Banks Battle Over Us Tax Law

[Naam]

Published: June 12 2011 22:02 | Last updated: June 12 2011 22:02

Banks and foreign governments are mounting an increasingly desperate push against a sweeping US tax law that will force overseas institutions to report their American clients to the Internal Revenue Service.

The Foreign Account Tax Compliance Act was passed by Congress last year and comes into force in 2013. Last week, senior bank executives implored Tim Geithner, US Treasury secretary, to modify the law, according to people familiar with the meetings.

Banks say they are already racking up significant costs. Eventually, they say, the task of scouring records for US citizens and then reporting them could run into billions of dollars and conflict with domestic privacy laws. Disclosure records show groups including Switzerland’s Credit Suisse, Barclays of the UK and TD Bank of Canada have together spent millions of dollars lobbying on the issue.

Terry Campbell, Canadian Bankers Association head, said the act was “conscripting financial institutions around the world to be arms of US tax authorities”. Algirdas Semeta, the European tax commissioner, told the Financial Times that he shared the concerns of the financial sector and expected more meetings with US counterparts. “We can find alternatives that would ensure all necessary information on their taxpayers without imposing additional burdens on financial institutions in the EU,” he said.

People involved in meetings on the subject say the Obama administration has indicated it will look to reduce the burden on banks, which have to identify US citizens with accounts of more than $50,000. But Manal Corwin, senior Treasury official, said: “The US interest is to have reporting on accounts to stem the tide of offshore tax evasion.”

She suggested the burdens were overstated. “With respect to existing accounts, we’re not, for example, asking them to make contact with every account holder they have but to do an electronic search of their files to look at indications of US status – an address, a birthplace or other US connection.”

If banks do not comply they face a 30 per cent withholding tax on payments to the institutions from the US – a threat that some believe will lead to foreign groups trying to remove themselves from US capital markets.

“There’s a big loophole in Fatca,” said Dirk Suringa, a tax lawyer at Covington & Burling and a former Treasury official. “It does not prevent US taxpayers from opening a hidden foreign account at a complicit foreign bank that holds only foreign investments. It leaves open the possibility of continued cheating if people sell their US direct and indirect assets, which is another thing we do not want.”

Officials are sceptical that the burden of Fatca will outweigh the benefit of access to the US and have stressed that even indirect contact with US markets will incur the withholding tax.

But the provision has caused US groups to join their international counterparts in fighting the law. Disclosure records and public comments show that BlackRock, the fund manager, and Citadel, the hedge fund, have been active in calling for relief. Some US groups fear that their products will be shunned by overseas companies looking to escape the crackdown.

Most of the concerns are from overseas. DWPBank, a German processor of securities transactions for 1,600 German client banks, said Fatca implementation costs could rise to up to €10bn in Germany alone if all banks and institutions were to seek to comply. Karl-Martin im Brahm, a member of DWPBank’s board, said German insurance companies could find Fatca compliance even more difficult than banks, according to DWPBank. “Strict laws [for insurers] make it illegal to reveal some customer data. They are in a very difficult position,” Mr im Brahm said.

The legislation is part of a global push against tax evasion that has caused unease among US citizens overseas. UBS, the Swiss bank, paid $780m in 2009 to settle criminal charges that it helped Americans evade tax and handed over client details.

Steven Miller, deputy commissioner for services and enforcement at the IRS told a conference last week: “The IRS plans to move against one or more banks in the next month or so.”

In their international search for revenue, officials have rejected the sort of bilateral deals that Germany and the UK are negotiating with Switzerland, which would see Swiss authorities levy taxes on behalf of the country that is owed revenue, but not provide customer information.

[CWMcMurray]

I would guess that if enough banks and fund managers around the world unified on this issue and made a united stand that they would pull all investment out of US stock market if this issue was pushed, the US would have no choice but to either back down or face economic meltdown...

The question is will banks and investors actually take a stand in this and "play chicken" with US government to see who blinks first...

[Naam]

The question is will banks and investors actually take a stand in this and "play chicken" with US government to see who blinks first...

they won't because they are scared shitless, especially those with an exposure in the U.S. as even a temporary ruling of a Federal Judge can halt their business for a few days and cause hundreds of millions losses.

