs are due this fall?   I see that this story is out tonight on Reuters saying that the U.S. aims at 5 EU tax evasion deals this month. I don’t see how they do it without just ignoring a lot of the issues presented in these hearings.

Also these deals depend on DATCA, and it is not done. Regulations have not yet been issued. As Isaac Brock readers know, the U.S. reciprocity promise is in the DATCA details, and I understand there is growing Congressional opposition to this domestic version of FATCA that is supposed to make these FATCA partnerships work.  If DATCA gets stopped either by legislative or legal means, I think that puts a big wrench in the IRS 5 deal wringer.  There is a recent Miami Herald story entitled “New IRS rule scares foreign depositors.” which you might want to read.  I don’t think the opposition to DATCA is going away soon.  I know the IRS has yet to issue the rules, and there will assumedly be a comment period and hearings. I would think that will get more press than the FATCA hearings, so this DATCA battle isn’t over until the FATCA Lady sings.

Another consideration. If these “EU deals” happen while they are still finalizing FATCA rules, it actually might complicate FATCA for a lot of bigger FFIs with groups operating across Partner and non partner countries. There will be different rules for the same group.  That will cause real headaches, as there will be a myriad of effective dates across a single group. Additionally different governments will have different procedures across the same group, and that make things more complex which is the opposite of “lightening the load.” which some analysts insist FATCA partnerships will do.

It seems to me, given the short time frames before final regulations are due in the Fall, the IRS will have to make some key decisions shortly. Either they will they just press ahead without due consideration of the testimony I read, and this was all just kabuki theater, or they will have to announce some delays soon so FFIs know what to expect.

What was missing in those hearings, and maybe that is just what happens at all such Public hearings is that there were no questions asked by the IRS and Treasury group who were there to just to listen, I guess.  Not sure what, if anything, they actually heard and took on board. Maybe that happens later in back rooms and side conversations, but I would of thought that for some of the more technical points being made, someone would have at least asked for a clarification.

Finally, I have put up links to 5 of the testimonies which were of particular interest to the Isaac Brock Society readers in Canada and put them in the appropriate thread dealing with the subject.

The Canadian Bankers Association

TD Bank Group, a worldwide financial services group headquartered in Toronto, Canada

Australian and New Zealand Banking Industry

World Council of Credit Unions.

Democrats Abroad

If someone wants to read the entire testimony, below is a copy for your reference.

FATCA Public Hearing May 15 2012

If you need it, here is a link to FATCA definitions


33 thoughts on “So Where were the Journalist on the May 15th FATCA Public Hearing?

  1. Here is a somewhat related link:

    “U.S. aims at five EU tax evasion deals this month”

    Shoddy reporting aside, my interest was piqued when they mentioned:
    1) Concluding the EU-five deal by end of June. I can’t wait for the agreement text to come out.
    2) Having other countries lined up in a different type of agreement by end of June also. “The Treasury also hopes by the end of June to complete a second model that will enlist the help of other countries”.
    I’m waiting with baited breath to see whether NZ is being lined up in this second group. Might have to get my quill sharpened.

  2. @Just Me: Thanks for pulling together that information. I love your comment: It isn’t over until the FATCA lady sings. Let’s hope she never gets her day to serenade us!

  3. The implementation of FATCA is one of several 2013 “triple witching” economic pressures which together form a “perfect storm” for the US & global economy. These include:

    – automatic Federal spending cuts of $1 trillion

    – the experation of the “Bush Era tax cuts” within a lame duck and dysfunctional Congress

    – student loan debt bubble of $1 trillion

    – private equity debt bubble ( read Josh Kosman’s “The Buyout of America” for a shock)

    – several state governments’ near bankruptcy

  4. I recently painted my house and was truly astonished that the drying process was not covered more thoroughly in the local press.

  5. thank you @JustMe, for putting that together. Miami Herald article particularly interesting in the points it makes about why DATCA is a serious blow to the banking in Florida and other states – which depend on foreign depositors.

    The US centric-vision. Ironic, in that actual robust benefits to the US have not even been demonstrated – other than the FATCA definitions and regulations which favour US entities. Even the GAO has noted the lack of sufficient cost/benefit analysis.

