Another small step for the US Foreign Account Tax Compliance Act (FATCA) may turn out to be a large step forwards for nations tackling tax evasion as America signs a new tax treaty with Panama.
Panama is to the US as a tax haven as the Crown territories and Dependencies were to the UK before they cleaned up their act.
Not only is Panama labelled as one of the world’s leading states for harbouring tax cheats from the US, Canada and Latin America, but the small nation is also a leading retirement destination for US expats.
However, although the US and Panama have no high-level tax treaties, the US Treasury has announced the Latin American state has signed up for FATCA.
That means any US taxpayer with cash or assets of more than $50,000 secreted in Panama financial institutions will have their personal and financial details handed to the US Internal revenue Service on a plate by the Panama tax authorities.
Other tax haven FATCA targets
Another key Latin American state for FATCA is Ecuador, as this is a popular retirement centre for US taxpayers, who must report their worldwide income to the IRS even when residing overseas.
Ecuador has strict banking secrecy laws that will require the government to either legislate or sign an intergovernmental agreement with then US so the tax authority can collect and pass FATCA data to the IRS.
Other Latin American countries Belize and Costa Rica have been classed as tax havens for US taxpayers by the Organisation of Economic Co-operation and Development (OECD), and are yet to sign FATCA agreements.
Looking north, the Canadian government has indicated that a FATCA agreement will be signed with US by the end of January 2014.
Privacy concerns
Meanwhile, opponents of the legislation are speculating that FATCA has more sinister aims.
The Repeal FATCA group suggest that FATCA will not increase US tax revenues significantly, but does give the IRS electronic surveillance information over the location and assets of US taxpayers living abroad – of whom there are around 6 million.
“Data sent to the IRS by foreign financial institutions will not be confined to the tax authority but will also, on request, pass to other US government security agencies like the CIA and NSA,” said a spokesman for the group.
The group argues that FATCA gives individual taxpayers a lack of privacy concerning their personal and financial data as passing the information through the FATCA portal bypasses data protection laws in the US and the transmitting country.
Has FATCA made it harder for those of us who reside outside the US? Yes.
But the blame should be placed on those who hid their assets and
income, not on the US government for finally forcing those evaders to
pay their share for the benefits of their US citizenship. Should FATCA
have been limited to the real fat cat evaders? Yes – the $50,000 limit
is pitifully small. Should FATCA have simpler rules for those US
citizens legally resident outside the US, allowing them to maintain
financial accounts in their country of residence? Yes. But do away with
FATCA entirely, and allow wholesale tax evasion once again?
Emphatically no.
If it is supposed to be honorable to wrongly harm the innocent with the claim of chasing tax cheats, then why is the US still the world’s largest and most secret tax haven? One would think that the US could at least apologize for its failure to not harm the innocent instead of lying in defense of its own crimes.
Fortunately, today’s ‘witches’, i.e. people living outside USA with a US birthplace, are doing an excellent job of educating people on the abusiveness and total recklessness of FATCA, much to the irritation of people like GlobalCapitalism.
Is that you, Max Murdoch / Mike Ditka, you great football player, you? I thought you didn’t like “Copy and Paste.”
So, what you are saying is, everyone must be punished for the sins of a few.
We have laws against that here in Canada.
Sorry to disappoint, but unless FATCA is limited to USA RESIDENTS, and not applied to honest, average, people living lives outside USA, paying taxes to the government of the country they actually reside in and earn their income in, FATCA will fail.
@GlobalCapitalism … well said GC !
FATCA-DATCA-GATCA are reality and here to stay.
92% of the US tax returns filed with the IRS by US persons abroad, with the FEIE and the use of foreign tax credits, end up owing zero in taxes to the US. Lets hope Congress does not follow some ideas to cancel FEIE and FTC because Tax returns like this, instead of generating tax revenue for the IRS are tax revenue destroyers because it costs the IRS a lot of money to just to process and handle them. They create make-work jobs that produce nothing of value to the nation or its economy.
