by Simon Black
February 15, 2012
Santiago, Chile
from
SovereignMan Website
The Foreign Account Tax Compliance Act, or
FATCA, is one of the most
arrogant pieces of legislation ever conceived. President Obama signed the
Act into law in 2010, and there are a some key provisions that are important
to understand.
Reporting Requirements
of US Tax Serfs holding Foreign Financial Assets
According to
the IRS,
“FATCA requires certain U.S. taxpayers holding foreign
financial assets with an aggregate value exceeding $50,000 to report certain
information about those assets on a new form (Form 8938) that must be
attached to the taxpayer‚ annual tax return.”
In other words, the law extends the existing reporting and disclosure
requirements for US citizens and residents holding certain assets abroad.
Reporting Requirements
of Foreign Financial Institutions
This is the part that’s really arrogant.
The US government is requiring any
foreign organization it deems to be a financial institution to enter into an
information-sharing agreement with the IRS. They’re effectively trying to
regulate what foreign companies do on foreign soil. Seriously arrogant.
The analogy I always use is that it’s like the government of Saudi Arabia
forbidding US grocery store chains from selling pork to Saudi citizens who
happen to be on US soil.
Here’s the kicker. Foreign banks who thumb their nose at the US government
and do not enter into the information sharing agreement face a steep
penalty: a 30% tax will be withheld on US-source income that goes to, or
through, their bank.
So let’s say XYZ Bank in some offshore jurisdiction doesn’t enter into the
agreement. The next time a payment goes from JP Morgan to any account holder
at XYZ Bank, JP Morgan will withhold 30% of it.
The implications of this legislation are extraordinary.
The old saying,
“That which is about to fall… deserves to be pushed,” comes to mind.
The
global banking system is already so broken and wounded. FATCA is going to
finish it off.
I’m starting to believe that it was designed to be this way. Even the most
casual read of the legislation leads one to conclude that it was
intentionally written to be ambiguous and unenforceable.
For example, the law requires that US tax serfs must report foreign
financial accounts held at foreign financial institutions (FFI).
What is an FFI? A bank? Brokerage? Gold dealer? Trust company? It’s not clear.
The law defines ‘foreign financial institution’ using the term ‘foreign
financial account,’ and vice versa.
It’s like someone who has no concept of baseball
asking,
“What is a first baseman?”
And responding, “The guy next to the second
baseman…”
“OK, so what is a second baseman…?”
“The guy next to the first baseman.”
The despicable truth
emerges about FATCA
Such ambiguities are so obvious that there are only two possibilities.
Either the people drafting the legislation are complete idiots, or the
ambiguities are intentional for the sake of giving executive agencies wide
latitude.
I believe it is the latter… which makes FATCA even more insidious.
Ambiguity
in legislative language means that the enforcement agencies charged with
executing the laws have a lot of leeway in how they interpret the rules and
formulate their own policies.
If the law doesn’t specifically state what a foreign financial institution
is, then the IRS gets to come up with that definition (and penalties for
noncompliance) on its own.
It’s also clear at this point that FATCA was intentionally designed to be
unenforceable. Think about it - every single ‘foreign financial institution’
(whatever that is…) on the planet has to enter into an information-sharing
agreement with the IRS? How is that REMOTELY realistic? It’s not.
What’s more, every foreign financial institution that DOES enter into an
agreement has to further agree to withhold a 30% tax on payments to other
foreign financial institutions that do NOT enter into the agreement.
Again, not even remotely possible.
There are millions of foreign wire
payments made every single day. Banks are supposed to be able to know which
of the beneficiary banks entered into an agreement and which didn’t… and the
US government is going to supervise the whole thing?
Fat chance. This, brought to you by the folks who couldn’t get bottled water
to New Orleans during the Hurricane Katrina fiasco, and the banks who were
robo-signing hundreds of thousands of contracts without any oversight.
So why would they pass a law that has no real hope of being appropriately
implemented? Two reasons.
-
The first is fear. Fear is a powerful weapon, and if the US scares the crap
out of foreign banks, most banks will simply close their doors to US tax
serfs… thus limiting the offshore options. This has already happened,
Switzerland is a notable example.
-
The second is to expand
the scope of Big Brother.
A few days ago, the
Treasury Department issued a joint statement with the governments of the UK,
France, Germany, Italy, and Spain on government information sharing
agreements, which would preclude banks from having to sign up individually
with the IRS.
Other countries are
expected to join the pact.
In other words, Congress passes a law that’s impossible to implement.
Foreign banks get really nervous and petition their governments for a
solution. Governments agree and enter into a mass government-to-government
agreement by which ALL information is shared with everyone.
Banks are off the hook. Governments get all the information they want. And
it’s becoming obvious that this was the intention all along.
Ah, so.
Financial privacy, meet speeding bullet.