  6. @Moby;
    that article notes too:
    “Noticeably absent from the new framework then were major international banking nations such as Canada, Switzerland and the Netherlands….”

  7. @todundsteuer
    Cute! 🙂 but will your paint drying have serious consequences for my house maintenance in NZ? If so, I might want to know about it.

  8. Regarding the Reuter’s story…

    Roger asked me offline…

    This includes a very interesting statement which I wonder if it is accurate:

    “In February Treasury said that under a reciprocating agreement, the United States would collect and share information with the five participating EU countries about accounts held by their citizens in U.S. financial institutions.”

    Why would these 5 European countries be interested in the accounts held by their citizens in US financial institutions? I can understand wanting this information on their residents, whose income it taxed by those countries, but what possible interest could they have in the accounts of their citizens who live in other countries?

    Is this statement in error, or are these countries headed towards citizenship-based taxation like the US taxes its citizens no matter where in the world they live?

    Certainly the Reuters writer knows the difference between a citizen and a resident.

    Which prompted this interesting comeback question by another author…

    As I see it, the only reason the other countries are asking for info on their own citizens’ accounts in US banks is so that they could be seen, in the eyes of their own parliaments and politicians, to be getting reciprocity – i.e. they didn’t want to be seen as giving up everything and not getting anything in return (like Switzerland…).

    So even if they don’t actually use the info, which they probably won’t because they, in all their wisdom, have RBT instead of CBT, they require the US to cough up info.

    They might also realize that if this spreads, countries like Mexico, which would LOVE to get their hands on info about Mexicans who have accounts in the US, will jump on the bandwagon, and in that case, the Florida and Texas pushback will become even stronger.

    So a kind of sneaky way of hoping that reciprocity will lead to increased pressure on US banks to give info on their clients from everywhere in the world, which will balloon into huge US resistance (not US government resistance, grass roots !!!), and these reciprocal agreements will fall by the wayside…..

    Let me know of other interpretations !!!

  9. When has the Excited States ever been deterred from doing what it wants to do, even when it’s at its own peril? @Just Me, thank you for the information and great analysis.

  10. As I mentioned in another thread, I also believe that countries insisting on reciprocity will eventually lead to the derailment of the FATCA train. That’s a gut feeling, backed up by information given by those who know what they’re talking about 🙂

  11. @JustMe

    Some have emphasized conflict of law issues before such as TD Bank. I believe most of the statements made references to previous submissions.

  12. @bubblebustin: Unlike other countries, Canada already has an agreement for reciprocity with US on reporting on income from investments in one country by a resident of the other country.

    I’m not sure if that puts Canada in a stronger or weaker position–i..e. we don’t have anything to offer on that front to appease the US, so that could put us in a weaker position than other countries. On the other hand, the long-standing agreement has worked well, so Canada could insist our long-term cooperation is a model for reciprocity for other countries, so we don’t need to do anything more.

    Like you and Just Me, I think reciprocity is where it is all going to fall apart. At least I hope it is.

    In the meantime, I want our Finance Minister to assure us Canadian laws will not be changed to accommodate the Americans. So far, he is not willing to do that.

  13. and to finish the conversion, Roger went on to say this below, which gets at the faux reciprocity that incensed Moby, who gets it! This is not an apples to apples trade, but will the citizens of other countries understand this, or just think it is a fair deal to give up their privacy and have their sovereignty invaded by the U.S. Congress and its agent the IRS,because their politician has struck a “tough deal” with the US?


    But the recently-released IRS regulation requiring US banks to report information on foreign account holders who are not residents of the US.

    This new IRS regulation does not include a requirement that the banks report this information for foreign citizens who are US residents.

    Also as far as I know this new IRS regulation requires the reporting of interest income only,(actual regulations not published yet, that I know of) but does not require that they report foreign citizens identity document numbers, similar in purpose as our SS numbers for identifying who the person really is, or details on the value of the account.

    These details, I believe, have to be reported by Foreign banks to the IRS on all of their “US person” reports under FATCA.

    US banks do already report interest income, but none of the other details, to the IRS for all persons who are US residents, but these reports do not indicate their citizenship. These are the 1099 reports on interest income from these accounts.

