Beware, if you are a US citizen, or a green card holder, living abroad. FATCA is on you !
FATCA stands for the Foreign Account Tax Compliance Act and is the latest weapon unleashed in the awful American tax code. On measures of awfulness, FATCA must be a contender for one of the worst pieces of legislation ever passed. It takes America's unilateralism - something this blogger has long railed about - to a new level.
Basically FATCA is an imposition of its tax laws on every financial institution in the world, wherever they may be. Every bank, even in Timbuktu, is required to report to the US authorities, details of bank accounts and transactions of all US persons (citizens and green card holders). If they fail to do so, they would essentially barred from doing any business in the US. Terrified of being shut out of US markets, almost every country of any standing has signed bilateral agreements with the US to this effect. Did I mention the word, bully ?
All this arises from the stupid concept that prevails only in America, and in no other major economy in the world. America taxes its citizens on global income, even if they lived entirely abroad and earned all their income abroad. So such citizens pay taxes in the country where they live in AND to Uncle Sam. In every other major country, depending on your residency, you are taxed on where the income arose only; not on global income.
The ostensible reason for FATCA is to go after US citizens who are hiding their income overseas and avoiding taxes. While that may be a fair objective, it suffers from two major flaws - the first that you want to tax global income and second that you are simply trampling on every other country, just because you have the capability to do so.
FATCA came into effect three days ago. It will have major ramifications for anybody connected to the US, but living abroad. Consider the question of privacy. America requires every country to report transactions, irrespective of the country's privacy laws. And yet if the same country turned back to the US and asked it to report similar data for its nationals, the US will tell it to go away citing privacy considerations. Did I mention the word hypocrisy.
All sorts of unintended consequences are emerging. Some US citizens living abroad are considering surrendering their US citizenship. The rate of surrender, though still small, has quadrupled since FATCA came on the horizon. Some foreign banks are basically telling US citizens to go away and not have accounts with them - they simply don't want to get squashed by the strong arm of the US. Some employers overseas are turning away US citizens, considering them not worth the bother.
Consider the US green card holder living in India. Many take this only to escape the brutal visa regime. Parents of children now living in the US maybe. Now they are caught in the FATCA net.
This blogger is reminded of a famous cartoon in The Economist many years ago. The Economist was commenting on how desirable the US green card is even for ostensible haters of the Great Satan. The cartoon featured a rabid mullah, yelling Death to America in a protest somewhere in the Middle East - and he whispers as an aside to an American journalist - "Can you get me a green card "!
Maybe the time has come to change the punchline. Can you burn my green card !
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9 comments:
You bet Uncle Sam has never heard of something called DTAA (Double Tax Avoidance Agreement). Nancy will please wear her accountant hat and explain!
@Kiwi - The US has Double Tax Agreements with a number of countries, but for US citizens it is complex and the credits are curtailed - maybe 'Nancy" can elaborate !! Poor Deepa. She really has been rechristened here :)
They could have as well used the ending "t" of "Act" and called this FatCat, instead of the FATCA which does not seem to have a closure sound to it ;)
hehe ... Nancy ...
So ... the nerd in me took over ... this is how I end up wasting my time!!!
Reading a news/analysis in the WSJ--the holy scroll for finance (haha)--I get a different understanding of FatCat ...
This chart alone tells quite a story: http://si.wsj.net/public/resources/images/AM-BE137_WEICOL_G_20140703071834.jpg
China is actively working with the US because the law and the agreement with China "affects Chinese who made their money illegally and are trying to hide it in the U.S., and possibly the many Chinese who have exceeded the $50,000 a year limit on moving money out of China."
Source: http://t.co/nrdw661ilV
@Sriram - Mmmmm. Dangerous territory here.
Current laws are perfectly adequate to deal with suspected cases of tax evasion - go to a court, get a warrant and then you can know all. This extends to foreign jurisdictions as well. But a blanket reporting of ALL transactions, is no different from the overwhelming NSA snooping. The vast majority of foreigners who have bank accounts in any country are honest law abiding citizens.
The Chinese example quoted is a red herring in my view. Of course, the number of Chinese who illegally siphon away money from China is legendary. But to think that they keep it in the US in such a way that FATCA will catch them isn't credible. And for the idiots who do this, existing laws in the US are perfectly adequate to deal with it.
My stand remains. FATCA is a massive overreach, is taxwise a retrograde piece of legislation and is definitely bullying of all other nations. The Economist , echoes this view - http://www.economist.com/news/leaders/21605907-americas-new-law-tax-compliance-heavy-handed-inequitable-and-hypocritical-fatcas-flaws and , of course, my views were influenced by this article.
I think this is how New York State will balance its budget.
@Ravi - Not much chance. Even God cannot bridge any deficit in the US of A.
Nancy has no love for anything related to tax regulations. I can still manage to speak intelligently about DTAAs but US tax regulations and the credits mumbo jumbo, no way. When it comes to regulations, I don't understand half the things Uncle Sam comes up with. Maybe Ramamritham has a country cousin here.
@Deepa - Ramamritham has a worthy colleague in the IRS. Did you see the IRS defence that they had lost some emails because of a computer crash ? Fancy any assessee trying it with them. They really have no shame.
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