Wednesday, November 27, 2013

FATCA legislation and agreement is a breach of NZ sovereignty and rights

You may have concluded from my postings that I'm somewhat libertarian in my views and you'd be correct - most of my posts are rants about the ever-increasing encroachment by governments on individual rights - however, I recognise that the vast majority of government policies have the intention (however misguided that intention may be) of improving the lives of the citizens and residents the government represents. I part ways with my philosophical opponents in the means, not the ends. But the New Zealand Government is currently in the process of enacting legislation that has no benefit for New Zealanders, that is a breach of our sovereign rights as a nation, and that breaches our Human Rights Act and Privacy Act, solely because it has been demanded by a foreign government. I am talking about New Zealand's acquiescence to the United States Foreign Account Tax Compliance Act, known as FATCA.

The usually staid law firm of Minter Ellison describes this Act as "a striking example of what could be called American fiscal imperialism." In short, it is attempting to turn all foreign financial institutions into tax collectors and snoops for the US Government by forcing them to hand over information about anyone considered to be a "US taxpayer." This is not, as you might think, just people who live and work in the United States.  The US is one of only two countries (the other is that bastion of liberty and human rights, Ivory Coast) that think it is their sovereign right to extract tax not only from those who live and work in the country but anyone who lives outside the country who they might deem to be a US citizen. Let me give you an example of who the US considers to be US citizen.

My friend, a New Zealander born and bred, married a US woman and together they have a newborn baby who was born in New Zealand. Unsurprisingly, the wife, who holds both NZ and US citizenship, is considered by the US Internal Revenue Service to be a valid target for the FATCA regime. She not only has to pay tax in New Zealand, where she now lives, she has to file a US tax return and pay taxes there as well (although she gets to deduct some, but not all, of the taxes she pays on her NZ income). But here's the kicker - the IRS also considers the baby to be a US taxpayer, irrespective of whether the baby ever sets foot in the United States. My friend's child will be subject to intrusive surveillance by the IRS for the rest of her life and her bankers will be forced to hand over information to the IRS about her, against her will and contrary to her rights under other NZ laws, and all this will be abetted by the New Zealand Government that, as the writer of this blog points out, considers her to be a "US taxpayer habitually resident in New Zealand."

This is, frankly, a disgraceful capitulation by the New Zealand Government to bullying by a foreign power. It is the financial equivalent of 'renditions', that euphemistically-named US Government practice of snatching citizens of other countries off the streets of foreign cities in order to have them tortured and imprisoned.

It is high time the rest of the world stood up to these thuggish policies of the US Government. New Zealand has stood up to the United States before over issues such as visits of nuclear-armed warships and, in my view, this is a more fundamental issue of sovereignty than that. We need to stand united with other countries and tell the United States we will not comply with their unilateral policies and we need to take whatever retaliatory measures are necessary to force them to back down.  If enough countries stand against the US on this, they, like all bullies, will back down.

18 comments:

TeNgaere said...

Amen to this. You are one of a very select few in NZ that understand what FATCA is, and why it is exactly as your headline portrays..

It is one of the worst American laws most Kiwis have never heard of. If NZ capitulates and signs the IGA, it is about to be imposed upon thousands of unsuspecting Kiwis that have no idea about its consequences.

It will impact all Kiwis either directly with reporting of assets tied to those NZ residents considered by the IRS to be "U.S. Persons", or indirectly in increased banking fees to pay for the enormous compliance cost of all Kiwi Financial Institutions.

Thanks for being a lonely voice in the Kiwi wilderness. Hopefully some more light can be shown onto the diabolical nature of this NZ government capitulation which signing an #FATCA IGA is.

Don't believe any media you might hear that his is a bi-lateral agreement. It is NOT. It is a unilateral one way cram down, pure and simple. It imposes American law on NZ shores, and requires you to change your privacy laws to meet U.S. demands. Why do you want to do that? Is it because you are one of the 5 eyes of NSA spying?

John Smith said...

Well Said. I contributed to the article you refer to on Isaac Brock and I was the one that received the advice from the NZ Minister that I was a "US Taxpayer habitually resident in New Zealand".

I am utterly disgusted by the approach of this government. They cannot even bring themselves to use the term "New Zealand Citizen" when referring to FATCA.

Proposed legislation to override our Privacy laws for this US invasion has now been submitted to parliament. About 50,000 New Zealanders plus their families are about to be thrown under the bus with no public consultation whatsoever.

The media doesn't give a damn. I've written to the NBR and various other publications about this outrage and they haven't published a single article, even though there is a huge cost to the New Zealand taxpayer and an ongoing and mounting drain out of the NZ Treasury in the form of double tax and penalties on unsuspecting New Zealanders.

