Wednesday, July 17, 2013

Don't be afraid to make banks do some work

Wall Street Journal op-ed by Colleen Graffy, an American living in London --

Beware the sledgehammer used to crack the nut. In this case, the nut is the U.S. government's laudable goal of catching tax evaders. The sledgehammer is the overreaching effect of legislation that is alienating other countries and resulting in millions of U.S. citizens abroad being forced to either painfully reconsider their nationality, or face a lifetime of onerous bureaucracy, expense and privacy invasion. The legislation is Fatca, the Foreign Account Tax Compliance Act (FATCA).

The article goes on to complain how onerous it is for Americans living anywhere in the world (or their local banks) to have to report (and potentially pay American taxes on) income earned overseas; this was always an obligation, but it's gotten easier to police since banks are now in the reporting dragnet under FATCA. There was a higher frequency of such articles one year ago as FATCA first kicked in. But then, like Led Zeppelin's Over the Hills and Far Away, FATCA got cool later. Here's a representative explanation from The Economist --

The other big push on tax is to move from an “on request” model of information exchange, where countries have to cajole each other to hand over data, to one where they are swapped automatically. This is already well under way, thanks to America’s Foreign Account Tax Compliance Act (FATCA), which has inspired European countries to make similar demands. It could become the global standard within a decade. Offshore centres are starting to sign up, calculating that a voluntary move now may mean better terms. European laggards, such as Switzerland, Austria and Luxembourg, are also reluctantly increasing compliance. This will make it harder to hide assets abroad.

There's a precedent for this. The US Foreign Corrupt Practices Act (FCPA) used to be bashed by well-heeled interests in the US as putting Americans at a disadvantage overseas, since other countries had laxer corruption laws. But over time, especially due to pressure from poor countries, FCPA became the template. The same thing is happening to FATCA. Even as the horror stories about Americans being turned away from banks trickled in, European countries -- like Ireland! -- saw which way the wind was blowing and did deals with the US to ease the implementation burden. Now the language of international summits is all about having a "Global FATCA."

Sure, banks have to do more work because of it. Those poor banks!