GlobalCapitalism, BrokeBubblebustin and what ever other name that you post under, how many stateside Americans actually support DATCA? 50 including you?
see below a good FATCA summary :
Foreign Account Tax Compliance Act, also known as FATCA, guides foreign financial institutions through the steps they must take to ensure any of their clients who are US taxpayers declare all earnings or profits from offshore assets on their tax returns.
The Foreign Account Tax Compliance Act is a 388-page rule book issued by the US Treasury outlining exactly what foreign financial institutions must do to maintain their obligations under law.
The responsibility for reporting lies with the financial institution or adviser managing the asset rather than the individual. In theory, the US Treasury has to control fewer financial institutions than taxpayers – and the Treasury can exact penalties to make the institutions toe the line far easier.
However the burden also falls on individual US expats and the concern over what will happen to their taxes is increasing as the deadline approaches
“When taxpayers avoid paying what they owe, other Americans have to bear a disproportionate share of the tax burden. FATCA is an important part of the US government’s effort to address that issue, and these regulations implement FATCA in a way that is targeted and efficient . We believe these efforts will serve as a complement and catalyst to the ongoing global efforts to combat offshore tax evasion.” said Acting Assistant Secretary for Tax Policy Emily S. McMahon.
Who does FACTA affect?
FATCA is aimed at foreign financial institutions and US taxpayers with investments overseas.
A foreign financial institution (FFI) is any foreign bank, investment house, insurance company or other financial institution that holds cash, equities or other financial assets for US taxpayers or any organisation in which a US taxpayer may have a ‘substantial’ interest, like an offshore company or trust.
An FFI has to identify which clients are US citizens and then relay a detailed report about their earnings or gains to the Internal Revenue Service (IRS) every year.
here is a FATCA summary : I need to post in pieces since links are not allowed
Foreign Account Tax Compliance Act, also known as FATCA, guides foreign financial institutions through the steps they must take to ensure any of their clients who are US taxpayers declare all earnings or profits from offshore assets on their tax returns.
The Foreign Account Tax Compliance Act is a 388-page rule book issued by the US Treasury outlining exactly what foreign financial institutions must do to maintain their obligations under law.
The responsibility for reporting lies with the financial institution or adviser managing the asset rather than the individual. In theory, the US Treasury has to control fewer financial institutions than taxpayers – and the Treasury can exact penalties to make the institutions toe the line far easier.
However the burden also falls on individual US expats and the concern over what will happen to their taxes is increasing as the deadline approaches
“When taxpayers avoid paying what they owe, other Americans have to bear a disproportionate share of the tax burden. FATCA is an important part of the US government’s effort to address that issue, and these regulations implement FATCA in a way that is targeted and efficient . We believe these efforts will serve as a complement and catalyst to the ongoing global efforts to combat offshore tax evasion.” said Acting Assistant Secretary for Tax Policy Emily S. McMahon.
Who does FACTA affect?
FATCA is aimed at foreign financial institutions and US taxpayers with investments overseas.
A foreign financial institution (FFI) is any foreign bank, investment house, insurance company or other financial institution that holds cash, equities or other financial assets for US taxpayers or any organisation in which a US taxpayer may have a ‘substantial’ interest, like an offshore company or trust.
An FFI has to identify which clients are US citizens and then relay a detailed report about their earnings or gains to the Internal Revenue Service (IRS) every year.
What US taxpayers must do under FACTA
US taxpayers must file Form 8938 along with an annual tax return if they held assets worth $50,000 or more overseas after March 18, 2010. The taxpayer should list any offshore assets or income on the form and tax return.
Those failing to report foreign investments will suffer a $10,000 fine – which can increase up to $50,000 for a continuing offence.
The IRS will also top up any underpaid tax from failing to notify with a 40% surcharge.
What foreign financial institutions must do under FATCA
FFIs must report details of all accounts held directly or indirectly by US taxpayers.
