FATCA for Fat Cats and Expats

We’ve covered the subject before — because it’s so important to any American who wishes to live and/or invest here in France — what is considered by the U.S. government as “off shore.”
Just one week ago, the IRS and the Treasury Department released the final regulations to implement FATCA, the Foreign Account Tax Compliance Act. The Act was part of the HIRE Act of 2010, approved by President Obama, in an effort to combat offshore tax evasion. What has always puzzled me, is how this U.S. regulation boldly attempts to place requirements and regulations on foreign financial institutions to report on the holdings of U.S. taxpayers…or they face stiff penalties.
I don’t get this and neither do the institutions this affects, who have of course, met this with resistance and who are also boldly refusing to do business with U.S. citizens. We felt it a few years ago when BNP Paribas would no longer lend to U.S. citizens wishing to purchase a property in France. We Americans have become ‘pariahs’ on the banking scene as a result.
According to the press, renunciations of U.S. citizenship are climbing, too, with 3,000 people renouncing it in 2013, compared to 933 in 2012, 1,781 in 2011 and 1,534 in 2010. Before FATCA, only 231 renounced their citizenship in 2010 and only 742 in 2009. A senior official of the Treasury, who preferred to remain nameless (are we surprised?) denied to correlation between FATCA and the renunciations, but who are they fooling?
One who renounced his citizenship in Tel Aviv was quoted as saying: “During the questioning before the oath I was asked if I was renouncing for tax reasons. I think I answered no, but rather for the existential reason that banks are throwing U.S. Persons out and no other banks will take us. And that the only way to survive abroad is by no longer being a U.S. Person. Can it be that the U.S. Consul is not aware what is happening to U.S. peop
le abroad?…not aware that the U.S.A. is (except Eritrea) the only country with citizen-based taxation and the FATC issue, etc.? By his facial expression I had that feeling.”
Regardless of the efforts by the Republican National Committee and other special interest groups, the IRS and Treasury are moving forward on implementing the laws, scheduled to take effect in July 2014, by negotiating intergovernmental agreements to have U.S. banks report on the holdings of their citizens as well. It’s all frightening to me personally that any government can place regulations on another country’s institutions.
Still, they argue that the laws are necessary to fight tax evasion by use of unreported offshore accounts which contributes to the federal debt and inequity within the tax system. The OECD (Organization for Economic Cooperation and Development) also announced a new global standard for an automatic exchange of tax information across borders, thanks to FATCA.
There are over 500 pages of regulations with which to adhere, making it an ardent task to change systems and procedures necessary to comply with the regulations. The financial institutions are already asking for extensions to prepare and I’ll bet many would rather give up then give in.
FATCA requires that U.S. financial institutions to withhold a portion of certain ‘payments’ (or shouldn’t we all them ‘transfers?’) made to foreign financial institutions that do not agree with the requirement to report on U.S. account holders. To date, the U.S. has signed agreements with 22 countries and many others are in process. The regulations were published in January 2013, but the withholding regulation goes into effect on July 1st of this year. Over 50 amendments and clarifications have been issued to the January 2013 regulations to reduce the burdens to comply, including direct reporting to the IRS rather than requirements to withhold part of the transfers until compliance is met.
In a comment posted on accountingtoday.com:
“3,000 persons surrendering citizenship is a sharp increase since FATCA was passed. When I started my international practice there was a significant interest by expats in renouncing citizenship as the FBAR enforcement became universally known. Over time it died down to the point maybe once a year a client would raise the question. Most of these were little retirees on fixed income who were required to spend a large sum in trying to adhere to the overly onerous U.S. reporting rules and in the end had no taxable income. Since FATCA was passed renunciation has become one of the hottest topics asked by clients.
For the U.S. to try to suggest the spike in surrendering citizenship is something other than related to FATCA is a severe case of self-denial. Many are all but being forced to do it as their ability to deal with foreign financial institutions has become all but impossible as many will no longer accept them and they are likewise foreclosed in the U.S. as to those living in Canada as U.S. advisors are not obtaining the required Canadian licenses to deal with Canadian residents.
This is starting to impact executive assignments that were already being negatively impacted due to the taxation of citizens rather than residents and the added overhead corporations must absorb when moving a U.S. executive to a foreign assignment. I am seeing a small but growing trend where employers are now preferring executives from other countries over U.S. persons as the ultimate costs are lower and there are fewer issues to deal with. The executives are finding out their U.S. account administrators are requiring them to close accounts or freeze them and they can not find acceptable competitive foreign institutions to have accounts with.
The U.S. Feds seem to be trying to force the business and personal environments into a position of isolationism from the world economy. Ultimately, this is going to increase our worldwide loss as the largest economic power and increase the speed of China to fill the void. We are starting to see companies moving Chinese executives into positions formally almost exclusively reserved for the U.S. executive market.”
Posted by: BrianL | February 21, 2014 8:39 PM
What will this all mean to American investors in France, who transfer large sums of money either to Notarial escrow accounts or their own accounts in France (“off shore”) in order to make a property investment?
First, it means there are fewer banks willing to lend to Americans as we’ve seen, or to take them on simply as commercial clients. Secondly, should a transfer of funds be held up for compliance of the regulations, it could mean forcing a buyer to default on the purchase process costing at least 10% of the price of the property (the deposit held in reserve for just this reason). Thirdly, It could be a serious deterrent to foreign investment…or it could have an opposite affect and encourage creative ways of getting money offshore in a way that removes the reporting requirement — and investing in property is a great way of doing that.
I agree with BrianL’s comment that the regulations will backfire on the U.S. by creating even more isolationism and opening the market to other countries with more lenient financial rules. Just like President Hollande’s tax hikes have created mass exodus from France by the well-heeled French as well as foreign companies further reducing the tax base, so will FATCA be the catalyst to finding solutions that remove the U.S. from the worldwide equation. Sometimes I wonder if lawmakers can think beyond the noses on their faces — thinking nothing of the what will really be the reactions to their actions.
As far as we know, French Notaires will not have to fulfill the same regulations as the financial institutions by reporting their U.S. clients. Should this remain true, then your money will be safer placed in a property that grows in value and isn’t considered an ‘offshore bank account.’ We have clients who have successfully done just this.
Meanwhile, off shore banks are reporting record numbers of new clients, in spite of the U.S. regulations, or in fact, because of the U.S. FATCA regulations. The banks that have agreed to comply are putting their U.S. clients through the proverbial ‘hoops’ to avoid severe penalties. Their clients are seeking more asset protection than tax evasion so that the IRS or others do not have the ability to access their assets or attach them by creating a layer between themselves and their money in the form of International Business Corporations (IBC) or trusts.
For more information about FATCA, see the Treasury’s fact sheet and FATCA Web page.
If you’re interested in making an investment in a property, see us!
And if you’re interested in opening an off shore account that has full SECRECY rather than simply PRIVACY, we recommend Caye International Bank, Belize.
A bientôt,
 
Adrian Leeds
Editor, French Property Insider & Director of The Adrian Leeds Group, LLC
Email: [email protected]

 
 

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