    This interest income, in accordance with current US tax law, is tax free to non-citizen foreign residents, but it is taxable income for all US residents, regardless of their citizenship.

    I am aware from previous press reports that in the past Mexico has repeatedly asked the US for bank interest income received in the US by residents of Mexico, but the US has always refused to supply this data because it does not collect it from the banks and therefore does not have it.

    The new IRS regulation would appear to require banks to provide what Mexico has reportedly requested many times over, but not all of the data which foreign banks are required to provide on their US person accounts and which presumably would be reciprocally provided under this agreement with the 5 European countries.

    But not knowing what is in this draft agreement, perhaps the European governments are only insisting on being supplied with income data for tax purposes, rather than all of the data the IRS demands from their banks under FATCA.


  14. Pingback: More on FATCA public hearings – the presentation of the Canadian Bankers Assoc. |

  15. and more… Some get that this really isn’t full equivalent FATCA data reciprocity!

    Note also the information received from the US Mission in Germany, posted on the site of the German American Business Club of Berlin , in particular the final Q&A:

    Q: The joint statement says that the United States is willing to reciprocate in collecting and exchanging information on accounts held in U.S. financial institutions. Is the IRS going to collect FATCA information from U.S. financial institutions and send it to foreign governments?

    · The United States currently exchanges tax information on an automatic basis with France, Germany, Italy, Spain, and the UK, as well as with certain other countries. Treasury and the IRS have also proposed regulations to collect certain additional information that may be exchanged with these countries, where appropriate.

    · Under existing automatic exchange relationships, reciprocity does not mean equivalence. Generally, countries are only interested in information that is relevant for enforcing their own laws.

  16. @Blaze, as far as Harper goes in changing Canada’s laws, the NDP is all over that one, and so will the Canadian people. There are many already upset about the NA security perimeter and law enforcement spilling into each others territories.

  17. @badger

    If you download the FATCA testimony, you will see that General Insurance Association of Japan was one of the early speakers at the May 15th meeting…

    Some key comments of HODAKA SAKURAGAWA

    He is mostly concerned about Total Loss lapsed Contracts issued locally in Japan, is requesting that they be exempted from FATCA

    We requested that the total loss lapsed contracts which meets the following requirements be treated as pure protection insurance and exempted from the FATCA provision.

    We believe the possibility of Total Loss Lapsed Contracts to be used for tax evasion by U.S. persons is extremely low…

    Therefore, based on the reasons that I just described, we believe the possibility for such contracts to be used for tax evasion is very low.

  18. In tax haven USA, “foreign” persons, both individuals and corporations, might be evading taxes in both the USA and their country of “residence”. “Citzenship” might not always be the important criteria from a tax perspective.

  19. “Why would these 5 European countries be interested in the accounts held by their citizens in US financial institutions?”

    I can speak for France, as I followed closely the 2012 elections, candidates and programs.

    So far, Francois Hollande, the new French president wants to tax tax evaders in Switzerland, Belgium and Luxembourg. He said he wants to renegogiate fiscal bilateral treaties between France and these Europeen countries.

    Nothing mentioned about the US. He actually said that it would take 10 years to renegotiate all fiscal treaties and want to focus on these 3 countries first.

    But another socialist candidate jean-Luc Mélenchon wants to mimic the US system. He said: “We do like the Americans who go in each country and say ‘give us the list of our citizen’. And then, what do we do? To the French citizen, we say: ‘You pay taxes in the country where you live. That’s normal. But you also have to file a tax return to France and if you were to owe more in France, then you’ll pay us the difference”.

    Stupid. They don’t even think of the cost of living and other possible hidden tax or disadvantages that make lower taxes economically possible in other countries.

    That would be a catastrophe. I wish the incumbent was reelected. He was more friendly with expats…

    Bottomline is: it is going to become increasingly difficult for many to keep dual citizenship.

  20. @Badger…

    Re ur…

    The US centric-vision. Ironic, in that actual robust benefits to the US have not even been demonstrated – other than the FATCA definitions and regulations which favour US entities. Even the GAO has noted the lack of sufficient cost/benefit analysis.

