What Can CRS Learn from FATCA: A Discussion

What Can CRS Learn from FATCA: A Discussion

As part of our inaugural tax conference held in November 2018, we held a panel titled “What Can CRS Learn from FATCA?”

This led to a highly insightful discussion into the US as tax haven, data protection during the automatic exchange of information, whether or not CRS is unfair towards so-called global citizens, and a whole lot more.

Our panelists were:

  • Jimmy Sexton, President & CEO, Esquire Group, USA/Dubai
  • John Richardson, Lawyer, Citizenship Solutions, Canada
  • Elina Savvides, CFA, Senior Manager, Advisory, PricewaterhouseCoopers Ltd, Cyprus
  • Marios S. Kalochoritis, Managing Partner & Founder, Loggerhead Partners, Dubai

Here are some of the discussion’s main highlights!

Introductory Remarks

John Richardson, Lawyer, Citizenship Solutions, CanadaOur four panelists got us started by offering some general thoughts on CRS, FATCA and the issues at hand.

John Richardson, who works with US citizens and Green Card holders living abroad, kicked things off by suggesting that the issue of automatic exchange of information ultimately has to do with “whether or not we are going to have a degree of personal freedom and privacy.”

Marios S. Kalochoritis, Managing Partner & Founder, Loggerhead Partners, DubaiMarios Kalochoritis shared this sentiment, suggesting that one’s position on CRS and FATCA depends on “where we stand politically and what we see as our freedoms as citizens.”

“It was very clear to me that people coming from primary Western countries—Ireland and the UK—felt more accommodating to these requirements than some of the people who are not as ‘progressive’ and who felt very differently,” Kalochoritis said.

Elina Savvides, CFA, Senior Manager, Advisory, PricewaterhouseCoopers Ltd, CyprusElina Savvides took a more comprehensive look at what’s happening in the world of compliance vis-à-vis CRS and FATCA.

“Recently, we have seen a shift of focus of regulators from efforts trying to implement FATCA and CRS towards promoting and reviewing compliance of financial institutions with the requirements of CRS, seeing reviews in countries such as the UK, Ireland and Switzerland, and an increase in the number of requests from jurisdictions for clarifications of data,” she explained.

Despite this shift, said Savvides, “There’s still work to be done in order to improve this and really achieve a global standard with participation of major jurisdictions like the US.”

Jimmy Sexton, President & CEO, Esquire Group, USA/DubaiFinally, Jimmy Sexton suggested that FATCA “went and turned every bank in the world into a US tax collector,” but referred to this US regulation as “a great example of a big failure.”

Sexton said that FATCA “costs a lot of money to implement, not only for the government but also on private banks, and it’s basically a loss and most of the people that got caught up didn’t owe any taxes.”

“I think it didn’t do a whole bunch other than bring a bunch of people into compliance that didn’t owe tax and caused a massive exodus of US citizens,” Sexton concluded.

Should the US be considered a tax haven?

Should the US be considered a tax haven?

For the most part, our panel of experts agreed that the US is in fact the world’s leading tax haven.

John Richardson said, “There is absolutely no question that the US has become a tax haven, and it will shortly be, because of its economic power, the number one tax haven in the world.”

Jimmy Sexton agreed, commenting, “The US has definitely cornered the market on being a tax haven. No beneficial ownership registers, you can form a company in ten minutes, you can open an account in ten minutes, no data goes out.”

The discussion then turned towards the lack of reciprocity displayed by the US as it refers to CRS and FATCA dealings.

Richardson remarked, “What’s interesting about FATCA is that the US is demanding information about people who do not live in the US at all back to the US with no reciprocity whatsoever.”

“So the bottom line is you’re going to get no information about anything going on in the US, but the US requires information from other countries about tax residents of other countries. The US gives nothing, that’s the point,” he said.

Richardson continued: “The FATCA IGAs absolutely, positively do not obligate the US to disclose any information. What the IGAs say is somewhat aspirational, that the US agrees to move to an equivalent level of reporting. Now bear in mind that the US has a system of citizenship-based taxation but no other country has that, so the point is that almost by definition an equivalent level of reporting could never be the same anyway.”

“It’s a scam,” quipped Richardson about FATCA.

Elina Savvides took a more nuanced stance vis-à-vis this lack of reciprocity.

Despite the US not reporting important parts such as controlling persons and account balances to other countries, Savvides said, “currently, there is some reciprocity taking place but it’s very limited.”

Savvides said: “The US is saying that the other countries do not meet the relevant security requirements in order to obtain this information, and this is indeed very frustrating because it doesn't allow for a truly global automatic exchange of information. However, there might be a positive effect from this on CRS because many people have voiced their concerns about data security, because this may encourage other jurisdictions to improve their data privacy and security systems.”

