What the FATCA? International taxation is already a reality

By Paul Gambles 

We’re still awaiting the verdict on the case brought by two US-born Canadians suing the Canadian federal government for disclosing their private affairs to the US, without due cause.

1.6 million banking records!

This all about FATCA.

Not content with taxing all of its citizens wherever they lived, Washington introduced legislation that requires ANY bank or other financial institution in the world to provide the account details of those with any US dealings. Consequently, since FATCA’s roll-out in 2014, the Canadian government has passed on over 1.6 million banking records to US tax authorities.

Ottawa argues that it had no choice, as FATCA imposes a 30% withholding levy on all payments from US institutions to foreign countries that do not enforce the reporting rules.

This scrutiny is one of the numerous undesirable knock-on effects of the 2008 Global Financial Crisis, has been governments finding more ways to tax us. It’s sadly ironic that the very people who were victims of that banking mess are having to pay for it again, as governments cut spending and look under various sofas for cash.

One of these sofas is international taxation. By that, I’m just not talking about charging mega-corporations on their massive incomes. Nope, I mean getting money from you and me, wherever we may decide to live and work.

International acronyms

The first was FATCA, but that was just the beginning.

Being a Washington-devised system, FATCA is multilateral in the sense that it demands information but has so far only agreed to reciprocate with three other nations. Consequently, other countries have come together to create a true exchange of financial information – the Common Reporting Standard (CRS). This is part of a collection of international agreements, each with its own objectionable acronym, designed to allow countries to swap people’s financial details, including the status of bank accounts, life insurance policies, investment vehicles and holding companies engaged in investment or financial businesses.

The treaties and exchange of information instruments contain strict provisions that require information exchanged to be kept confidential and limit the persons to whom the information can be disclosed and the purposes for which the information may be used. But then, we’re trusting a whole range of governments with our financial data!

Whatever our concerns, automatic exchange of information has already begun, and by the end of last year 100 countries – including Canada – had already sent out their first files. Added to these, there are two countries which have signed up to exchanging information but haven’t yet completed technical implementation. One more has signed up but hasn’t passed the necessary laws yet and seven have signed up in principle but haven’t yet completed the legislative to steps to start.

In reality, though, information exchange has been patchy. In 2018, participating countries sent information to 50 jurisdictions on average. Whilst Canada exchanged with 56 jurisdictions, whether it be through levels of commitment or of technology the bottom four countries only exchanged with 14 others between them. Russia wasn’t much keener, sending information to just 14 other tax authorities.

Then there’s the elephant on the room: the notable absentee from the signatories to CRS is the United States. Replicating Washington’s attitude to the League of Nations in 1919, UNESCO and the International Criminal Court, it prefers to go it alone. Its refusal to reciprocate by sharing its residents’ information means that rather ironically, it has become a tax haven for some.

What about Thailand?

Thailand is one of seven ASEAN countries which haven’t yet signed up to automatic exchange. Yet, along with Brunei, Cambodia and the Philippines, the Kingdom is part of the Global Forum on Transparency and Exchange of Information for Tax Purposes. This means that there’s a possibility – even a likelihood – that it will eventually join the others in swapping financial details of residents.

People living in Thailand will get some warning, though. After all, it’s not as simple as merely signing on the dotted line: the law has to be drafted and enacted, and certain technical requirements have to be met for automatic exchanges to take place. With elections coming up, this is unlikely to happen soon.

So, there’ll be plenty of time to prepare. To avoid any undue concern, it’s best to stay informed of how CRS progresses and how it works in practice. We’re certainly keeping a close eye on it. After all, forewarned is forearmed!

Paul Gambles 

Paul Gambles is co-founder and Managing Partner of MBMG Group, multi-award-winning professional research, and advisory practice. He forecast the Thai Baht devaluation and the Asian Currency Crisis in 1997. His own range of expertise includes asset allocation, tax structuring, and macro-economic analysis.

He has completed CFA Level 1 and is licensed by the SEC as both a Securities Fundamental Investment Analyst and an Investment Planner. He is a member of Advisory Board of IDEA Economics and is well-known as an expert commentator appearing regularly on CNBC’s Squawk Box, Bloomberg TV, and Channel News Asia. Paul is a frequent contributor to chamber of commerce magazines and writes the weekly MBMG IA Markets Flash.

MBMG Group is an advisory firm that assists expatriates and locals within the South East Asia Region with services ranging from Personal Advisory, Insurance Services, Private Equity, Accounting & Auditing, Legal Services, Property Solutions, and Estate Planning.

 

 

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