Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
The Bad News About Record-Low Unemployment - 24th June 19
Stock Market New High, but…! - 24th June 19
Formula for when the Great Stock Market Rally Ends - 24th June 19
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

FATCA and the End of Banking Secrecy

Politics / Market Regulation Aug 19, 2013 - 02:19 PM GMT

By: MISES

Politics

Cezary Blaszczyk writes: Among the many recent revelations about American surveillance operations was the fact that, according to Der Spiegel, the U.S. intelligence apparatus “not only conducted online surveillance of European citizens, but also appears to have specifically targeted buildings housing European Union institutions,” Few, if any, of those commenting of late on such affairs mentioned that numerous nations across the globe actually acknowledged the U.S. government’s anti-privacy offensive months before by accepting its Foreign Account Tax Compliance Act (FATCA).


The FATCA legislation attempts to combat bank privacy on many levels and for many reasons including the American state’s desire for more effective tax collecting. According to U.S. tax law, every American taxpayer is obligated to fill out tax forms and pay taxes for their income attained not only on U.S. soil but overseas as well. The Internal Revenue Service (IRS) does not distinguish where the taxpayer lives, since U.S. taxation is based on either residency or citizenship.

Therefore America remains one of the two states worldwide that tax their non-residing citizens. The other is Eritrea, a country not known for an exemplary human rights record.

It is therefore no wonder offshore tax evasion is a substantial problem for the federal government. Senator Carl Levin, chairman of the Permanent Subcommittee on Investigations in Senate, revealed in a statement that tax-dodging schemes cost the Federal Treasury $100 billion a year. More than six (out of seven) million American taxpayers living overseas never fulfilled their tax obligations. Neither the Qualified Intermediary (QI) program, nor direct diplomatic efforts concerning tax havens succeeded, which led to an amendment of FATCA in 2010.

In general, the law forms an additional chapter to the Internal Revenue Code and obligates all Foreign Financial Institutions (FFI) to provide the IRS with information on their clients that are U.S. persons, thus combating tax evasion. FFIs that do not conform to their reporting duties are bound to pay 30 percent tax on any “withholdable” payments owed them in the U.S (U.S. payers are obliged to withhold 30 percent of the gross payments to delinquent FFIs). These include virtually any payment of U.S. source income: payment of interest, dividends, salaries, wages, rents, annuities, licensing fees, profits, gross proceeds from the sale or disposition of U.S. property and even interest paid by foreign branches of U.S. banks. Since the act’s definition of Foreign Financial Institution is substantially broad, every bank, broker, insurance company, private equity fund or hedge fund either identifies and reports to the IRS on their U.S. clients or is robbed of 30 percent of income on American soil. (An FFI is defined as any foreign (non-U.S.) entity that either “accepts deposits in the ordinary course of banking or similar business; or as a substantial portion of its business, holds financial assets for the account of others; or is engaged ... in business of investing, reinvesting, or trading securities, partnership interests, commodities, or any interest in such securities, partnership interests, or commodities.”) The IRS has started an internet portal where FFIs can register online and agree to cooperate. The law is effective since January 2013, however withholding does not start until January 2014.

According to FATCA, FFIs might be exempted from the 30 percent tax and recognized as FATCA-compliant if they identify all of their clients that are U.S. taxpayers and inform the IRS of the account holders’ names, TINs, addresses; the accounts’ balances, receipts, and withdrawals. Identification of the pre-existing high value accounts (that is: accounts with funds exceeding $1 million) are to be electronically scanned for so-called “U.S. indicia” and then manually verified (enhanced review) by the relationship manager who might have an actual knowledge about the account holder. Other pre-existing accounts are required to be electronically scanned only and accounts under de-minimis threshold of $50,000 ($250,000 for non-natural persons) are exempted from the search. If individuals meet the U.S. indicia, the participating FFI obtains the relevant tax forms from the account holder. Those who refuse are to be declared recalcitrant account holders, their accounts will be closed, and the tax will be deducted from their funds. U.S. indicia are: U.S. citizenship or lawful permanent resident (green card) status; a U.S. birthplace; a U.S. residence address or a U.S. correspondence address (including a U.S. P.O. box); standing instructions to transfer funds to an account maintained in the United States, or directions regularly received from a U.S. address; an “in care of” address or a “hold mail” address that is the sole address with respect to the client; a power of attorney or signatory authority granted to a person with a U.S. address.

Not surprisingly, FATCA has been controversial from the very beginning. Canadian Finance Minister Jim Flaherty said the law creates unnecessary paperwork and accused the U.S. of looking for tax havens where they do not exist. American Citizens Abroad (ACA) predicted that FATCA would have a devastating impact on the U.S. economy, U.S. financial markets, and American businesses operating abroad, while European media pinpointed that the main effect of FATCA’s introduction would be the dumping of clients with U.S. citizenship by European banks. Nevertheless the biggest problem is that FATCA affects not only U.S. persons but many entities abroad also. The costs of full compliance were estimated (in case of big banks in Poland) to reach almost 15 million Euro. The act was also heavily criticized for making foreign institutions “arms of US tax authorities.”

Resistance to the act from foreign states has nevertheless been muted. From as early as 2010 Japanese bankers expressed no intention of complying to the regulations and yet they did. On June 11, 2013 the Japanese government signed the Statement of Mutual Cooperation and Understanding between the U.S. Department of the Treasury and the Authorities of Japan to Improve International Tax Compliance and to Facilitate Implementation of FATCA. With the United Kingdom, Denmark, Mexico, Ireland, Switzerland, Norway, Spain, Germany and Japan as intergovernmental agreements (IGA) signatories and others coming, it is fair to say that January 1, 2013 is the day banking secrecy ceased to exist. Even Ueli Maurer, the Swiss president, admitted that “honouring the United States’ Foreign Account Tax Compliance Act led to the lifting of banking secrecy for US customers of Swiss banks.”

We did not have to wait long for a similar initiative from the European Union. According to the latest news, the European Commission seeks to expand automatic information exchange between EU Member States. EU Tax Commissioner Mr. Algirdas Šemeta revealed on June 13, 2013 a proposal for a Council Directive, which aims at eradication of tax evasion in Europe. The automatic exchange of information between member states is going to create a system called AEOI, the most comprehensive treasury and fiscal control in the world. Even Luxemburg and Austria, countries traditionally skeptical about collective anti-tax evasion initiatives, are expected to join the AEOI.

It seems that there is little understanding that it was banking secrecy that helped to resist twentieth-century dictatorships and that high tax rates — not money havens — are responsible for tax evasion, as Prince Hans-Adam of Lichtenstein has pinpointed. Clearly the amount of information collected for the purpose of future tax investigation is enormous, leaving little place for human privacy and dignity. Most importantly, it raises a question as to who gave participating states a right to gather information on people that are not their citizens.

Comment on this article.

Cezary Blaszczyk is a graduate of the Faculty of Law at Warsaw University. See Cezary Blaszczyk's article archives.

You can subscribe to future articles by Cezary Blaszczyk via this RSS feed.

© 2013 Copyright Ludwig von Mises - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules