FATCA, the (Foreign Asset Tax Compliance Act), which is just now capturing the attention of the world’s media has been paused… FATCA is on hold. The US requirement that foreign financial entities report to the United States who their American clients are and what they hold in foreign assets has been postponed until June of 2014.
And it’s not because its struggling with resistance or buy-in from other countries. Originally, the US expat blogosphere at large rather chortled that FATCA was dead on arrival and that the hubris with which the US presented its demand to financial institutions of other sovereign nations was yet another sign of its desperation and decline .
It turns out though the US Treasury Department was actually onto something and rather than no comers/no takers, there has been a virtual tsunami of foreign sovereigns clamoring to get on board. The US is already moving toward closing data sharing agreements with 100+ countries. The reason FATCA had to be pushed to June 2014 is to buy time – not because of global resistance, but because of overwhelming global interest.
Happiness is a FATCA Sandwich
It is fascinating how deftly the United States has played the rolling out of and implementation of FATCA. Brilliant in its inception and masterful in its execution, the fiscal-political engineers of FATCA first put FFIs (Foreign Financial Institutions) on notice that FATCA reporting would be required by the United States from every FFI who had American clients or face an automatic 30% withholding on its own transactions that route through the US (This was the bottom layer of the FATCA sandwich). For FFIs, this has teeth. FFIs and the leaders of foreign financial industry groups frantically lobbied their governments to ‘save them’ from US compliance requirements that would be both a huge administrative and compliance cost burden.
At the same time (and this is the top layer of the FATCA sandwich), the United States began rolling out IGAs (Inter-Governmental Agreements), beginning with the big seven sovereigns of Europe and then to all nations worldwide and the hook (or the incentive) for all nations who would participate was reciprocity. Every nation on earth it seems would do anything it could to have data about their own citizens living in the States or other FATCA-member countries, so it’s in every sovereign’s interest to take advantage of data sharing and participate.
And so, the Era of Big Data now brings us intergovernmental data sharing on American individuals (and for that matter, all individuals) in all participating countries on a global scale.
US expats can probably see this for what it is, FATCA is a sandwich – and Americans will be squeezed from both the top (your host country) and the bottom (your local foreign bank) and US Expats happen to be the prize.
The Wonders of Empire
The US, whatever its core fiscal condition, still seems to have the global gravitas to steer world events and the implications of ‘one world under FACTA’ are both ominous and somewhat frightening. What this means to Americans living overseas is that gone are the days of living off the grid. If you’re not up to date with your required US tax filing and FATCA and FBAR reporting, very soon you will most probably be receiving greetings from the United States and the IRS.
There’s something we can all do about it though. And that is to say what it is - something beyond our immediate influence and so to be proactive and know what our obligations are regarding our foreign account reporting and be pragmatic. On a personal level, no matter how you may feel about what is happening, you might as well embrace it. FATCA is happening. Do not leave yourself and your family’s interests exposed. If you find that you’re behind on your US tax filing there are easy ways to get caught up that the IRS itself proscribes.
Just as much as the US protects its own interests, so we are able to protect our interests as well. That way we can do our best to stay out of each other’s way and get on with happier and more productive endeavors. Let us know if you’d like help or to connect with one of our expert Bright!Tax CPAs.