Tuesday, October 28, 2014

Other Country Envy of FATCA (10/28/14)

A Tax Analysts Blogger, Robert Goulder, reports on other nations' envy of our FATCA law, discussing Colombia in particular.  See Robert Goulder, FATCA Envy Spreads Across Hemisphere (Tax Analysts Blog 10/24/14), here.
The South American nation of Colombia does not have its own version of FATCA, but its government wishes it did. That's evident from its current tussle with neighbor Panama. The root of the problem between the two nations is FATCA-style reporting of bank data, or the lack thereof. Colombia wants it badly; Panama wants nothing to do with it.
The current disagreement is with Panama, which, on a Latin American scale, is the local Switzerland with a (relatively) thriving financial center.  The result is:
So long as the banking sector is thriving -- and it is -- Panama's government doesn't care whether residents of other countries cheat on their taxes. The banks' position is that all nonresident clientele are free to self-report their interest income and it's not their fault when a Colombian client violates her country's tax laws. Nobody puts a gun the accountholders' heads and forces them to dodge taxes, although Panama's de facto bank secrecy certainly enables that outcome. 
For Colombia in particular,
Colombian law requires taxpayers to fully disclose bank deposit income regardless of where it was earned. But If a Colombian taxpayer failed to report his or her income from a Panamanian bank, the tax authorities would be very unlikely to detect the omission because of Panama’s lack of reporting. For practical purposes, the offshore account would remain a secret known only to the bank and the accountholder. Taxable income is thus concealed from Colombia’s revenue body with minimal risk. 
The result of all this is tax enforcement on the honor system, without the traditional backstops of withholding or reporting. Predictably, noncompliance in Colombia is a massive problem. Officials in Bogotá estimate the revenue loss from nondisclosure of offshore bank income at $2 billion to $7 billion annually. Those are large numbers for a country Colombia's size.
So, Colombia asked Panama to enter a Tax Information Exchange Agreement ("TIEA") which, would be FATCA-like, in requiring the reporting of bank account income for Panamanian accounts owned by Colombians.  Panama, not surprisingly, said "no thanks."

Panama may be relenting in the spat, as the author reports.

The key point is that the world is moving toward more transparency in fiscal affairs.  Over time, something like FATCA will be ubiquitous to require reporting to tax authorities initially in the developed countries but, eventually, very far out in the future, the world.  People who want to rant and rave about FATCA are playing a losing game.  But the focus of much of their angst is really the requirement of worldwide reporting on citizens, particularly those living outside the taxing jurisdiction.  That is a different issue, but so long as the law in the US and elsewhere (including Colombia) have tax on worldwide income, FATCA and inter-country agreements achieving the same effect are required to backstop the tax system.


  1. "The key point is that the world is moving toward more transparency in fiscal affairs." Yes Jack the whole world except the USA. You always carefully leave out that the US serves as a tax haven for other
    countries, including Latin Americans, and has so far no plans to stop the US
    banks in Florida, Texas, etc. from doing so.

  2. "The current disagreement is with Panama, which, on a Latin American
    scale, is the local Switzerland with a (relatively) thriving financial
    center"... Sorry Jack but your comparison is off.
    You can compare "on a relative scale" Panama to DELAWARE but CH is at least 2 shoe sizes bigger !

  3. Jack, I am missing some balanced blogging here on this subject. To share pro FATCA articles is great but what about the rest ? Especially from someone who admitted just rececently ... " I have not gotten into the merits of FATCA, that simply is an area that I just don't have the time to develop the expertise to make meaningful comments..."

  4. Pssssst super secret message to the U.S. government..............

  5. That is a convenient meme. The Envy only extends to the Tax Bureaucracy and Compliance complex that will profit greatly from all these regulatory measures...

    I don't think you will find much envy amongst the 100s of thousands of FFIs of the world that will bear the cost and regulatory burdens of the global GATCA that we unleashed when we enacted FATCA without debate or knowledge of those that were voting for the Hire Act.