Edited June 13, 2011 by Naam

[givenall]

I would guess that if enough banks and fund managers around the world unified on this issue and made a united stand that they would pull all investment out of US stock market if this issue was pushed, the US would have no choice but to either back down or face economic meltdown...

The question is will banks and investors actually take a stand in this and "play chicken" with US government to see who blinks first...

Has nothing to do with bank says about the cost. I would imagine there are a lot of rich people (US citizen) around world that don’t really care about theuse tax laws and don’t think is any business of US to know where their money is and i agree

[PattayaParent]

No wonder there are overseas banks that do not want US citizens as customers.

[CWMcMurray]

The question is will banks and investors actually take a stand in this and "play chicken" with US government to see who blinks first...

they won't because they are scared shitless, especially those with an exposure in the U.S. as even a temporary ruling of a Federal Judge can halt their business for a few days and cause hundreds of millions losses.

There will be a lot of complaining and hand wringing, but I agree that at the end of the day this is likely to be a done deal.

[12DrinkMore]

I fail to understand what all the fuss is about.

Come on all you Americans, patriotic to the last man or woman, from the Land of Freedom, Free Enterprise and Promise. In the hour of need, Obama, Bernanke and Geithner need you to be honest citizens and pay up your taxes and declare your dishonest gains.

There is a huge deficit to be fixed.

Surely you can't let your countrymen down when the banks are failing, the food stamps have to be paid, Obama-Care, Freddie and Fanny and Goldman Sachs have to be financed?

[rgs2001uk]

I fail to understand what all the fuss is about.

Come on all you Americans, patriotic to the last man or woman, from the Land of Freedom, Free Enterprise and Promise. In the hour of need, Obama, Bernanke and Geithner need you to be honest citizens and pay up your taxes and declare your dishonest gains.

There is a huge deficit to be fixed.

Surely you can't let your countrymen down when the banks are failing, the food stamps have to be paid, Obama-Care, Freddie and Fanny and Goldman Sachs have to be financed?

As a Non American (by the grace of God) dont know what the fuss is about, guess thats what comes of not coming from TGCITW.

[monekyface]

"Last week, senior bank executives implored Tim Geithner, US Treasury secretary, to modify the law, according to people familiar with the meetings."

This is Tim Geithner the TAX CHEAT that we are talking about? !@CK THEM.

[Naam]

No wonder there are overseas banks that do not want US citizens as customers.

that was a fact for several years even before the new law. it all started with the "qualified intermediary program".

http://www.irs.gov/businesses/corporations/article/0,,id=150934,00.html

[geriatrickid]

It is convenient to blame the US government, but I draw your attention to the fact that subsequent to the US court victories against some Swiss banks, multiple EU nations' departments of revenue moved to negotiate similar deals. People have a short memory as many of the Carribean bank branches of reputable UK and Canadian banks were linked to money laundering and the drug cartels back in the 80's It was the US that forced these banks into cleaning up their respective acts. Look up the history of the Bank of Nova Scotia now called the Scotia Bank. Sure, blame the Americans, but they are getting assistance from some other countries and are being aided in their efforts.

Good for the USA. If more people paid their taxes, personal income tax rates could be reduced. The foreign banks that facilitate these shelters and laundering (hello Luxembourg, Panama, Antigua, St. Kitts) can go <deleted> themselves.

[Naam]

The foreign banks that facilitate these shelters and laundering (hello Luxembourg, Panama, Antigua, St. Kitts) can go <deleted> themselves.

and (exactly the same) foreign banks who's daughter companies are domiciled in Hong Kong and Singapore, respectively their banksters, are happy like pigs in shit because billions have been moved and are still moving to safer pastures. but of course (U.S.]American clients are personae non grata.

the only exceptions treating Americans as valued clients are a Russian bank incorporated and domiciled in Singapore as well as a dozen semi-obscure banks in the Baltics and some Island States in the South Pacific.

[Naam]

not too much off topic because it concerns taxes, specifically Thai income tax legislation.

since years i am trying to find out the reason why Thailand's income tax legislation concerning offshore earnings and gains is extremely generous. i don't know of any other country which provides its citizens and residents a similar and perfectly legal loophole to avoid paying even a single penny of income tax.

can somebody give me one valid reason why?