To file this report, the FFI will have to sign up with the IRS by June 30, 2013 to:
Carry out identity checks on account holders
File an annual report on any accounts held by US taxpayers that includes:
The name, address and taxpayer identification number (TIN) of each US account holder
If the account holder is owned by a US entity, the name, address, and TIN of each substantial US owner of the entity
The bank account number
The end of year account balance or value in US dollars
Gross receipts and withdrawals in the year
The gross amount of dividends paid to the account
The gross amount of interest paid to the account
Other income paid or credited to the account
Gross proceeds from the sale of property paid to the account
The branch that maintains the account.
GlobalCapitalism, BrokeBubblebustin or any other name used, Americans living abroad have local accounts, not foreign accounts.
and finally :
Collect a 30% withholding tax for the IRS on income coming from the US or the proceeds of any asset disposal generating US sourced income if the money goes to:
A FFI without an agreement with the IRS
Account holders who fail prove they are not US taxpayers
A foreign organisation that does not prove the owners are not US taxpayers
FFIs must start withholding tax from January 2014 – and any FFI that fails to make FATCA reports will face fines and possibly a ban on trading in the US.
Identifying US taxpayers
Under general ‘Know Your Customer’ and money laundering rules, most FFIs will already know whether an account holder is a US tax resident.
For accounts opened after July 1, 2013, the FFI will request a Form W-8 or other US government documentation, like a passport, to establish whether the account holder is a US taxpayer.
How will withholding tax work?
The withholding rules will be phased in over a number of years – starting with US sourced income payments, like rents, interest on savings or dividends, on January 1, 2014.
Next comes the gross proceeds from disposal of property that generates US-sourced interest or dividends from January 1, 2015.
From January 1, 2017, FFIs will have to report pass-through payments from other FFIs that have hit the accounts of US taxpayers.
What happens to FATCA information?
To ease the reporting burden for FFIs, the US and some other governments, like the UK, France, Spain, Germany, Japan and Italy, have agreed to share financial information about US citizens.
In effect, this sets up an international network that switches tax information between countries, with the US agreeing to reciprocate data from abroad by sending information from US financial institutions back through the network.
The end result is the IRS will receive masses of data about the offshore financial affairs of US taxpayers, while other countries will gain similar financial data about their taxpayers with holdings in the US.
Tax agencies in every country which joins the network will cross compare the information with tax returns and other government documents to make sure everyone is declaring and paying the correct amount of tax in each country.
FATCA won’t fly, if Canada doesn’t sign an IGA. Its looking less and less likely that it will as time goes on.
@BrokeBubblebustin …. thank you for your appreciation – you are spot on.
Wise words from Hank Paulson who says “Every time is different.” – and USA is not Cyprus.
@GlobalCapitalism:disqus ..
Oh GC, you are soo funny. Thanks for the chuckle!
FastFacts: The State Department estimates there are 7.2 million U.S. citizens abroad. The fact that only 825,000 FBARs were filed for 2012 suggests that this group too is under-complying.
Few can claim ignorance of the IRS push for full transparency of foreign bank accounts and income. Since the shot heard round the world that brought UBS to its knees, billions in taxes and penalties have been paid. Tens of thousands of U.S. taxpayers sheepishly stepped forward to declare overseas bank accounts.
Serving a subpoena on a taxpayer suspected to have an undisclosed offshore account. The sole reason for the subpoena is to prosecute the recipient. The recipient can take the Fifth Amendment and refuse to testify as is our constitutional right, but can the recipient take the Fifth on the documents?
Plainly, producing bank documents or FBARs would be incriminating. Yet four Courts of Appeal, the Fifth, Seventh, Ninth, and Eleventh, have held the Fifth Amendment provides no protection
Has the IRS had the courage yet to be transparent on what was collected in taxes vs what has been collected from huge penalties? Nope.
My Canadian bank accounts are not ‘offshore’. I live in Canada, and am Canadian. All my bank accounts are in Canada. The money in my local, Canadian accounts was all earned in Canada, and has already been taxed heavily by the Canadian government. USA has no business knowing what’s in my bank accounts just because I was born on US soil.