Dateline: Tbilisi, Georgia
Ever since 2010 when Barack Obama signed the Foreign Account Tax Compliance Act — or FATCA — banking offshore has gotten more complicated.
Somehow, the government that runs everything else inefficiently is incredibly effective when it comes to getting to all your personal financial information. Reporting requirements and forms like FBAR that were already in place simply weren’t enough.
Through FATCA, the US government has begun to extract information and demand retribution from individuals, institutions, and governments all across the globe. In a word, if sovereign governments and foreign banks refuse to be unpaid tattletales to the IRS, they get slapped with a 30% “withholding tax”. This tax applies to any assets of any foreign financial institution — offshore banks, brokerage houses, etc. — that refuses to turn over all financial details on US persons to the IRS.
Individuals have been hit with fines big enough to swallow their entire offshore bank account, while FATCA policies essentially blackmailed Swiss banks into compliance and put several of them out of business.
Other banks simply shut out Americans entirely to avoid paying the mind-numbing costs of becoming FATCA compliant. Those who didn’t reported costs as high as $100 million simply to align their banking systems with FATCA’s demands.
For a time, many governments and financial institutions resisted. Now, however, not only has resistance all but disappeared, but a new global FATCA is on its way. Many countries liked the idea of FATCA simply because they hoped it meant they could get reciprocal information on their own citizens. While FATCA wasn’t designed to dish out such information, it did inspire new international initiatives such as AEOI, CRS and BEPS — which will eventually all achieve the same thing.
Global contagion and the “Why” of FATCA
I’ve said from the beginning that FATCA is just the start. Broke governments (which, unfortunately, means most governments) can’t resist the chance to get their hands on more money. No one wants to be the next Argentina or Greece — increased capital control is their way of avoiding such a fate.
Sure, they’ll argue that it’s all in an effort to curb tax evasion, but the truth is that they’ll do anything they have to to keep your money within their borders. Government is getting bigger and the people in power or at the top of the political polls are the ones to make it even bigger.
Such promises come with a cost. In this case, that cost is FATCA.
And, since the United States is not the only indebted country in the world, desperate for more information on their wealthy, global citizens, new global FATCA is at our doorstep. In the face of unpopular austerity measures, curbing tax evasion is the logical choice for most governments — 104 of them to be exact.
The Organisation for Economic Co-operation and Development (OECD) — which claims to pursue “Better Policies for Better Lives” — is behind the crusade for the increased exchange of tax information.
Of course, the term “better lives” doesn’t apply to anyone they don’t like. And, unfortunately, they don’t particularly like people with money. The wealth of the rich is their’s to grab through taxes and to waste on wars and overpriced “charity”.
So, we know their intentions, but how exactly will this new global FATCA work?
International alphabet soup tax programs
In true bureaucratic fashion, the new global FATCA is a combination of several international alphabet soup tax programs — namely BEPS, AEOI and CRS.
BEPS — or Base Erosion and Profit Shifting — is a project to create a framework among countries to close the gaps and mismatches in tax rules (i.e. make it almost impossible to save on taxes). The project aims to give countries the tools they need to ensure profits are taxed where the economic activities that generate them occur.
In June of 2015, another step was taken making it so that countries can automatically exchange information on key indicators like profits and taxes paid, as well as the employees and assets of each multinational entity. All this to establish a basis for justifying and initiating tax audits. Currently, over 100 countries and jurisdictions are part of the BEPS framework.
AEOI — or the Automatic Exchange of Information — is an OECD-based initiative to equip each country’s tax administration with the necessary legal, administrative and IT tools for verifying their taxpayers’ compliance.
They argue that the increase in cross-border activity means there’s a need for tax administrations to respond and work together so taxpayers pay the right amount of tax to the right jurisdiction. With the addition of Pakistan in September, there are currently 104 countries participating in AEOI.
Calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis. It sets out the financial account information to be exchanged, the financial institutions required to report, the different types of accounts and taxpayers covered, as well as common due diligence procedures to be followed by financial institutions.
In February 2014, the OECD agreed to the Common Reporting Standard guidelines and countries started jumping on board. The CRS was fully approved in June of 2014, and in December of the same year, the EU adopted the standard. Presently, 94 jurisdictions are ready to implement the CRS by 2017 or 2018.
Global FATCA countries
I’ve said for years that the US will not be the only country to tax on worldwide income. Now that the technology exists to extend and enable their reach, governments will gladly work together to add to their tax coffers. Starting in 2017 and continuing into 2018, 104 countries will begin exchanging information.
As of July 2016, these are the countries who will take part in the impending global FATCA:
British Virgin Islands
Isle of Man
Trinidad and Tobago
Turks and Caicos Islands
Antigua and Barbuda
Honk Kong (China)
Pakistan (signed Sept. 2016)
Saint Kitts and Nevis
Saint Vincent and the Grenadines
United Arab Emirates
Bank secrecy is dead
I’ve been saying for years that bank secrecy in the EU is dead — this just puts another nail in the coffin. All of the EU is on this list. Even Austria gave in after fighting for their right to keep their bank secrecy policies.
Another region that captured many spots on the list is Central America and the Caribbean, where many easy-to-use offshore banks exist. And it’s plain to see that — though the resisted for some time — Russian and China crumbled under pressure too. The few countries that remain are places like Laos, Cuba, North Korea and Iran.
Guess which country isn’t on the list: the United States.
Believe it or not, the United States is the world’s largest tax haven. It has given the middle finger to the rest of the world, even after forcing them to enact FATCA. They’ve made promises to provide reciprocal automatic information exchanges with other governments, but so far it’s mostly talk. They’re not on the list yet, that’s for sure.
For now, that actually means the best place to store money if you’re not a US citizen is in the US. Of course, that is if you can find a decent, well-capitalized bank there.
Offshore ISN’T about hiding
As frustrating as it is to see governments the world over hand over your right to financial privacy, we’ve always said here that offshore ISN’T about hiding.
The approach of a global FATCA simply means it’s more important than ever to have a REAL, legal strategy — not hiding. That strategy could mean new banks, but it also means a strategy for dealing with tax mitigation at home… maybe a new residency, renouncing your citizenship, etc.
It also means taking on many of the strategies we often talk about here, such as investing in foreign real estate and having offshore gold storage. In fact, these are often non-reportable assets that can get your hard-earned money out of the reach of an ever-growing number of money-hungry indebted governments.
The automatic exchange of tax information is here to stay, so don’t waste your time thinking this will all blow over. There are some real benefits to a globalized world, but governments are globalizing too and want to benefit as well. Now, more than ever, is the time to figure out how to navigate the system and ensure your freedom.