Transcript: Is FATCA About Protecting the US Tax Base or Expanding It?
Did you know that all roads in the US lead to renunciation? At least that's what the panelists during our last FATCA webinar concluded. Read the full transcript here!
We love talking about FATCA here at Taxlinked headquarters, especially when it involves lively debate between two of our favorite panelists, John Richardson, a Lawyer with Citizenship Solutions in Canada, and Karen Alpert, Finance Lecturer at the University of Queensland Business School in Australia.
In their latest FATCA-related chat, John and Karen discussed the overall impact of FATCA on the US tax base plus a whole bunch of other relevant issues. Particularly importance was paid to the role played by financial service providers and tax compliance experts in this entire FATCA brouhaha.
If you missed this heated discussion, please feel free to download the full transcript below and make sure to share it with your extended network.
Here are some of the event's major highlights. And don't forget that all roads lead to renunciation!
How effective has FATCA been?
Karen Alpert: "I'd like to discuss the numbers or lack of numbers on how effective FATCA has been for the US Treasury because, really, they haven't collected much and the main effect has been on citizens of living overseas. And I don't think they really understood the implications of citizenship-based taxation until all the banks started enforcing it for them with FATCA… [US Treasury] spent a little bit of money but it's been very little compared to what the financial industry and the rest of the world have spent. And it's pretty clear that the compliance costs for foreign financial institutions have so far exceeded any revenue that the US has gotten."
What are some of the differences between FATCA and CRS?
John Richardson: "With FATCA, what's happening is that banks are sending information about their own tax residents who live in their country, say, Switzerland or Canada or Australia, people who live in Australia, tax residents of Australia, they're sending that information to a country where they do not live, the United States. With CRS, what's happening is, let's say Australia is sending information about accounts held in Australia, the account holder doesn't live in Australia, they're sending that information back to a country where he or she does live and that seems to me a very fundamental difference between FATCA and CRS."
Karen Alpert: "Is there a reasonable reason to actually be collecting this information? And for a Canadian resident who's a US citizen, what interest does the US have in knowing what their Canadian source income is? Because Canada is going to tax that, Canada has first taxing rights on that income. So when the person reports on their US tax return, they're going to get a credit for the Canadian tax, which is higher than the US tax anyways. And so the US isn't really going to get any tax from that income anyways. So there's no real reason for Canada to be reporting to the US on Canadian source income earned by Canadian residents."
Is FATCA about protecting the US tax base or expanding it?
Karen Alpert: "It's interesting because you just don't see it in the data. So if you look at US returns filed from abroad, this is still tiny relative to the number of US citizens living outside the US. Yeah, a lot of them just aren't filing. And then the target of FATCA was US residents investing overseas. So if you look at all US 1040s and see how many of them claimed a foreign tax credit, that's gone up. But in 2007 it was 5.35% of US returns claimed foreign tax credit. So that's pre-FATCA, that was 5.35%. In 2017, it had risen to 5.66%."
What roles do tax compliance experts play in all of this?
Karen Alpert: "I think that there's obviously a wide variance in how they behave, but there are several out there whose main modus operandi is to scare people into compliance. This penalty for $10,000 and this penalty for $10,000 and this penalty for $10,000, so you really better file now. Take advantage of the streamline while it's still here, we don't know when they're going to cancel it."
John Richardson: "I know somebody in Canada, for example, and this is just absolutely unbelievable. You can't make this stuff up. In 2011 or 12 or something enters the Offshore Voluntary Disclosure program, paid a significant amount. Then, a few years later, gets hit with the whole transition tax thing. And now would have qualified for this new program coming out in September where she would have paid nothing. It is absolutely amazing… Where in 2011, the IRS Commissioner is saying this is your last best chance to come into compliance, those who wait will pay more. Wow. That isn't exactly how it turned out."