[OriginalPoster]

The foreign banks that facilitate these shelters and laundering (hello Luxembourg, Panama, Antigua, St. Kitts) can go <deleted> themselves.

and (exactly the same) foreign banks who's daughter companies are domiciled in Hong Kong and Singapore, respectively their banksters, are happy like pigs in shit because billions have been moved and are still moving to safer pastures. but of course (U.S.]American clients are personae non grata.

the only exceptions treating Americans as valued clients are a Russian bank incorporated and domiciled in Singapore as well as a dozen semi-obscure banks in the Baltics and some Island States in the South Pacific.

You make pandering to money launders and tax evaders sound like a completely reasonable thing. An ex-banker perhaps?

.

Edited June 14, 2011 by OriginalPoster

[Naam]

The foreign banks that facilitate these shelters and laundering (hello Luxembourg, Panama, Antigua, St. Kitts) can go <deleted> themselves.

and (exactly the same) foreign banks who's daughter companies are domiciled in Hong Kong and Singapore, respectively their banksters, are happy like pigs in shit because billions have been moved and are still moving to safer pastures. but of course (U.S.]American clients are personae non grata.

the only exceptions treating Americans as valued clients are a Russian bank incorporated and domiciled in Singapore as well as a dozen semi-obscure banks in the Baltics and some Island States in the South Pacific.

You make pandering to money launders and tax evaders sound like a completely reasonable thing. An ex-banker perhaps?

i am an ex-physicist reporting facts and you Sir, should refrain from posting (not original) but rather ridiculous assumptions especially when they concern things of which you possess obviously a wealth of "no idea".

p.s. what does this sentence tell you? is this the diction of an ex-banker?

...and (exactly the same) foreign banks who's daughter companies are domiciled in Hong Kong and Singapore, respectively their banksters...

Edited June 14, 2011 by Naam

[PattayaParent]

not too much off topic because it concerns taxes, specifically Thai income tax legislation.

since years i am trying to find out the reason why Thailand's income tax legislation concerning offshore earnings and gains is extremely generous. i don't know of any other country which provides its citizens and residents a similar and perfectly legal loophole to avoid paying even a single penny of income tax.

can somebody give me one valid reason why?

UK has similar advantages for non-domiciled residents, at least for the first 7 years.

[partington]

Is this development connected or not? I don't know:

I have a bit of cash in a unit trust ( = mutual fund in US terminology) company in the UK (named after a big planet). They have just informed all their clients with a US address that unless they submit an IRS tax form (WBEN, I think) their accounts will be closed and units sold within 90 days.

Thank f** I don't live in the US any more.

This makes an awful lot of UK banks, brokers, and financial institutions that will either not let you have accounts if you work in the US, or will force you to jump through the increasingly intrusive and burdensome reporting requirements of the IRS, on their behalf.

Of course I am in favour of complying with the law, and paying taxes to the country you live in, but the US is a special case- one of the only 3 or 4 countries in the world that tries to make its citizens pay tax on money earned elsewhere in the world and never brought into the US, even when they no longer live there.

And they apply this to green card holders too, if they have lived there longer than 8 years--so in theory you can live in the US for 10 years, not be a citizen, leave permanently, yet be legally obliged -indefinitely-to both fill in a US tax form every year AND pay tax on all your income from any where in the world to the US government ( even if none arises within the US), even though your right to enter the US as a permanent resident on your green card expires if you have been away for more than a year.

Crazy isn't it? But true...

There's a way out, of course, which is to officially abandon your Green card at a US embassy and get a form that proves it, PLUS fill in a final tax form declaring you've gone (and if you've got more than $2 million in assets-they treat it as capital gains deemed to have been sold on the date you left, and tax it all at 30% or higher as a goodbye punishment!)

edit for punctuation

Edited June 19, 2011 by partington

[CaptHaddock]

Is this development connected or not? I don't know:

I have a bit of cash in a unit trust ( = mutual fund in US terminology) company in the UK (named after a big planet). They have just informed all their clients with a US address that unless they submit an IRS tax form (WBEN, I think) their accounts will be closed and units sold within 90 days.