When is this country going to wake up about this issue?

Thanks for blogging about it.

Lea said...

I also wanted to add to your example of the US/NZ dual citizen lady who married a NZ husband that her husband for all intensive purposes is also now a 'US person' for any and all joint accounts they share. His information will also now be reported to the IRS.

Lea said...

I also wanted to add to your example of the US/NZ dual citizen lady who married a NZ husband that her husband for all intensive purposes is also now a 'US person' for any and all joint accounts they share. His information will also now be reported to the IRS.

Mark Hubbard said...

I've been writing about FATCA for some time now and asking our politicians why they've simply acquiesed. Not hard to understand why I've received no answers: politicians live by taxing, no questions asked and we already have a global tax surveillance state that has far more depth and reach than PRISM..

US is one of only two countries with citizen based tax: the land of the free has by this turned itself into one of the most repressive Western regimes for its own citizens.

Daniel Kuettel said...

I totally agree and, as I understand it, the world will kill FATCA if fewer than 50 nations sign an IGA.

Nate said...

As an American lawyer managing FATCA compliance for one of the world’s largest asset management firms in New York, I think you’re being too harsh on your government. They’d basically have to scuttle the NZ economy to buck the regime.

FATCA aims to require financial institutions worldwide to comb through their accountholder records in search of undeclared US taxpayers. Banks that refuse to comply will see a disastrous 30% “tax” (it’s really a penalty) broadly applied to US-source investment proceeds they receive (either for themselves or as custodians for their customers). After a phase-in period, the tax will apply not just to gains, but to gross proceeds too (e.g., even a bond sold at a loss will see 30% of the proceeds withheld).

Say you’re a Kiwi bank and you want to opt out of the mess? All you have to do is divest yourself of all investments denominated in US dollars. And good luck with that as a business plan, especially since a similar Euro regime is in the works. (Just to be clear, I didn’t write the law, and it isn’t my doing that the US dollar is the world’s reserve currency. Just sayin’)

By entering an Intergovernmental Agreement to facilitate the implementation of FATCA, the NZ government is, in effect, coming to the rescue of its financial institutions, by making the whole thing workable.

Why don’t world governments join forces to stand up to the imperialist bully? Many have been inclined to do so . . . for about thirty seconds. Then they realized that by going along they might get something in retur - something they long for, but could never before hope to get (in a practical, usable form): information about their own taxpayers hiding assets in the US.

The US may well be acting like a bully, but they’re pulling it off for one – and only one – reason: because they’ve built a bandwagon governments worldwide have been eager to jump on.

Nate said...

As an American lawyer managing FATCA compliance for one of the world’s largest asset management firms in New York, I think you’re being too harsh on your government. They’d basically have to scuttle the NZ economy to buck the regime.

FATCA aims to require financial institutions worldwide to comb through their accountholder records in search of undeclared US taxpayers. Banks that refuse to comply will see a disastrous 30% “tax” (it’s really a penalty) broadly applied to US-source investment proceeds they receive (either for themselves or as custodians for their customers). After a phase-in period, the tax will apply not just to gains, but to gross proceeds too (e.g., even a bond sold at a loss will see 30% of the proceeds withheld).

Say you’re a Kiwi bank and you want to opt out of the mess? All you have to do is divest yourself of all investments denominated in US dollars. And good luck with that as a business plan, especially since a similar Euro regime is in the works. (Just to be clear, I didn’t write the law, and it isn’t my doing that the US dollar is the world’s reserve currency. Just sayin’.)

By entering an Intergovernmental Agreement to facilitate the implementation of FATCA, the NZ government is, in effect, coming to the rescue of its financial institutions, by making the whole thing workable.

Why don’t world governments join forces to stand up to the imperialist bully? Many have been inclined to do so . . . for about thirty seconds. Then they realized that by going along they might get something in return - something they themselves have longed for, but could never before hope to get (in a practical, usable form): information about their own taxpayers hiding assets in the US.

The US may well be acting like a bully, but they’re pulling it off for one – and only one – reason: because they’ve built a bandwagon governments worldwide have been eager to jump on.

John Smith said...

Nate -

Thank you for your contribution to this discussion. At least it shows that these blogs are reaching a wide audience.

I guess, "as an American lawyer managing FATCA compliance for one of the world's largest asset management firms in New York", it is hardly surprising that you are a FATCA apologist. After all, you are probably doing very nicely indeed on the back of FATCA compliance, and there's no end in sight for the gravy train, the "gift that keeps giving" - all paid for by foreign institutions and foreign governments and their taxpayers.

