FATCA Is Destroying Lives. And It’s Going Global

[The following post is by TDV Chief Editor, Jeff Berwick]

Life is changing on Planet Earth thanks to little known legislation. Although much talked about in financial and banking circles, most of the world’s population is totally oblivious to it even if it might have major implications for their way of life. It is the age of the Foreign Account Tax Compliance Act (FATCA). Foreign banks are forced to comply with crippling reporting requirements like never before. Serving US citizens would kill many bank’s business models so they are simply ceasing doing so. Whenever a US taxpayer makes money overseas, and puts it into a financial account, their bank will have to gather documents for presentation to the IRS.  Although Americans have always had to pay taxes on income earned abroad, in the old days it was easier to just avoid the taxes. That’s simply no longer the case except for technologies like bitcoin. The US has FATCA to that end, and other nations are jealous. It’s being dubbed “Fatca Envy.”

In other words, FATCA isn’t just for US tax slaves anymore. It’s coming to a state near you.

COLOMBIA WANTS FATCA Take Colombia for instance. The South American nation currently has a problem with its neighbor Panama over FATCA-style reporting. Colombia wants a FATCA-type agreement between the two nations, while Panama does not. Panama City is a South American financial center, and one of the largest in Latin America. Along with the Canal Zone, Panama City makes up most of Panama’s GDP. This is thanks to the Panamanian bank sector’s policy of privacy which attracts capital from foreign investors. Since banks in Panama do not collect information on accounts held by nonresident depositors, there is no data to share with tax collectors (this changes for US account holders under FATCA). Colombian law, on the other hand, forces taxpayers to disclose bank deposit income regardless of where it was made. When a Colombian deposits funds in Panama, however, this changes, and Colombian tax authorites probably won’t figure this out thanks to Panama’s non-reporting. Officials in Bogotá conjecture that they lose $2 billion to $7 billion in lost extortion (tax) revenue annually thanks to Panama’s loose banking policies.  As Forbes writes,

Recently, Colombian officials asked their Panamanian counterparts to sign a bilateral tax information exchange agreement, known as a TIEA. The TIEA would have been reciprocal in nature, meaning it would oblige each signatory nation to collect and share bank information about the other nation’s residents. Panama said “no, thanks.” It has little to gain from a TIEA with Colombia.

We reported on the OECD creating FATCA type relationships in the region. As we wrote:

“…Steps are being taken globally to ensure that government’s get their taxes, and it’s all been inspired by FATCA. These new steps include a new OECD/G20 standard on automatic information exchange between the nations, including major financial centers.

All-in-all this means fifty-one jurisdictions have committed to automatically exchanging information.  The first information exchanges by early adopters are set to be deployed by September 2017.

“We are making concrete progress toward the G20 objective of winning the fight against tax evasion,” OECD Secretary-General Angel Gurria said. “The fact that so many jurisdictions have agreed today to automatically exchange financial account information shows the significant change that can occur when the international community works together in a focused and ambitious manner. The world is quickly becoming a smaller place for tax cheats, and we are determined to ensure that developing countries also reap the benefits of greater financial sector transparency.””

RUSSIA’S FATCA Russia has drafted its own text for FATCA-type legislation. Minfin, Russia’s Ministry of Finance, published a draft amendment to its Tax Code relating to the taxation of foreign companies controlled by tax residents of Russia. This represents Russia’s version of FATCA. The ministry is introducing the new tax regulations as part of a “de-offshoring” program by the Russian government. These trends are going to continue all over the globe as nation’s introduce their own FATCA’s over the coming decades. Individuals living all over the world are weighing the impact of FATCA. 73% of US passport holders are looking to turn over their citizenship to avoid FATCA reporting.

WHAT ARE THE IMPLICATIONS OF FATCA?  FATCA is going to make it even harder to keep your own wealth and is already causing major problems for Americans – especially those who live outside the country.  According to a survey called “FATCA: Affecting Everyday Americans Every Day”, conducted by Democrats Abroad, Americans abroad are in financial limbo, uncertain about their future. Family relationships are being strained and destroyed, business and employment opportunities have diminished.  Many respondents reported that they feel like they are “second class [citizens]” or even criminals. “I faithfully meet my tax obligations every year but this nonsense is forcing me to actually consider expatriation,” replied one respondent. US citizens abroad report that they are not being promoted (5.6%) due to FATCA. Employers don’t want to deal with the tax mess of hiring an American. People are not opening businesses. “I cannot open a business without local partners and no one is foolish enough to go into business with an American given the privacy issues and the unwarranted access the IRS wants to their finances,” one respondent stated. “[I was] told they did not want an ‘American person’ and refused to recognize my EU citizenship. Too costly, complicated and dangerous, they said,” another one added. 2 percent of respondents reported that relationships have ended over FATCA. “My German ex refused to marry an American because of filing requirements. So we split up,” said one expatriate. “FATCA has caused enormous friction in my marriage. My non-US spouse is refusing to let the US government know about his salary/earnings/savings … and I therefore cannot fill out all the necessary paperwork. Moving to separate bank accounts would leave me very vulnerable as I have no income of my own and according to Belgian law would have no right to access my spouse’s accounts. It is very stressful to be so beholden to my husband as well as not in compliance with my own government,” an unemployed stay-at-home mother lamented. The government is putting a lot of time, effort, and resources into pursuing people who are not criminals while the real culprits (the government) sit safely and comfortably in the US. And now, as we stated above, this behemoth of massive state overreach into the lives of their citizens is going global. In short, the world will soon be a massive financial police state pouring over the records of every individual and squeezing them for all that they’ve got. CREATIVE ASSET PLANNING & INTERNATIONALIZATION The 21st century creates bigger problems for those planning for their financial future than ever. Governments the world over are desperate for taxes and so they are introducing similar legislation to FATCA in order to make way for this. Who knows, perhaps in the future there will even be a global wealth tax as many people are calling for. At TDV Wealth Management we implement a lot of what we talk about in the TDV Newsletter. We are finding and implementing legal ways for people, especially Americans, to not have to adhere to these arcane, wealth-killing rules and laws that are coming down hard worldwide. We also have found ways for Americans who still live in the US to get their assets outside of the US and still avoid FATCA legislation, all legally. It has never been more important in human history to protect yourself and your wealth from the biggest enemy we’ve ever known: your own government. Comments? Join us at TDV.