FATCA – America’s Tax Rort is Exposed

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The FATCA, or the Foreign Account Tax Compliance Act, is a one-sided law that forces other countries to enforce US tax laws. If they fail to do so, they’re effectively locked out of US markets and the US dollar—the world’s reserve currency (at least for now).

FATCA imposes a 30% withholding tax on interest, dividends, rents, and similar payments leaving the US. The only way to avoid the tax is for foreign financial institutions (FFIs) to act as unpaid IRS informants. Withholding occurred some years ago, although the IRS postponed it for FFIs making a bona fide effort to comply with the law.

Entire countries are labelled “compliant” if they sign what the IRS calls a “Model 1” FATCA agreement. This requires that banks in those countries send the information demanded by the IRS to their own tax authorities to be sent to the IRS. Other countries, like Switzerland, have signed “Model 2” FATCA agreements. These agreements leave it up to financial institutions in that country to agree with the IRS.

However, there are still some big gaps in the list of countries that have signed FATCA agreements. The biggest gap is in India, the world’s second-most populous country.

While nearly 1,000 individual FFIs in India have already registered with the IRS to enforce FATCA, the two countries have to sign an agreement for the process to be official. That agreement is now closer to fruition, thanks to progress made in the “Indo-US Economic and Financial Partnership” meeting earlier this month.

What’s remarkable about the statement that came out of the meeting is that it called for “an early conclusion of reciprocal arrangement on [FATCA] and… an early adoption of the new global standards on automatic exchange of information on a fully reciprocal basis.”

Whilst it’s not always apparent to those in the US, the rest of the world feels enormous resentment against it. There are many reasons for this resentment. One big reason is the US’s attitude toward other countries, as the FATCA exemplifies. That attitude is essential: “Do what we tell you… or else.” Since the consequences to a country for not complying with FATCA are so catastrophic, there’s no choice but to comply.

And that’s why the choice of the word “reciprocal” – repeated twice in the official statement – is so ironic. Regarding FATCA and similar tax-related pacts like “tax information exchange agreements,” information flows only one way: to the US. With infrequent exceptions, the US rarely shares tax information with anyone else.

It’s no accident why this is true. As I pointed out in this essay, there can be no reciprocal exchange because there’s no procedure in US law for that to happen. Sure, the US Treasury can promise to reciprocate. However, with rare exceptions, no legal mechanism exists in US law for the IRS to send tax information to foreign tax authorities. In fact, it is against US law to do so.

The Indian government knows this, so it must be especially galling for it to sign an inter-government agreement predicated on a lie. Indeed, the reason India didn’t sign a FATCA agreement much earlier is that agencies like the Securities and Exchange Board of India warned lawmakers there that reciprocity did not—and could not—exist.

But India is about to sign a FATCA agreement that promises reciprocity anyway. Will India hold the US to this obligation? Even if it does, the Republican-dominated US Congress hates FATCA and is unlikely to authorize reciprocal information exchange.

So we have a stalemate… with countries like India caught in the middle. In the meantime, millions of Americans of Indian descent will have a lot less financial privacy as Indian FFIs sign on to “exchange” data with the IRS.

This is not a good time to have unreported financial accounts in countries that have already signed FATCA agreements with the US or are about to. If you’re in this situation, you might consider retaining a tax attorney to enrol you in the IRS’s latest Offshore Voluntary Disclosure Program.

The rationale behind this tax grab is that the US dollar is at risk of collapsing due to the US weaponising the currency against its perceived enemies and the now unpayable debt it accumulated when it was the primary world trading currency.   

One unintended consequence of this onerous paperwork on American citizens is that if they relocate to another country, the cost of filing is horrendous, even if they have little to no assets in the US, resulting in many giving up US citizenship. 

Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.

The Gateway Team – When You are Serious About Property


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