FATCA Developments (part 2)

In my last post I summarised a report prepared for the Petitions Committee of the European Parliament about the application of FATCA in Europe including the effect of the new General Data Protection Regulation (GDPR). In this follow up post I discuss the context of this report and other recent developments and the implications of these European actions on those of us who live outside the EU.

Accidental Americans

By now most Americans Abroad will be familiar with the wide-reaching effects of FATCA. These effects vary widely. Those in countries with banks that were badly hit by the DOJ Swiss Bank prosecutions, are finding it very difficult to open more than the most basic non-interest bearing bank account. Long term expats who were unaware of their US filing obligations or the more esoteric “foreign” provisions in the US tax code are finding that they have structured their financial life in ways that are toxic when US tax rules are applied. And with the recent tax reform, it has only gotten worse. Perhaps the worst situation is that faced by “Accidental Americans” whose connection to the US is tenuous at best.

In the past year, one of the more active fronts in the FATCA “wars” has been in France with the formation of L’Association des Américains Accidentels (AAA). This group has been generating media attention and actively lobbying the French government to come to their aid, culminating in the unanimous passage of a resolution by the French Senate inviting the government to take action to support French citizens caught up in the FATCA nightmare. This latest development hasn’t been picked up by the English-language media, but has been covered in French. (Anglophones, Google Translate is your friend!)

While all of this action has been building up in France, J.R., a French citizen and Accidental American, submitted his petition to the European Parliament, resulting in the report described in my last post, and a new oral question to the European Commission from the Petitions Committee.

Possible EU Action

The Petitions Committee will be voting at their June meeting on a resolution to be put to a Plenary session of European Parliament in July. The original draft of the resolution can be found here, with proposed amendments here. Many of the recommendations of Prof. Garbarino’s report have found their way into this resolution.  The first action paragraph added by the amendments to the resolution says it all:

-1. Calls on Member States and the Commission to ensure that the fundamental rights of all Citizens, in particular the Accidental Americans, are ensured, especially the right to a private and family life, the right to privacy and the principle of non-discrimination, as laid down in the Charter of fundamental rights of the European Union and in the European Convention of Human Rights

Additional paragraphs ask the Commission and Member States to

  • ensure that legal residents are not discriminated against when it comes to financial services;
  • ensure that EU data protection laws are followed and amend IGAs if necessary to ensure compliance with GDPR;
  • prepare a full impact statement on the impact of FATCA and CBT on EU residents and citizens;
  • noting the lack of reciprocity in the FATCA IGAs, calls on Member states to suspend the IGAs (or at least reporting on all but US citizens residing in the US) until reciprocity is achieved.

IF this resolution passes (the vote in the Petitions Committee is scheduled for 19 June, with a vote in the Plenary session in July), that doesn’t mean immediate action. Expect some foot-dragging by the Commission and Member States. However, due to the new GDPR, something will need to be done before the next data transmission in September.

Effect on FATCA worldwide

It is my hope that these developments will cause the IRS and Congress to consider the impact of FATCA on Americans abroad relative to the (minimal) potential revenue stream from tax residents of other countries who can offset most, if not all of their potential US tax liability with a credit for taxes paid to their home country. These are not the tax evaders FATCA was aimed at, but they are the main victims of a global stop and frisk program to locate, tax and penalise non-resident US citizens. Of course, expats have been hoping along these lines since 2010.

However, with GDPR there is at least some hope that EU member states (or the EU collectively) will be able to re-negotiate the FATCA IGAs. Any concession that EU member states are able to win from the IRS will be welcome, and can be used by other countries to win similar concessions. While Article 7 of the Model 1A IGA calls for consistency, its applicability in this instance will depend on exactly how the EU member states negotiate and draft any concessions. Article 7 says that IGA partners will receive the benefit of any more favourable terms with regard to potential penalties on local financial institutions and due diligence requirements, but not with regard to the actual reporting requirements. But, if EU Member States gain the concession that they no longer have to report on their own legal residents, I would expect other G-20 nations to ask for the same. Then there’s the matter of Article 10, which calls for the parties to revisit the agreement by the end of 2016 with regard to reciprocity. I have yet to find evidence that any partner jurisdiction has requested such a review.