Thank f** I don't live in the US any more.

This makes an awful lot of UK banks, brokers, and financial institutions that will either not let you have accounts if you work in the US, or will force you to jump through the increasingly intrusive and burdensome reporting requirements of the IRS, on their behalf.

Of course I am in favour of complying with the law, and paying taxes to the country you live in, but the US is a special case- one of the only 3 or 4 countries in the world that tries to make its citizens pay tax on money earned elsewhere in the world and never brought into the US, even when they no longer live there.

And they apply this to green card holders too, if they have lived there longer than 8 years--so in theory you can live in the US for 10 years, not be a citizen, leave permanently, yet be legally obliged -indefinitely-to both fill in a US tax form every year AND pay tax on all your income from any where in the world to the US government ( even if none arises within the US), even though your right to enter the US as a permanent resident on your green card expires if you have been away for more than a year.

Crazy isn't it? But true...

There's a way out, of course, which is to officially abandon your Green card at a US embassy and get a form that proves it, PLUS fill in a final tax form declaring you've gone (and if you've got more than $2 million in assets-they treat it as capital gains deemed to have been sold on the date you left, and tax it all at 30% or higher as a goodbye punishment!)

edit for punctuation

Is this the case? I thought that your green card normally lapses after 12 months out of the US. If that's true how could the former green card holder have a lifetime tax liability?

[partington]

Is this development connected or not? I don't know:

I have a bit of cash in a unit trust ( = mutual fund in US terminology) company in the UK (named after a big planet). They have just informed all their clients with a US address that unless they submit an IRS tax form (WBEN, I think) their accounts will be closed and units sold within 90 days.

Thank f** I don't live in the US any more.

This makes an awful lot of UK banks, brokers, and financial institutions that will either not let you have accounts if you work in the US, or will force you to jump through the increasingly intrusive and burdensome reporting requirements of the IRS, on their behalf.

Of course I am in favour of complying with the law, and paying taxes to the country you live in, but the US is a special case- one of the only 3 or 4 countries in the world that tries to make its citizens pay tax on money earned elsewhere in the world and never brought into the US, even when they no longer live there.

And they apply this to green card holders too, if they have lived there longer than 8 years--so in theory you can live in the US for 10 years, not be a citizen, leave permanently, yet be legally obliged -indefinitely-to both fill in a US tax form every year AND pay tax on all your income from any where in the world to the US government ( even if none arises within the US), even though your right to enter the US as a permanent resident on your green card expires if you have been away for more than a year.

Crazy isn't it? But true...

There's a way out, of course, which is to officially abandon your Green card at a US embassy and get a form that proves it, PLUS fill in a final tax form declaring you've gone (and if you've got more than $2 million in assets-they treat it as capital gains deemed to have been sold on the date you left, and tax it all at 30% or higher as a goodbye punishment!)

edit for punctuation

Is this the case? I thought that your green card normally lapses after 12 months out of the US. If that's true how could the former green card holder have a lifetime tax liability?

That's what I mean--if you are on a green card for more than 8 of the 15 previous tax years you are called an LPR- a long term permanent resident, and for tax purposes this means you are treated in the same way as a citizen if you leave. But immigration and the IRS are not connected with each other, so although your green card lapses as an entry document after you've been away for a year, your long term permanent resident status, which is an IRS definition not an immigration one, doesn't change, unless you make it do so by officially abandoning your green card to the department of Homeland Security on form I-407 at a US embassy.

I did not believe this either until I checked thoroughly and it's absolutely correct. Here's a brief quote (from the link below that contains the full explanation and details)

In the case of green-card holders, surrendering U.S. residence is more complicated. Generally, Treasury regulations provide that resident status continues until it is either rescinded or administratively or judicially determined to have been abandoned. A green-card holder may only rescind or abandon the green card by taking affirmative steps and filing the necessary paperwork (i.e., INS Form I-407) with the local U.S. consulate or embassy. U.S. tax law does not provide for passive abandonment of a green card (e.g., failure to use the green card).

And here's the link that details this amazing burden that the good old USA imposes on even temporary residents:

http://www.sgrlaw.com/resources/trust_the_leaders/leaders_issues/ttl16/835

Land of the Free!

