HAVE you opened a bank account lately? Among the customary forms required by the Bangko Sentral ng Pilipinas (BSP) and the bank’s internal-compliance department is a new document that needs your signature. This form is to ensure that your local bank is obeying the United States’s Foreign Account Tax Compliance Act (Fatca).
Fatca is designed to make sure that American citizens and US residents are not avoiding paying US taxes by depositing money outside of the US. You would think that, as a Filipino citizen who has never set foot on US soil, who earns money in your own country, and who dutifully pays taxes to the Philippine government, you would not be a concern of the US Internal Revenue Service. Think again.
Your local bank must keep the Fatca document to prove that it is complying with US law. Otherwise, the US could prevent your bank from transacting business with American banks and even take it out of the Society for Worldwide Interbank Financial Telecommunication (SWIFT), which facilitates international
money transfers between banks.
Furthermore, foreign financial institutions may ignore or refuse to comply with Fatca, but they will be levied a 30-percent withholding tax by the US government on their US-based investments.
There are a couple of problems with a country that follows the requirements of Fatca. The information required may violate the bank-account privacy laws of that country. The US response is that it perfectly understands that problem and is sympathetic. Of course, if foreign banks do not “voluntarily” comply, then the US will just declare the nation a money-laundering haven and ban it from using SWIFT, which it effectively controls.
Another concern is that, at some point, the US government may call a local bank asking for information about a Maria de la Cruz who opened a P3,000 savings account. It may want more information, because of suspicions that she earned money in the US and did not pay US taxes. This could simply be the result of it coming to the US government’s attention that de la Cruz received a remittance of $500 from someone in the US at about Christmas time.
Of course, the Philippine bank is going to honor that request, because the Philippines and the bank do not want to annoy the US government over the privacy rights of one account-holder.
Certainly, the Philippines does not want to violate international tax laws, since it has just become a signatory to the Organization for Economic Cooperation and Development Convention on Mutual Administrative Assistance in Tax Matters.
However, there is one sinister aspect that cannot be ignored.
While global banking needs to be more transparent, it is not ordinary citizens who need to be scrutinized more. The law, as written and implemented, is vague in a way that would allow the US government to potentially confiscate the funds of Filipino citizens.
Consider this scenario: A Filipino citizen living in the US sells a piece of property in the Philippines and the money is deposited in a Philippine bank. There might be a potential US tax liability, although that could be reasonably disputed. However, there is a potential for the US to confiscate those funds, in spite of the absence of any violation of Philippine law and a strong possibility that due process under local law would not be followed.
The US government is, in effect, telling nations like the Philippines that their laws are not important and that other countries must serve American interests before their own. The fact that it costs more money for Philippine banks to comply with Fatca does not bother the US. The fact that foreign companies may be hesitant to invest in countries like the Philippines because of these additional and arbitrary financial-reporting requirements also does not worry Washington.
Will Fatca serve the purposes of nabbing tax evaders from the US? Unlikely. The US Congress Joint Committee on Taxation estimated that the law would raise less than $1 billion a year in new revenue. The cost to the top 30 global banks to comply will just be $7.5 billion. Foreign banks will lose billions in US-resident deposits and, potentially, the same amount in US investments.
In any case, Fatca’s underlying agenda has been accomplished. Don’t even think of messing with Uncle Sam.
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2 comments
Re: FATCA a breach of Phillipine Sovereignty.
FATCA will impact every one in the Philippines as its implementation costs will raise bank fees, and drain funds from The Philippine economy through extra tax penalties, and compliance costs while making accounts in The Philippines less attractive for nonresident Filipinos. FATCA will especially impact all Filipinos who have US citizenship or a US Green Card. If they live in the Philippines or another country outside of the US then it will impact them harshly.
The Philippine Supreme Court should concern itself with any Filipino privacy and discrimination laws that the US has forced The Philippines to revise to meet the US reporting requirements of FATCA.
In Canada there is a lawsuit likely to reach the Canadian Supreme Court that the Canadian FATCA IGA is in contravention of the Canadian Charter of Rights prohibiting discrimination based on national origin. See: Alliance for the Defence of Canadian Sovereignty.
In the US a lawsuit is getting started by fatcalegalaction, likely to lead to the US Supreme Court that FATCA is in violation of the US Constitution with unreasonable search and seizure and excessive fines claims. Plus, as the IGA agreements are international treaties, to be legal they must be reviewed and approved by the US Senate – which the Obama administration has bypassed.
In return for inflicting by one estimate $200 billion in FATCA compliance costs on the banks of the world and substantial new compliance costs for US persons living overseas and in the US, the US IRS will collect an additional $8.7 billion over 10 years. That is perhaps $20 in compliance costs for each extra $1 to the US IRS. So we may see that there was no consideration of compliance costs on the banks of the world nor on the individuals who must pay more for extra complex compliance with potential serious 30% withholding if not done right. The Philippines, the US does not care about your compliance costs or The Philippines as a sovereign nation.
What is in it for The Philippines? The US has made a vague pledge of reciprocity to report to The Philippines any US account information for which an Filipino resident is a beneficiary. The US is now not asking or has plans to ask for citizenship information of ALL their account holders. The OECD has a nice information exchange program as well (inspired by FATCA). The US has not signed up for the OECD plan and will ‘participate through FATCA.’ In review, FATCA is only about “foreign countries” handing over to the US all account information on US citizens and Green Card Holders.
The US has a citizenship based tax law, while The Philippines and all other OECD countries have residency based tax laws. Here is how Filipinos will get hurt: Let’s take an Filipino who has no money in the US but who is resident in The Philippines with US citizenship or a Green Card. They pay all the tax on their earnings and assets to The Philippines. But wait there is more. As they are US persons, the US wants them to file US tax returns. There is an Philippines-US Tax Treaty that helps reduce any double taxation, yet the US has taxes that The Philippines does not and these flow right on top as double taxation. FATCA will now be a US enforcement mechanism against resident Filipinos turning Filipino banks into reporting and enforcement arms of the US IRS.
The US will want to tax extra any Filipino mutual funds, retirement funds, trusts, and so called Passive Foreign Investment Companies. Note the word “Foreign” as in the description for Filipino accounts and assets. If these are not reported right there are very serious fines such as 50% of an account value.
The US laws treat these two types of accounts the same: accounts set up in the Cayman Islands with the intent of tax evasion by a US citizen living in New York and, an account of a resident Filipino set up to receive ones paycheck and pay the bills.
Any US persons caught up in this must visit the message boards of The Isaac Brock Society.
Citizen Based Taxation (CBT) as practiced by The United States Of America also invades foreign sovereignty. America says your country’s tax laws are not good enough and they deserve a little of your money too. It might be capital gains on a house sale as in Boris Johnson’s case, a foreign lottery winning not taxed by the country as seen in Canada, or even a literary prize won by a dual citizen which America taxes but that country doesn’t. This taxing removes investment capital from the foreign country and puts it into America’s coffers. You have 100,000 Americans in your country that pay an average of $1,000 USD each to America in taxes? That’s $100,000,000 a year not being spent in your country on businesses and job creation. America’s CBT is not a patriotic tax but a regulatory arbitrage play. It is a practice one of these nasty companies it says it is combating — the corporate money launderers — might employ.