Wednesday, February 8, 2012

IRS Joins with 5 Other Countries for Information Sharing and FATCA Relief (2/8/12)

Articles on the internet are reporting a major development (or at least major hype) in a new agreement between the U.S. and 5 countries whereby each pledge more tax information sharing between the Governments of information obtained from local banks in their respective countries, with some mitigation of the FATCA rules.

Here are some key quotes from the articles:
In a joint statement, the United States, France, Germany, Italy, Spain and Britain said they wanted “to intensify their cooperation in combating international tax evasion.” In return, Washington has agreed to “reciprocate in collecting and exchanging” information about U.S. accounts held by residents of those countries.
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The United States and the five European countries said Wednesday that they would get around the secrecy problem by having financial institutions share data with their own governments, which would then share with Washington.
 * * * *
Treasury said that once these five "FATCA partner" countries finalized the framework, banks in those countries would not have to enter into separate data disclosure agreements with the IRS.
 * * * *
For nations not invited to become "FATCA partners" with the United States, banks and financial institutions in those countries must still cooperate on their own with the IRS.

 * * * *
 Noticeably absent from the new framework were major international banking nations such as Canada, Switzerland and the Netherlands, not to mention tax haven jurisdictions such as Ireland, the Cayman Islands and Bermuda.
 * * * *
U.S. Treasury officials say privately that they hope other countries that have raised objections to Fatca, including Canada, Switzerland, China and Japan, will see the benefits of the approach announced Wednesday and that the agreement is almost certain to expand. They say discussions with other countries are continuing.

David Jolly and Brian Knowlton, 5 European Nations Agree to Help U.S. Crack Down on Tax Evasion (NYT 2/8/12), here.

Steven Sloan and Richard Rubin, Treasury Proposes Easing Offshore Bank Tax Compliance Burden (Bloomburg Businessweek 2/8/12), here.

Lynnley Browning, US Enlists 5 EU Nations in Offshore Tax Crackdown (Reuters 2/8/12), here.


  1. Jack,

    Over at Isaac Brock Society we discussing these development fast and furious. The absence of Canada is noted to be quite conspicious on both sides of the border.

  2. One reason why the Canadian government has backed away from this is because their investigation into UBS was politically corrupted by people within the Canadian Department of Justice. A whistleblower provided them with inside information about UBS in Canada way back in 2008. However, there was a coverup that had the effect of protecting powerful people within, and associated with, the Canadian government (this is exactly what happened with the American investigation and the Bush Department of Justice). If the Canadian DoJ had followed up on this whistleblower’s information, it would have exposed the Canadian Ambassador to the United States (Wilson), who was the former chair of UBS Canada.

    As it turns out, Ambassador Wilson quietly resigned his position as Canadian Ambassador to the United States without explanation when the Canadian DoJ was reviewing the whistleblower’s information. There is a connection.

    1. The real reason is the one million or so US "Persons" living in Canada don't want their information being shared with the US so they called their MP's and complained and I fully support them doing so. Both the Conservatives and NDP oppose FATCA applying to Canadian residents.

  3. Whenever there is a high-profile announcement like this it usually means they failed at something, and failed miserably. So they cover it up with an announcement declaring success.

    All of these countries are the same ones that pled to Switzerland for their citizen's taxes. So what is the point of them exchanging information between each other! They all already tax within their borders, so they cannot collect anymore tax, from each other.

    It reminds me of how tax havens were forced to sign tax information sharing agreements. They made agreements with other tax havens, not with tax countries. It was the most ridiculous spectacle.

    Much like this agreement.

    But for the readers there are two categories of countries: High-tax (most of the developed world), and tax-havens (low-tax) (Switzerland, Cayman, Panama, Hong Kong, etc.)

    The high-tax want to collect from the low/no-tax countries, and no-tax are low for a reason: to attract/promote investment. So the war rages on.

  4. Jack,

    Here is an interesting interview with Brady Dougan of Credit Suisse admitting, in effect, that a Credit Suisse capitulation was likely and that CS had reserved about $300M for penalties. Assuming that is about 25% of the expected penalty, it would seem that they are expecting a penalty in the UBS range or above.

    I suppose we all appreciated these facts but it seems strange for Mr. Dougan to be publicizing the situation, unless, of course, he is distancing CS (and probably himself since most bankers think about themselves first, the company second) from the other banks in the net.

    Again, this might deserve its own post, but that's up to you.

    Best, Patrick

  5. I agree with the other comments: it seems like a cover-up for inaction and ineffectiveness by the different governments. As commenter M wryly states

    "All of these countries are the same ones that pled to Switzerland for their citizen's taxes. So what is the point of them exchanging information between each other!"

    Perhaps, to fool the populace into thinking that their governments are doing something about industrial scale tax avoidance and evasion, I suggest. This situation is shown in high relief by the corporate tax take being lowest in decades:

    Personally, while I believe in planning and not paying more than is legitimately owed, reasonably interpreting the IRC, it is obvious that corporate america is gaming the system using very aggressive interpretations of the tax law. And we, the great unwashed, are shouldering the deficiency created?

    Sure do something about tax evasion and avoidance, but agree to send emails and notifications to each other, creating more useless paperwork? Come on!

    1. Something really stinks that this is agreement with just "five" European countries. Nothing absolutely nothing about the rest of the world. This reminds me so much of the bilateral agreements Switzerland signed with just the UK and Germany

  6. Does this means - wait for 2012 OVDI?

  7. Hello,
    Just wanted to clarify something. The FFI will be examining pre-existing accounts as of the effective agreement date (say July 1, 2013). A pre-existing account would be an open client account (one with a balance). So, if you do not have an open account as of the effective agreement date (account closed on January 31,2012), there is nothing to examine and nothing to report to the IRS. Is this correct? Thank you!

