By Kimberly Wied
We’ve been fairly focused lately on a few recent decisions made by the US government. There might be some room for debate regarding the overwhelmingly negative impact many of these new policies will have on the lives of Americans living overseas, however, we don’t see many people stepping up to the plate as proponents of the new laws.
One prickly issue that is finally gaining steam in the media is the FATCA, or the Foreign Account Tax Compliance Act. We’ve touched on this act in prior posts, and we are now seeing some serious criticism arising among those in the know, along with a growing backlash from foreign banks and financial institutions.
Birthed by some bright minds in the US Congress in 2009 in response to a crackdown on UBS (a Swiss banking giant that sold tax evasion services), FATCA was signed into law by President Barack Obama in March 2010.
Originally scheduled to go into effect on January 1, 2013, the “start” date of the new law has been pushed back one year to January 1, 2014. This is in result of an outcry from foreign banks due to FATCA’s monumental reach, vague details and hidden costs that need to be assessed.
To summarize the requirements that will be imposed by the FATCA, foreign banks and financial entities will be granted two options: either amass massive amounts of data on all U.S. clients holding accounts of at least $50,000 and send this on a yearly basis to the IRS, or withhold 30 percent of interest, investment and dividend payments meant for those clients and send this to the IRS. In addition, if the foreign entity refuses to cooperate and has American clientele, it will face a penalty of 40 percent of the amount in question and increased attention from the IRS.
Foreign financial institutions will, basically, be put between a rock and a hard place.
Several media outlets and online news sites have published criticism of the law issued by the world’s banks and business people, and tax lawyers at the Swiss-American Chamber of Commerce in Zurich deem FATCA the “neutron bomb of the global financial system”.
Also worth noting is that no other country in the world has a similar law in place, that basically requires sovereign financial institutions to become an enforcer of another country’s tax regime.
In June, the private banking arm of HSBC issued a statement that it would no longer be providing services to U.S. citizens outside of the United States, due to the high cost of complying with FATCA.
Due to the mounting pressure on banks as the deadline to comply with FATCA rules looms ever closer, HSBC may be the first of several banks to resist cooperating with the heavy requirements. If this scenario does eventuate, Americans living abroad or considering moving abroad might want be forced to turn back to the tactics used during the Great Depression: hiding a stash of cash under the basement floorboards.
Related Documents:
The Effects of the US Government’s Policies on Americans Living Abroad
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