FATCA : FINAL NAIL IN BANK SECRECY'S COFFIN?
FATCA applies to all "US persons," meaning all those required to file tax returns to the US Internal Revenue Service (IRS). Thus, EU citizens who live temporarily in the US have been caught up in its web because many of them keep bank accounts in Europe. So too are the many US citizens who keep bank accounts in Europe because they have lived there for years or decades, as they too must file annual returns to the IRS as long as they breathe. Under FATCA's implementing rules, banks are obliged to enter into agreements with the IRS by the end of 2013, to report US customers' bank balances to the IRS from 2014, customers' income from 2016, and gross proceeds from 2017. By turning European banks into unpaid IRS agents, the law is demolishing the last vestiges of bank secrecy.
MUTED EU OPPOSITION
Despite its sweeping reach, EU opposition to FATCA has been muted and sporadic. This is because many EU governments and some in the Commission are quietly pleased with FATCA as it helps them achieve a longer-term goal of setting up a global system of mandatory information-sharing between banks and national tax authorities. A deal reached in February 2012 between the US, Germany, Italy, France, Spain and the United Kingdom planted the seeds of this. Rather than forcing banks to report directly to the IRS, the new model they agreed is to require banks to report to their national tax authority, which will then send the data to the IRS. In return for such cooperation, the IRS will share comparable data with EU governments, provided that the US has an income tax treaty with that country. Failing such an agreement, data-sharing will be one way, ie from the European government to the IRS. Ireland, the UK and Denmark have in recent months concluded bilateral agreements to this effect with the US Treasury, which aims to do similar deals with at least 17 other EU countries.
Some EU governments are dragging their heels in signing these accords. With FATCA's implementation deadlines fast approaching, this put banks on a collision course with the IRS and is making their US customers road-kill. Banks hate FATCA for two reasons: the compliance costs created by having to identify their US customers and transmit increasing amounts of data to the IRS; and the legal liability arising from potentially flouting European data privacy laws if they send the IRS the requested data. Some banks, the Belgian ones being perhaps the most extreme example, are actively trying to get rid of their US customers to avoid these costs and liability. Letters are being sent to US customers announcing draconian new policies - for example, barring customers from doing online banking, or communicating in any form with their bank while on US soil. However, a US Treasury official told Europolitics that FATCA itself imposes no such prohibitions. According to a FATCA expert at one Belgian bank, about three quarters of their US customers have responded by finding ad hoc solutions, such as naming a Belgian resident as a mandatory empowered to manage their account. The other quarter are throwing in the towel and closing their accounts, with many repatriating funds back to the US.
Given the insanity of this situation, something is bound to give - the question is what or who. It will be interesting to see how many EU countries sign the aforementioned bilateral accords. At present, the prevailing mantra seems to be compliance, not defiance. On 9 April, France, the UK, Italy, Spain and Germany wrote a letter to Taxation and Customs Commissioner Algirdas Semeta calling for a global system of automatic information exchange between tax administrations based on FATCA. Semeta responded positively. "Transparency is the key when it comes to fighting tax evasion," he said.
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|Title Annotation:||Foreign Accounts Tax Compliance Act|
|Date:||May 6, 2013|
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