You claim that governments worldwide are eager to jump on the FATCA bandwagon so that they may receive information about their own taxpayers "hiding" assets in the US. Unfortunately, that reveals your utter ignorance of FATCA and how it is perceived by foreign governemnts. I can only speak from a New Zealand perspective, but please allow me to enlighten you:

Firstly, New Zealand (like the rest of the world save Eritrea) operates a residency based taxation system. This means that the financial details of New Zealand citizens living in the US, or US residents with New Zealand parents, are of no interest whatsoever to the New Zealand IRD. So that leaves us with the possibility that New Zealand residents may be "hiding" assets in the US, which may be revealed by a FATCA data sharing agreement. The published 2013 New Zealand rich list identified only 170 New Zealand families with net worth greater than NZ$50 million. There were only 6 billionaire families. Basically, we are small fry on the global wealth stage. In any case, most of these families are successful business owners. Why they would want to "hide" assets in the US is a mystery. With US interest rates close to zero and a depreciating currency it would seem a very poor business decision. You overrate the desire, or even the sense, of moving money to the USA.

Secondly, even if a minuscule amount of "tax" was recovered by the IRD due to such an arrangement, it would be dwarfed by the hundreds of millions that will be incurred implementing FATCA in New Zealand. The real reason that foreign governments are promoting the "reciprocity" argument (which US treasury is not authorised to provide) is that it gives them a convenient reason to justify the signing of these IGAs and the breach of their own Privacy and Human Rights laws.

So, that leaves us with the US threat of the 30% "withholding tax" that will be levied against non-compliant FFIs. As you point out, it is not a tax, it is a penalty. "Sanction" or "Extortion" are probably more appropriate terms, but they like to use familiar words that make it seem acceptable practice. I understand that FFIs are rightly concerned about this and it would be expected that they would consult with their government. It is at this stage that I would expect our government (and others) to stand up to the imperialist bully and refuse to implement extra territorial laws. In this age, surely it is not beyond governments to consult with each other and present a united front against this threat. Why not call the bully's bluff? They usually back down. It seems unlikely that China or Russia are going to roll over and implement FATCA. Is the US seriously going to impose a 30% sanction on China's banks? Reserve currency or not, you don't call the shots with them, Mr American New York lawyer. (Just sayin')

John Smith said...

Clarification -

Firstly, New Zealand (like the rest of the world save the United States and Eritrea) operates a residency based taxation system

TeNgaere said...

You might be interested to read this email to Labour Leader David Cunaliffe just posted today at Isaac Brock Society.

http://bit.ly/1eIPdAo

Some good questions are being asked about the IGA enabling legislation which had its first reading today. Now, will any politician or journalist take note and quit being so passive?

As a member in good standing of the "5 eyes" of NSA spying, NZ may already be too in bed with the devil to do anything now to reconsider this additional FATCA spying and further surrender of their sovereignty.

And,... in spite of what Nate just said, you must consider, as you do with any financial adviser, where is his self interest in what he is selling?

As a member of the FATCA Compliance Complex (FCC) his comments, as a co-enabler of the IRS "must comply" marketing message, should be considered in this light.

I understand that POV, and don't hold it against him. A person has to make a living. Just remember, it is a "buyers beware world, and if I made my money by consulting on compliance, I would probably spin the same narrative.

However, as a contrarian with nothing to sell, I do think that if enough countries did stand up to the U.S. bully, they would have back down. They are as afraid as the FFIs are of what might happen if governments weren't coached into getting their institutions into compliance.

They don't want a global financial war that would result any more than the FFIs do. And, IMHO, that is a distinct possibility of happening with the imposition of the 30% extortion if actually administered as the
Congressional legislation required.

So, fearing that, the Fatcanatics devised a divide and conqueror IGA strategy that is a crafty one. It might work as they pick off one spineless country after another by getting the FIs to beg their governments to give them the 'IGA bailout' which then ironically assures the success of the extortion they hate.

It will still cost them a bundle to comply, and it will still put them at compliance risk in the future as the IRS layers on future complexity and holds their Responsible Officer personally liable for their failures.

And they will fail.

FATCA is a penalty failure machine by design. However, in the short term, the 30% withhold sanction is lifted. A man will do a lot for 30 pieces of silver in hand. But then he will have to live with the consequences of that trade off for the next 2000 years.

For this strategy to work however, it still requires stealth changes in a countries privacy and/or human rights laws. The Omnibus process assure that. Any media light shed on that mission is not what they want. "Rounded them up and report them" before the masses know what hit them!