[Javabear]

Is this development connected or not? I don't know:

I have a bit of cash in a unit trust ( = mutual fund in US terminology) company in the UK (named after a big planet). They have just informed all their clients with a US address that unless they submit an IRS tax form (WBEN, I think) their accounts will be closed and units sold within 90 days.

Thank f** I don't live in the US any more.

This makes an awful lot of UK banks, brokers, and financial institutions that will either not let you have accounts if you work in the US, or will force you to jump through the increasingly intrusive and burdensome reporting requirements of the IRS, on their behalf.

Of course I am in favour of complying with the law, and paying taxes to the country you live in, but the US is a special case- one of the only 3 or 4 countries in the world that tries to make its citizens pay tax on money earned elsewhere in the world and never brought into the US, even when they no longer live there.

And they apply this to green card holders too, if they have lived there longer than 8 years--so in theory you can live in the US for 10 years, not be a citizen, leave permanently, yet be legally obliged -indefinitely-to both fill in a US tax form every year AND pay tax on all your income from any where in the world to the US government ( even if none arises within the US), even though your right to enter the US as a permanent resident on your green card expires if you have been away for more than a year.

Crazy isn't it? But true...

There's a way out, of course, which is to officially abandon your Green card at a US embassy and get a form that proves it, PLUS fill in a final tax form declaring you've gone (and if you've got more than $2 million in assets-they treat it as capital gains deemed to have been sold on the date you left, and tax it all at 30% or higher as a goodbye punishment!)

edit for punctuation

Is this the case? I thought that your green card normally lapses after 12 months out of the US. If that's true how could the former green card holder have a lifetime tax liability?

That's what I mean--if you are on a green card for more than 8 of the 15 previous tax years you are called an LPR- a long term permanent resident, and for tax purposes this means you are treated in the same way as a citizen if you leave. But immigration and the IRS are not connected with each other, so although your green card lapses as an entry document after you've been away for a year, your long term permanent resident status, which is an IRS definition not an immigration one, doesn't change, unless you make it do so by officially abandoning your green card to the department of Homeland Security on form I-407 at a US embassy.

I did not believe this either until I checked thoroughly and it's absolutely correct. Here's a brief quote (from the link below that contains the full explanation and details)

In the case of green-card holders, surrendering U.S. residence is more complicated. Generally, Treasury regulations provide that resident status continues until it is either rescinded or administratively or judicially determined to have been abandoned. A green-card holder may only rescind or abandon the green card by taking affirmative steps and filing the necessary paperwork (i.e., INS Form I-407) with the local U.S. consulate or embassy. U.S. tax law does not provide for passive abandonment of a green card (e.g., failure to use the green card).

And here's the link that details this amazing burden that the good old USA imposes on even temporary residents:

http://www.sgrlaw.co...ssues/ttl16/835

Land of the Free!

This is how the US government gets away with taxation without representation. In the situation described above the "former" green card holder would have no rights to vote under the constitution but be obligated to pay taxes to a government that they have no say in. In this case those people have left the US permanently so there is not likely to be a large uproar caused by this. If I were in a similar situation the IRS could bill me all they wanted to but I would simply refuse to pay and tell them to kiss the fattest part of my arse.

[CaptHaddock]

This is how the US government gets away with taxation without representation. In the situation described above the "former" green card holder would have no rights to vote under the constitution but be obligated to pay taxes to a government that they have no say in. In this case those people have left the US permanently so there is not likely to be a large uproar caused by this. If I were in a similar situation the IRS could bill me all they wanted to but I would simply refuse to pay and tell them to kiss the fattest part of my arse.

Green card holders can never vote whether in the US or not, only citizens. The US Constitution does not assure "no taxation without representation." That phrase was merely a slogan during the colonial period.

[partington]

Is this development connected or not? I don't know:

I have a bit of cash in a unit trust ( = mutual fund in US terminology) company in the UK (named after a big planet). They have just informed all their clients with a US address that unless they submit an IRS tax form (WBEN, I think) their accounts will be closed and units sold within 90 days.

Thank f** I don't live in the US any more.