    This will have disproportionate and significant impacts on the small to middle sized FFIs and 3rd world countries who are now dealing with an avalanche of regulation mostly caused by the TBTF Financial Institutions.

    Ironically the TBTF will benefit from the more complex regulatory environment. They have the implicit government guarantees and IT bench strength to deal with the new burdens, and it helps eliminate their competition that can't keep up with the demands of the regulators.

    The ultimate cost will be to the global economy, and it is almost like the OECD elites that perpetuate the global GATCA (easy tax money fraud) on the world, want to slow down even further an already faltering economy. Go figure.

    In the meantime, don't expect a Domestic DATCA anytime soon. Reciprocity from the USA for all those countries signing up to FATCA and/or GATCA is NOT around the corner..


  6. The article makes the distinction that Colombia wants info on its residents (not citizens, regardless of location). Taxation on worldwide income for residents is not a novel concept. It stands to reason that one should pay tax to the jurisdiction in which you live, vote and receive government services. In contrast, citizenship based taxation on worldwide income is limited to the U.S. and Eritrea. FATCA in and of itself (and data sharing) isn't the issue.

  7. Delaware does not provide beneficial ownership information for investors in Delaware LLCs

  8. ...the cost to an already faltering global economy... Right you are ! I guess you know what I think about an investment in stocks past 2015 :-)

  9. Structuring is indeed a crime but one of the elements surely would be an intent to avoid the reporting requirements, but the scary thing about these cases is that the IRS wasn't required to prove that crime or even provide probable cause to a judge of that element of the crime. Rather, probable cause that the pattern itself existed seemed sufficient to allow the IRS to seize vast amounts of cash and shift the burden of proof back on the defendant to show that he/she wasn't engaged in illegal activity (ie, structuring). Remarkable and scary.
    From a policy perspective, if the IRS was intentionally going after people with legal source income who may be engaged in structuring, and assuming in those cases, that structuring is primarily done to facilitate tax evasion, then they were taking a hyper-aggressive approach to stamping out cash based tax evasion, even though the normal penalties for the tax evasion would have been much less. Puts the FBAR push in perspective, as well. As has been said many times, the power to tax is the power to destroy and nowhere is that power more concentrated than in the hands of the IRS. They have an array of tools that can be used and/or misused and the taxpayer is very much exposed to IRS discretion. As in the case of the FBAR, congress needs to take a serious look at its willingness to delegate this type of discretion and impose additional checks and balances to ensure that abuses don't take place.

  10. GATCA was scheduled to be born today in Berlin and based on questions posed to German Finance Minister Wolfgang Schäuble at the OECD Global Forum press conference this afternoon, the United States did NOT sign the “commitment” to GATCA signed by some 90-odd other
    countries at the meeting today.
    Looks like the US policy will be to enforce FATCA for its own benefit and let GATCA and its OECD mother(s) fend for themselves.

    Interesting note: neither the OECD nor German Finance Ministry website appears to have published the actual text of the “commitment” that the forum delegates actually signed – or refused to sign – today.

  11. I was “educating” a friend of mine about FATCA and got the usual “no way!” “you’re not serious!” “can they do that!!” response and I told her to go ahead and google FATCA. She did and of course got tons of stuff but what caught my eye was this ad on the left:
    Jackson Hold Trust Co.
    +1 307-XXX-XXXX
    WYOMING onshore asset protection is better than offshore.
    Call us.

  12. I remember reading somewhere that even asking a bank about re[porting requirements can generate a SAR. Furthermore, there can be many legitimate reasons for making a series of deposits or withdrawals in amounts under $10K, but in many cases the wilfulness component seems to have been ignored. Also, I have read that in some parts of the country the limit is much lower than 10K.

  13. As to lower than $10,000 requirements, I posted on this here:


    Jack Townsend


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