Of course, any change in FATCA reporting requirements will not override US law. In the absence of an adoption of residence based taxation by the US, those with US assets or who plan on returning to the US will be exposed to US tax on non-resident citizens. However, CBT was unenforceable with respect to US citizens without any US assets prior to FATCA (and is still largely unenforceable) because the IRS has very limited power to collect from assets held outside the US. FATCA is really a data privacy/protection issue because under FATCA the IRS has a better idea of who might have a filing obligation (not who owes tax), and some non-US banks are assisting the IRS by insisting on proof of US tax compliance. Here’s hoping that the current push for greater data protection, as exemplified by GDPR, will have global effects when it comes to sending sensitive financial data on a country’s own citizens and residents across international borders.

FATCA Developments in Europe

With the release of a report to the European Parliament and unanimous passage of a resolution in the French Senate, it appears that some governments are finally starting to stand up to US bullying of their own citizens through FATCA and CBT.

This post will summarise the academic report, written by Professor Garbarino of Bocconi University. A follow up post will discuss the context of the report and other recent developments and the implications for those of us who live outside of the EU. Continue reading “FATCA Developments in Europe”

Does FATCA stop tax evasion?

So, is FATCA responsible for stopping tax evasion? On twitter yesterday someone (not worth naming, he has no followers) claimed that FATCA was the root cause for the enforcement action announced by Kelly O’Dwyer, Minister for Financial Services last week . This was also reported by Bloomberg . The headline number in the press release was A$900 million of transactions – these transactions are not necessarily unreported income, and even the part that is unreported income will be taxed at a rate less than 100%. In fact, of 578 taxpayers listed in the original investigation, the vast majority were found to be compliant and only 106 are the subject of the ongoing enforcement action.

The claim in yesterday’s tweet was that FATCA broke Swiss banking secrecy and was therefore responsible for this potential tax revenue. However, Swiss banking secrecy was broken by the US Department of Justice which sued UBS (and subsequently other banks) for violating their Qualified Intermediary agreements. The results of these lawsuits were the justification for FATCA (and FATCA, in turn, was the justification for CRS).

I will not defend tax evaders. These 106 Australian taxpayers deserve the full force of whatever enforcement action the ATO can bring to bear. However, the resulting tax revenue will be the result of old-fashioned investigation based on information provided by an informant. None of the very costly Automatic Exchange of Information (AEoI) schemes has had any impact in this case.

Many government officials around the world believe that AEoI has generated BILLIONS of dollars in tax revenue from assets hidden in “offshore” accounts. Last week an official of the Chilean revenue office told me that she thought AEoI had generated $85 Billion of tax revenue world-wide. When you try to get to the bottom of these numbers, however, you find news stories like this one. Revenue that has been generated by data leaks and informants, not income that has been reported by FATCA (or CRS, which had its first data exchange last September). While I believe there are some who have (or will) “come clean” in fear of FATCA/CRS before they are identified by their local revenue authority, it is quite possible that the net revenue impact will be less than the considerable global compliance costs that AEoI has imposed on the financial services industry. For details on the costs and estimated revenue from FATCA, see section 1.02 of Prof. William Byrnes’ paper on Background and Current Status of FATCA and CRS.

I have been looking to see whether compliance among US expats has increased post-FATCA. While the anecdotal evidence appears to be that many “minnows” have been scared into compliance by the fear-mongering of tax professionals, the effect is not yet apparent in the data. The IRS publishes data on returns filed with an overseas address – these include returns filed by active duty military stationed overseas as well as residents of Puerto Rico, US government employees stationed overseas, and expats. The number of returns in this category has declined sharply since 2009.


The number of returns appears to be highly correlated with the number of US military personnel stationed overseas, which is currently at the lowest level in decades.
U.S. military overseas presence is at a 60-year-low
Once you remove military personnel, the compliance rate for other expats in 2015 appears to be between 15-20%, which is the same rate that has been quoted since before FATCA.

The effectiveness of FATCA, and AEoI generally, in increasing compliance rates is still unclear. The cost of compliance in Australia alone was estimated at over A$200 million. It’s time someone did a comprehensive, rigorous cost-benefit analysis of these schemes.

What did we learn from our ATO FOI request?

While the 2014 FATCA information transfer to the IRS was widely reported, since then we have had no idea how much data has been flowing from the ATO to the IRS. To get a better idea of the scope of the data exchange, Carl sent an FOI request to the ATO for a summary of the data sent to the IRS under FATCA for all three reporting years that have now been completed (2014, 2015, and 2016). The ATO complied with this request in a timely manner, sending us a pdf file of a printout of an excel worksheet that spans several pages both vertically and horizontally. [1]

FATCA requires Australian financial institutions (very broadly defined) to report account holder details as well as account balance, dividends, interest and other income paid, and gross proceeds from sale or redemption to the ATO for transmittal to the IRS. It is evident from the graphs below that the amount of data going to the IRS has exploded since the initial data transfer of 2014 data (transferred 30 Sept 2015).