    You know, considering this, and how little money FATCA was projected to collect in offshore revenue (.0.80 billion over 10 years), you really have to ask, what is the real motive behind all the effort?

    I have had to conclude that this is about something else besides just immediate revenues. Tim might disagree with me, but I think this is a “Political related tax provision”, and not an “Academic tax provision” as he has discussed previously. Although they did use Academics to write the details.

    The mission is really to be seen as doing something on the so called “Fairness” issue and cracking down on the Rich who are seen to be escaping the tax obligations, regardless of the consequences. So as “political tax” they don’t care about cost analysis, they are determined to create a global tax data exchange, damn the torpedoes, and stop the Rich from evading taxes which they assume they all are, and GATCA is what it is all about.

  21. @christophe, and @bubblebustin;
    It is feudal; in the treatment of an individual as if they are to be serfs, owned ‘property’, or without any acknowledgement of a reciprocal relationship and social contract between them and the country of their residence. A social contract says – you contribute to the society where you live, and we give you services, protection, rights, etc. in return. This way, it only runs in one direction – we claim ownership of your physical person, it’s labour and assets – you may not ask for a return re rights, benefits, protection, etc.

    I am not at all anti-tax. I pay in full where I live and earn. I am happy to pay in the country where I see and can access the services I support with those taxes. I pay at several levels – municipal, provincial, federal – and that is fine – but to to satisfy changeable, unpredictable additional extra-territorial taxmasters is unworkable. The individual cannot hope to resolve the inevitable contradictions and complexities.

    The candidate you speak of has not attempted to think through the situation logically – where 2 or more countries stake competing claims to the body and labour of the same individual.

  22. @Just Me, maybe it is ‘academic’, and maybe ‘political’ tax, or, more likely, a combination. Given that they know intimately about the lobbying efforts by anyone with any substantial money, corporations, etc. they have to know that they are accepting that there will be many with enough resources to get around whatever is proposed. Given that they know that in many countries, we are already thoroughly overseen and taxed by stable and democratic governments very similar to the US, they know that the ‘tax haven’ excuses don’t fly. If coupled with plans to get rid of the FEIE, or the foreign tax credits – it would gather more into the net of those who could be assessed with US tax on top of their home country taxes. Perhaps that is it? I think it is a grand scheme to get an ‘in lieu of’ tax from every single US ‘person’, no matter what their circumstances. In that case, all other countries better rethink that ‘savings’ clause in the treaties – or suffer the drain of assets being sucked out of their economies – particularly those with the most numbers of US ‘persons’.

    Or is it just a ruse? – to distract away from those within the US that have the power and assets to lobby for their own interests to be exempted – like the corporations incorporating in Delaware, and holding their assets offshore? Those ‘abroad’ then are a very easy group to scapegoat – and they know it. So, that would support your analysis that it is a ‘political tax’ (with a supporting cast from the academics) – to distract those at home from the structured and sanctioned inequalities. That seems inherent in the ways that the attempts of corporations to ‘minimize’ taxation are sanctioned by the IRS in public statements as logical and understandable, but any criticism of the tax-by-reporting-form-penalty-proxy continues to be labelled ‘evasion’ – in spite of knowing that there is most often 0 actual US tax owed. It has to be deliberately disingenuous.

  23. It’s simply scapegoating, without a shard of economic reality.
    Like a sad mad king who imagines a crow stole off with his fortune,

    “Oh, no – all the money we had is gone!!!”

    “Where did it go, oh how and where? We were once soooooo wealthy?”

    “Those expats took it; they took it offshore, and are hiding it there!”

  24. @bubblebustin
    Thanks for my morning chuckle! Dr. Evil truly is the perfect person to run the ‘integrated global financial juggernaut’.

  25. @Just Me, @badger, Sometimes people just do impulsive or stupid things, or things based on incorrect information. Not everything has a logical explanation. My opinion is that the US motive is what they say, to catch “tax cheats”, and they just didn’t consider the cost/benefit or the terrible unintended consequences of their plan. Yes, FATCA costs much more than its estimated revenue, and causes more harm than benefits to the US. But Congress just didn’t care about it when they passed the law, and the IRS has to implement whatever is in the law, no matter how absurd it is.

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