This makes an awful lot of UK banks, brokers, and financial institutions that will either not let you have accounts if you work in the US, or will force you to jump through the increasingly intrusive and burdensome reporting requirements of the IRS, on their behalf.

Of course I am in favour of complying with the law, and paying taxes to the country you live in, but the US is a special case- one of the only 3 or 4 countries in the world that tries to make its citizens pay tax on money earned elsewhere in the world and never brought into the US, even when they no longer live there.

And they apply this to green card holders too, if they have lived there longer than 8 years--so in theory you can live in the US for 10 years, not be a citizen, leave permanently, yet be legally obliged -indefinitely-to both fill in a US tax form every year AND pay tax on all your income from any where in the world to the US government ( even if none arises within the US), even though your right to enter the US as a permanent resident on your green card expires if you have been away for more than a year.

Crazy isn't it? But true...

There's a way out, of course, which is to officially abandon your Green card at a US embassy and get a form that proves it, PLUS fill in a final tax form declaring you've gone (and if you've got more than $2 million in assets-they treat it as capital gains deemed to have been sold on the date you left, and tax it all at 30% or higher as a goodbye punishment!)

edit for punctuation

Is this the case? I thought that your green card normally lapses after 12 months out of the US. If that's true how could the former green card holder have a lifetime tax liability?

That's what I mean--if you are on a green card for more than 8 of the 15 previous tax years you are called an LPR- a long term permanent resident, and for tax purposes this means you are treated in the same way as a citizen if you leave. But immigration and the IRS are not connected with each other, so although your green card lapses as an entry document after you've been away for a year, your long term permanent resident status, which is an IRS definition not an immigration one, doesn't change, unless you make it do so by officially abandoning your green card to the department of Homeland Security on form I-407 at a US embassy.

I did not believe this either until I checked thoroughly and it's absolutely correct. Here's a brief quote (from the link below that contains the full explanation and details)

In the case of green-card holders, surrendering U.S. residence is more complicated. Generally, Treasury regulations provide that resident status continues until it is either rescinded or administratively or judicially determined to have been abandoned. A green-card holder may only rescind or abandon the green card by taking affirmative steps and filing the necessary paperwork (i.e., INS Form I-407) with the local U.S. consulate or embassy. U.S. tax law does not provide for passive abandonment of a green card (e.g., failure to use the green card).

And here's the link that details this amazing burden that the good old USA imposes on even temporary residents:

http://www.sgrlaw.co...ssues/ttl16/835

Land of the Free!

This is how the US government gets away with taxation without representation. In the situation described above the "former" green card holder would have no rights to vote under the constitution but be obligated to pay taxes to a government that they have no say in. In this case those people have left the US permanently so there is not likely to be a large uproar caused by this. If I were in a similar situation the IRS could bill me all they wanted to but I would simply refuse to pay and tell them to kiss the fattest part of my arse.

Of course, and I would do this too if I could : it's an absolutely disgraceful, thieving, hypocritical policy.

BUT as I worked there so long most of my retirement money is now in a US IRA (individual retirement account). I cannot remove this before age 591/2 without paying full taxes plus a 10% tax penalty for early withdrawal-- this means I would lose 50% of it instantly if I took it out. As its a decade's savings it's a large amount, and I need it to fund my declining years.

So they have me over a barrel -- I must be in compliance legally and demonstrably with every US tax law, however heinous and unjust, so when the time comes to start withdrawing this money I have no legal problems. So that's what I have done--I've filled in I-407, and this year will submit my final declaration of departure assets and tax on form 8854 to the US. That should end my connection for good.

Luckily I'm not that rich---as I said before if I had more than $2million in assets, (stocks , bonds, house etc) the law is you are deemed to have sold these on the day you left and have to pay a 30-50% leaving tax on all of it! Think about it. If you are a foreign national, you work in the US for 8 years, then decide to go home, they can just take half your money away for no other reason than that alone!

I think the US is simply disgraceful . As has been pointed out, you pay while obtaining no benefits, rights, representation, or even being allowed to live there.

I try to warn everyone about this because almost noone is aware this situation exists, and when you tell them they disbelieve it because it is so patently unfair....

Edited June 22, 2011 by partington