Recently, Her Majesty’s Government signed an inter-governmental agreement (IGA) with the US on sharing information that the US is looking for regarding the bank accounts of so-called “tax-dodging” US persons.
(When it comes to taxation in the US, everyone is guilty until proven innocent, and just about anyone with a connection to the US involving money or has business with someone – such as a spouse or business partner – who has a connection is a US person.)
The IGA refers to FATCA, and essentially allows for HMRC to share information that the US govt was looking for directly from UK banks, but which UK banks could not share due to data protection laws. (The banks have been bending over backwards to comply with FATCA rather than lobbying to get the Government to tell the US to go forth and multiply.)
The IGA implies that the IRS will share similar information, garnered from US banks on UK persons, with HMRC to help address British tax-dodging.
However, I was made aware of what the US Treasury’s interpretation actually means. It is certainly not bilateral and only goes to show how great the “special relationship” is.
This information-sharing is one-sided, with the UK signing it into law (because in the UK, the executive equals the legislature) whereas it is not particularly binding in the US because the executive is separate from legislature and would require legislation to be passed in the US requiring banks to provide the same information for foreign governments that the US government is demanding from foreign banks.
As the one or two readers of this blog know, I have already renounced my US citizenship because FATCA compliance (on top of the rest of the US tax reporting regime) was the final straw for me.
When I discovered what the US’s interpretations of the IGA were, and how the UK ceded some of its sovereignty to the US by colluding in the subversion of data protection rules, without real reciprocity, I began to write a letter to my MP. When I last left it, it was sitting at about 800 words.
Having slept on it, I’ve decided that sending the letter is a bit like p***ing in the wind. As nice as my MP is, I suppose I will get some sympathetic platitudes, and as usual, I will have been the only constituent who has contacted him about this issue (as it is with other things I have written to him about.) And it will not do much to change anyone’s mind at HM Treasury or the FCO.
I have never seen anyone in a senior position in government or bureaucracy acknowledge that maybe they made a mistake. According to the FCO memo linked to in my first paragraph above, this issue will be put to consultation, but my experience here in the UK tells me that most consultations have foregone conclusions and generally only give the appearance of democratic process.
I wonder whether the surrender of sovereignty was by design or by accident. Either way, FATCA is a time-bomb ready to go off some time next year, with all the major banks in on it, ready to comply. The costs for compliance are actually astronomical, as many systems are being changed in order to a) separate data on US persons from others and b) to maintain the system as an ongoing compliance regime.
Naturally, large corporations love expensive compliance regimes; they are an added barrier to market entry for leaner, hungrier organisations willing to provide more value for money to their customers.
The British _ankers Association’s willingness to bend over backwards (or is it forwards?) to comply with FATCA, and HM Government’s willingness to collude are just further symptoms of the sickness infecting our economic lives here in the UK/EU (although the EU, to its credit, declined to sign up as a body, leaving the flouting of data protection rules to its member governments).
FATCA has the potential to be disruptive to more than just US persons living abroad. If a couple of banks alone are deemed to be non-compliant, and the withholding regime is applied to their US money movements (beginning some time in 2014/15) there will be a chain reaction leading to worldwide freezing of capital movements. This is a ticking time bomb for an already compromised international banking system (whether you embrace the current regime or not).
And someone is going to have to pay for the reporting and withholding regime, it is certainly not going to be the zombie banks, and it would be damn near impossible for them to recoup the costs via their US customers, alone. Along with the systematic erosion of the value of your cash through ZIRP, QE, and price inflation, the cost for banking for everyone outside the US is likely to go up.
If you are an American thinking about renouncing your citizenship in light of FATCA and all the other tax reporting requirements, it is probably in your best interest to renounce, particularly if you aren’t planning on going back any time soon; of course, it all depends on your individual situation. Things are probably going to get worse before they get better for US citizens living abroad.
I am really sad that I had to make the decision, and am still in mourning, but the peace of mind it provides me is worth it.
Special hat tip to the contributors and commentariat at the Isaac Brock Society for the sources.