Continue reading “What did we learn from our ATO FOI request?”

Behind the Curtain – FOI Requests

 

 

 

 

 

One of the terrific things about living in a parliamentary democracy like Australia is that there are safeguards in place to facilitate transparency of the Australian Government and public services.  One powerful tool is the Freedom of Information Act, or FOI, which provides individuals or organisations with the right of access to documents held by many government agencies.  By law, most public authorities have to respond to an FOI request within 30 days. Their response will either contain the information requested, or give a valid legal reason why it must be kept confidential.  Note that the government agencies may levy charges for locating and making the information available, based on prescribed rates.

Here at Fix the Tax Treaty!, we’ve often wondered whether the Australian Government adequately considered the impacts on Individuals (vs businesses) when negotiating and entering into the Australia – US tax treaty agreements and the FATCA Intergovernmental Agreement (IGA).

We decided to find out!

Continue reading “Behind the Curtain – FOI Requests”

Plan to Succeed (Part II) – Strategy Roadmap & Action Plan

Clearly articulating our group’s vision, objectives and action plans is essential if we are to be effective in achieving our aims. Many of you will recall that the Steering Committee members (Karen Alpert, Caroline Day and myself) have long been working on a Strategy Roadmap document, as previous discussed in a number of blog posts:

“A goal without a plan is just a wish.” ― Antoine de Saint-Exupéry

A good advocacy plan will help our group decide where to spend time and effort to achieve our goals and assist us to be as effective as possible with our limited resources.  The plan will be a key reference document that is periodically updated as we progress towards achieving our goals.

I’m pleased to announce that we have completed a final draft of our Strategy Roadmap.  You can view it here.

Continue reading “Plan to Succeed (Part II) – Strategy Roadmap & Action Plan”

Citizenship matters…

Storify is being de-commissioned. The story originally posted here is on the Internet Archive . You can also find it at Wakelet.

CRS – Coming soon to a bank near you…

From 1 July 2017, Australian financial institutions will be required to report account information of anyone with a tax residence outside of Australia to the ATO under the OECD’s Common Reporting Standard (CRS). Once the United States rolled out FATCA, countries in the OECD decided that cross-border reporting of financial accounts might be a good way to rein in use of tax havens for tax evasion. However, while the two are similar, there are some differences.  The key features of CRS are a common standard for: the scope of reporting (type of information, which account holders and which institutions), the due diligence required, format of the data to be exchanged.

With the current push for FATCA repeal, and the recent Hearing on The Unintended Consequences of FATCA, CRS is mentioned by some as a possible substitute for FATCA. Unfortunately, there seem to be a few misconceptions about the differences between the two Automated Exchange of Information (AEOI) schemes. As implemented in Australia, CRS is perfectly compatible with Citizenship Based Taxation.

While it is exceedingly unlikely that the U.S. Congress will ever sign on to CRS, it is important for those who advocate CRS as a more “benign” alternative to be clear on exactly what CRS entails.

This article covers:

  1. How is CRS being implemented in Australia?
  2. Who must report?
  3. Who and what must be reported?
  4. Reciprocity – FATCA vs CRS
  5. Penalties – FATCA vs CRS
  6. Implications for US Persons

Continue reading “CRS – Coming soon to a bank near you…”

How can they do that?

Have you opened a bank or investment account lately? Were you asked about other citizenships? Place of birth? Since mid-2014 Australian financial institutions have been ferreting out US Persons. At most institutions, every new account holder is asked these questions. And, if you are found to be a US Person, you must complete a form W-9 (or equivalent) disclosing your US connection and Social Security Number. This data will be sent to the ATO, who will forward it on to the IRS.

Think about that.

Private Australian financial information of Australian citizens and permanent residents is being sent to a foreign government.

How can they do that? Do they really have the authority to send private financial data to the IRS?
Continue reading “How can they do that?”

FOI Take 2

Just over a week ago, I received a message through this website from someone who had submitted an FOI request to the ATO. “Sam” expected that one of his accounts had been reported because the bank had identified him as a US Person and the balance was above the bank’s reporting threshold. The response from the ATO puzzled Sam, and it puzzled me as well. The ATO response stated that they needed to consult with a “foreign government” about whether Sam’s FATCA records were exempt from FOI under Section 33 of the FOI Act: Continue reading “FOI Take 2”