    1. Correct.

      Even if the account is open, under FATCA the bank would tell the account holder to comply and allow breach of secrecy, or they would close the account.

  8. I have sent emails to the reporters of the stories above along these lines...

    This is the Bigger story, I think...

    How does the US enter into this sharing arrangement without requiring similar reporting from US banks of those countries citizens who are holding accounts in America?

    It does appear that a US version of FATCA (DATCA, I call it.) is the regulatory tool that the IRS is going to use to make this 5 country partnership work. If the IRS doesn't get the data from US banks on France, Germany, Italy, Spain and the United Kingdom citizens, there cannot be a reciprocal agreement, and the partnership fails, or so it seems to me....

    This attempt by the IRS and Congressional opposition has been reported on here.

    Congressman Tells IRS to Back off on Bank Disclosures

    Of course the reciprocity that the US wants out of these 5 partners is somewhat unbalanced. Citizens of these countries ARE NOT taxed if they are residing in the US. However the US DOES tax its US citizens and US Persons if they are residing in the 5 countries. So how do US banks make that distinction? Will they be required to do that? Will they want to do that? Can they do that? What is the cost of doing that?

    What will the reaction of the citizens of France, Germany, Italy, Spain and the United Kingdom when they find out their accounts in the US are about to be exposed to the IRS and data transmitted back to their IRS equivalent? Are they going to leave their money in the US, or will it move somewhere else? Might that mean capital flight out of American banks?

    So, what are the systemic issues that this might cause when money starts to flow away, and the US isn’t as attractive of a banking center anymore? That is a BIG issue I think.

    Also, what is the impact on US expats, dual US citizens and/or US persons who are residing in those countries??? If the target of all these tax evasion efforts, is to keep US homeland Rich from evading taxes as it is claimed, how much collateral damage is acceptable in this jihad? Does anyone at the IRS or Congress understand collateral damage, or in these days of drone strikes do we think our regulatory efforts are as precise as GPS directed bombs!

    It would appear that Geithner, Shulman and Company (including supporters in Congress like Carl Levin) are not backing down from their DATCA style regulations to require US banks to report on all non residence interest in all US banks to the IRS. Geithner probably told Rep. Charles Boustany, R-La. to go pound sand when it was reported that he wrote them back in September to try and get them to stop doing this. I would be interested if any Reporter ever followed up with Congressman Boustany, as to what response he got from Geithner?

    Also what about the letter from the Congressional Delegation to Obama in opposition to DATCA? Any response?

    So, for the tax revenue the IRS is trying to collect from the cheating rich (as they are characterized), what are the unintended consequences of all this? What is the cost vs benefit analysis that shows this world wide effort at enforcement makes sense? Why do reporters, generally speaking, never ever ask those types questions up front and challenge the officials that come up with these regulations.

    I genuinely don't get it.

    PS..I hear via the grapevine, that Senators Rubio (Florida) and Cornyn (Texas) were going to try to introduce a rider onto the transportation bill to block the ability of U.S. financial institutions to report on holdings of non-resident aliens in their banks to the IRS. We shall see what comes of it.

    1. I think that the US was invited to join the European Savings Tax Directive but declined.

      I can only guess the reasons.

  9. Thought I would add some information regarding a recent FATCA statement I heard Tim Geithner make.

    Congresswoman Maloney questioned him on FATCA during a recent hearing.

    The link is below and questioning over FATCA is around three minutes in.

    Let me quote exactly what I heard Timothy say about FATCA. Listen to see if that is what you heard.

    “We are working very closely to try to meet the Congressional intent in making it harder for American Citizens overseas to avoid US taxes without putting undo burden on their ability to have a bank account for example…..”
    End Quote:

    So, he is saying, that Congressional intent with FATCA was to make it harder for American Citizens overseas to avoid US taxes. There was no mention of the reason which I have naively thought heretofore was to stop Homeland cheats from moving money offshore and hiding it in secret accounts.

    So,since this FATCA action against Americans overseas was intentional, and not an unintentional consequence of some bigger mission, he is putting this back on Congress. "This was your intention, and so that is what we are doing!!"

    I was disappointed that neither the Congresswomen or any members of the committee challenged the intention or clarified the purpose of FATCA. Could be that they don't know what the intention of Carl Levin was when he added FATCA to the Hire Act, and that is why his statement went unchallenged. Or do they agree with his statement of intention? You be the judge.

    Maybe I should give Geithner the benefit of the doubt of a misspeak, but I think that time has now passed. As slow and measured he was in this response, that was not a slip of the tongue, in my opinion. He clearly knew exactly what he was saying.

    That was such a deliberate expression without a challenge, that I have now stepped across the line and no longer extending to him or Congress any benefit of doubt.

    Expats if you were not taking this FATCA stuff seriously before now, be forewarned. It has became very clear to me that indeed it was not just the “fat cats” residing in the US that were the targets of FATCA, but the “billions of dollars” in US taxes that they “think” are being “evaded” by US citizens who live outside of the US. Those abroad are not just Collateral Damage, but were clearly prime objectives of this legislation.

    That is where the IRS guns are clearly aimed. Senator Levin drafted FATCA with ample assistance and advice from the IRS, and now Geithner has reminded them of their intention.


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