As the FT notes this morning:
Banks and foreign governments are mounting an increasingly desperate push against a sweeping US tax law that will force overseas institutions to report their American clients to the Internal Revenue Service.
The Foreign Account Tax Compliance Act was passed by Congress last year and comes into force in 2013. Last week, senior bank executives implored Tim Geithner, US Treasury secretary, to modify the law, according to people familiar with the meetings.
So what's the law about?
The legislation is part of a global push against tax evasion
Which is surely a good thing. Well, no, not if you're a bank. Look who's opposing it:
Disclosure records show groups including Switzerland's Credit Suisse, Barclays of the UK and TD Bank of Canada have together spent millions of dollars lobbying on the issue.
Some of the usual suspects then.
And why are these banks doing this? Becasue they say it will cost too much to stop tax evasion. Which of course is not true: what these banks are actually saying is that they don't want to bear the costs of their supplying their clients with the facilities to tax evade: they'd rather society bore that cost instead.
Not good enough is my message to the banks. And the Obama administration is saying the same too, thankfully. As the report also notes:
In their international search for revenue, [US] officials have rejected the sort of bilateral deals that Germany and the UK are negotiating with Switzerland, which would see Swiss authorities levy taxes on behalf of the country that is owed revenue, but not provide customer information.
Quite right too: this is not just about cash; this is about catching criminals. Tax evaders are criminals and any deal that lets them hide their crime in Switzerland for good is, well, a crime.
It's a pity our Treasury, with its lax attitude to tax evasion and ready willingness to do make settlements doesn't see it that way.
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It is a ridiculous piece of legislation because the bank may have no idea whether someone is a US citizen, particularly as there are so many US dual citizens. Simply being born in the US is a qualification for US citizenship. If that person goes to live abroad, not only does the US require them to file a tax return (usually with nothing to pay because of their non-US tax liabilities), but also requires their bank to remit details to US tax authorities.
For an example see here:
http://www.ft.com/cms/s/0/4e3ab1e6-9526-11e0-a648-00144feab49a.html#axzz1P6QNJSOh
[…] Why, oh why, can’t we take the US line? […]
[…] Why, oh why, can’t we take the US line? […]
Whilst I understand what the US is trying to do (and agree people should correctly pay tax), I disagree with the broadbrush approach they are taking and there are many financial institutions that feel the same. For example, I live in a country with a high tax rate with relatively few US residents and where it is difficult for a non-resident to open an account (even foreigners living here have difficulties), yet all the financial institutions here are trying to understand what to do as a result of this new law. If the US wants to achieve their objective, why not restrict it to financial insitutions set up in (or having operations in) specific locations such as tax havens etc?
Why, oh why, can’t we take the US line?
I’m beginning to wonder if the reason why the UK doesn’t take a tough line on tax avoidance/evasion/etc is deliberate.
It’s hard justifying long-term reduction to public services and provision when there’s no specific reason (e.g. recession) – BUT it’s a lot easier to justify it when there isn’t the money to spend from the outset. And what better way to have less money to spend than to purposely not collect as much?
Overt actions like reducing tax rates are one way of doing this; but covert actions like not bothering to collect money that should be paid is another way.
It is deliberate
I will be saying so in a speech today
Will be on line this afternoon
This US tax law is, basically, bonkers. It is extra-territorial US legislation at its worst, with the starting assumption that the whole world falls under US jurisdiction. It demands that all non-US financial institutions either report the activities of all of their customers to the IRS or suffer 30% withholding on all payments made to them from US banks. FATCA flies in the face of many of the data protection laws of the countries in which these non-US banks are based, forcing these banks to either break local laws or this new US regulation. Because 99.99% of non-US bank customers are of course non-US persons, the added costs will be paid by non-US citizens through increased banking and investment charges. And the total cost to the banks of implementing FATCA will exceed the amount it will recover in added tax for the US treasury.
You may dislike the banks, but that doesn’t automatically make them wrong about everything. In this case they’re absolutely justified in their opposition to FATCA. It is truly dreadful tax policy, a costly and self-defeating bureaucratic nightmare, and a certain lose-lose proposition. To quote a group representing US citizens who live outside the US, FATCA is “one of the most self-destructive programs for the economic welfare and future of the US ever devised by Congress.”
That’s true if you have the Tea Party view
From the viewpoint of the US it’s not true
The two should not be confused
It is a patently ridiculous law because the US Congress is imposing obligations on people who are not subject to US law. If I hold say £35,000 in an account with a tiny UK building society (assume that is more than $50,000), and then I am posted to the US by my employer on a B-1 visa (and thus become subject to US taxes), then the tiny building society is potentially subject to US penalties even if I don’t tell them I have moved to the US and even if I include the income in my US tax return.
As ever, an argument in absurdum
Don’t you guys just love them when it comes to protecting criminals?
Absurd? Not really because those exact facts applied several years ago. Nobody is protecting criminals, but some of us do object when we see countries overstepping their jurisdiction and trying to apply penalties to people outside their jurisdiction. In business I am happy to be mindful of the laws of all the states that have direct jurisdiction over me. I am not so happy about complying with the laws of those that do not.
Ah, the standard tax haven tax evaders cry – I’ve paid my tax in Cayman or wherever (= nil) so have no duty elsewhere
Nonsense, and you know it
Nothing to do with tax havens. The US law requires every bank in the rest of the world to ascertain whether any of its customers are subject to US tax, or suffer penalties whether or not the US has lost any revenue. If every country had the same rules as the US every bank would have to be at risk of falling foul of the laws of 220 different countries.
And if we had automatic information exchange in operation between all states (bar those abusing human rights) then this would not be needed
Blame the states that refuse to cooperate
Richard, you have made it quite plain that you have no idea what this tax law actually does, beyond the claims made by the US government. Please actually educate yourself before posting.
If this law stands, your investment records could be reported by your UK bank to the US IRS. Does that not disturb you in any way? Do you not feel British sovereignty has been trampled here by extra-territorial US legislation?
As noted, automatic information exchange would solve this
But those who support tax evaders block it
Are you one of them?
That’s your stock argument, isn’t it? If somebody is against a tax law then they must be a tax evader. No, I’m not a tax evader and I resent your accusation, bordering as it does on slander.
What I am against is having to pay more in charges and management fees for my UK investments and banking to cover the costs of complying with a US tax law. I personally don’t care what loony tax laws the US chooses to adopt, but any any that they do should not adversely affect me. This has nothing whatsoever to do with evasion. It’s purely a cost issue. I cannot tell if you are deliberately misrepresenting the problems with this law, or if you are merely uninformed.
Stock argument: or truth?
And I dd not say you were avoiding or evading: I said you were defending those who do
I maintain that’s why this law exists and whilst there are avoiders, evaders and those who defend them your petty self interest is of no concern: the greater good is
Tough is my answer in response to your vain self-centredness