Europe Leverage US FATCA CRS

What leverage does Europe have to push the US to modify FATCA requirements or join CRS?

In terms of Europe’s reaction to the US’s stance on FATCA, opinions varied as to how effective Europe could be in pushing the US to fall in line with CRS.

Marios Kalochoritis said that countries such as Cyprus “have zero leverage” and when the US calls, “we do it.”

“For me, it’s a one-way street and it's a show of economic and political strength from the US to the rest of the world,” he concluded.

John Richardson agreed, suggesting, “This is an issue of the US dollar being the dominant reserve currency,” and that the focus should be on diminishing “the power of the dollar as the primary reserve currency to the extent that the US has to listen.”

“I think that it’d be reasonable and possibly productive for other countries to get together and say, as Fabien Lehagre is doing in France, ‘Stop taxing our residents.’ That’s a message that’s reasonable and they might listen to that,” he concluded.

Elina Savvides mentioned that there are several efforts currently undergoing to apply pressure on the US, but that for them to succeed, they will require plenty of coordination and consistency.

“There is one initiative that is being discussed—the imposition of a reverse FATCA withholding, which would be like imposing a penalty on payments going from Europe through US financial institutions,” she explained.

However, she added, “This is something difficult to be implemented because it would require approval of all EU Member States and countries with not much power. “

On the other hand, Savvides explained, “It’d be difficult for the US to argue against it because it resembles the equivalent of FATCA withholding they have.”

Ultimately, she concluded, “If something will be achieved, it will be through a very coordinated and consistent international effort of politicians, governments, OECD, various forums and the professional community and maybe a bigger push is required from the United Nations.”

Exchange Data Citizens Protection

How can citizens be protected in the exchange of data between two countries that do not have the same standards of security or protection?

Data protection and security issues were also discussed as part of this panel.

Elina Savvides raised the point that information security “is not only a concern for CRS but wherever there is an exchange of information under other regulations.”

Safeguards are in place for CRS but there are still doubts as to how effective these are.

Savvides explained: “Under CRS, there are specific requirements on jurisdictions to have in place safeguards for protecting information, reporting breaches and generally monitoring data compliance with data security, and there are specific actions that must be taken. On top of that, there is the Global Forum that is performing reviews on every jurisdiction participating in CRS and, where weaknesses are identified, each jurisdiction is required to come up with this action plan to make improvements and there is an ongoing assessments. There are a large number of safeguards for individuals to feel safer that their information is not being abused. Having said that, I realize there is also a risk of hacking data and data theft especially in jurisdictions where there is high corruption.”

Jimmy Sexton and Marios Kalochoritis shared the same concern with regards to how this data is stored at a local level.

Sexton said that one of his main issues with CRS “is not so much when the data is being exchanged between two nations, but when the data is being put in the local governments’ CRS or FATCA portal.”

“Some of these portals don't inspire a lot of confidence in terms of the criteria that you need to get in there and how the data is being handled before it’s even uploaded there,” Sexton said.

Kalochoritis then provided attendees with a very good example of how these concerns apply to real life individuals.

He said: “I have a very shocking example. This is a very prominent person in an Asian country. He’s in financial services, is highly paid, and has declared money. In his country, everyone keeps his or her funds in banks in Singapore. He says, ‘Here we are, Bank of Singapore, where most of the wealthy people in my country have accounts, will prepare this file of information, send it to the Ministry of Finance in Singapore, and that’s going to come to my country where the average public servant makes $350 a month. I have young kids who are in school.’ This specific client has four different residencies, and he lies on his CRS form. ‘Until my kids are done with school, I will take absolutely no trust in my information being held in one file with exactly the amount of money I have and where I have it.’”

CRS global citizens

Is CRS not fair to global citizens, people with multiple residencies? Does it punish them unfairly?

Finally, the panel concluded with a discussion on the fairness of CRS towards so-called global citizens.

Marios Kalochoritis was adamant in his belief that CRS is unfair towards these individuals and offered the example of Greece to prove his point.

Kalochoritis said: “Greece is not a small country, it’s a founding member of the EU. Their tax system is horrible and their tax people are corrupt. So how do you protect yourself? They’ve had a fraudulent, faulty system for 30 years. So you would file your tax returns, and it says: ‘Do you have an account abroad?’ You would just check a box. They didn’t ask you how much money or where or what was your income from there. So today you have CRS, and UBS will report fifty thousand Greeks that have had money in Switzerland for the last 100 years. The Greek authority and the law itself is not sophisticated enough to go back and allow for transactions or profits from previous transactions from the past. And until recently there was not even a statute of limitations; until two years ago, your taxes would go back forever. It is a noble idea…but there are people who are not in the primary category… so the edges are paying the price.”

Any thoughts on CRS, FATCA and the automatic exchange of information?

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