Let's face it, FATCA is raw international power politics at work where 15 friggin' A/C carriers assures that "Might makes Right"

This video says it best...

Treasury Q and A. What is FATCA?

http://bit.ly/1fLdXeT

Nate said...

Sorry friends, but this isn’t Middle Earth and I’m not Saruman. While it may be fun to cast current events in terms of good versus evil, it’s a dangerous way for grownups to view reality. It puts you in some seriously bad company, especially when you start claiming the likes of Russia and China as allies -- in the fight to protect individual privacy, no less.

It may be more fun to pick sides and demonize your “opponent,” but here on planet (not Middle) Earth, FATCA is a mixed bag. Will it (as advertised) ensnare a bunch of US fatcats who fly around on private jets while deliberately dismantling the US middle class -- while deliberately building an economy dependent on undocumented workers whom they simultaneously exploit and decry – all while they cheat on their taxes? Yes. Will it spread to Europe and other regions to ensnare non-US tax cheats? Yes. Will it gather a base of financial data governments will mine to spot movements of money involved in terrorism and despotism? Yes, every day.

On the other hand, will governments – the US included -- seek to overreach and misuse the database? Duh, of course. Will innocent US expatriates be hassled and inconvenienced because of the US’s greedy policy of levying income taxes based on citizenry and not just residence? Yes. Will the world’s least corrupt country (NZ) be helplessly swept up in a worldwide police action designed to address the evils spawned by less virtuous societies? Yeah (sorry). Does that mean Kiwis sit at the dawn of a 2,000 year epoch of rule by the Dark Lord of Mordor?

The tough, grownup reality is that FATCA will be a tool for good if used for good, and a tool for evil if used for evil. It will be what we make of it, and that will come down to people like me keeping our eyes open and speaking out (which we do, by the way). By contrast, nothing will come of treating FATCA like an internet fantasy game, channeling Gandalf and calling on hobbits and elves to wreak desolation on Evil.

John Smith said...

Nate - most of us that oppose this law are innocent citizens caught up in this as collateral damage. Trust me, it isn't fun and I have better things to do with my time than deal with it's destructive consequences.

Governments don't seem to care so what are we supposed to do?

If anyone is treating FATCA as an "internet fantasy game" (I have no idea what you mean by that), it is lawyers such as yourself who have no understanding of the havoc wrought by this legislation.

No further comment.

TeNgaere said...

Nate

So, what you are saying, is that a Global GATCA is a necessary evil to deal with those few rich FAT CATS you worry so much about.

We small fry should just accept its reality and comply? End of story. Don't speak up with contrarian views or POVs. It is futile. Is that it? Be a realist and just bend over and take it? Sorry, eh?

Of course, it is not just those in New Zealand Middle Earthers asking if FATCA can be stopped.

That radical American Chamber of Commerce from the Homeland Kingdom of Mordor is also asking...

http://www.freeenterprise.com/economy-taxes/fatca-trap-opposition-builds-can-intrusive-foreign-tax-compliance-law-be-stopped

You state: FATCA will be a tool for good if used for good,

Well that is the 'good' intention, I understand that. We all do. But, frankly I do NOT trust them to do good!

In practice, given how our bureaucrats and elitist compliance complex works with their 544 pages of complex regulations, amendments, IGAs and endless forms, evil (or should I say 'bad') is most definitely done.

How do we check that? Who pays the cost of this? Not you, as you make your living advising on compliance with those that can pay. But what about the rest of us? Just a sorry, you don't care?

Your last paragraph was cleverly written, but I don't know what it has to do with anything. What internet fantasy game you are talking about? Is it one in your mind, where drug use, prostitution and tax evasion are done away with forever by statute and clever regulatory application?!

Like I said previously, this is power politics at an international level, and the U.S. is the bully. China and Russia only matter not as examples of freedoms, but in that they take their sovereignty seriously. They might not be so easily pushed around by FATCA as New Zealand apparently is.

America is used to getting its way, until it doesn't. I hope this time it doesn't get its way, but with the stealth manner all this compliance structure is being cemented in place, your side may win.

So, if you have influence you imply you have, what more do you have to watch for and to "speak up"? Do you want to see bodies in the morgue before you expend any effort working to moderate or undo some of its most harmful aspects of FATCA? Why not speak up and advocate that the U.S. follow 'international norms' of residency based taxation, and leave its Expat community out of this Rich witch hunt?

But, they won’t pay any attention to you either. After watching the IRS administration for the past 4 years, and reading all of the National Taxpayer Advocate reports to Congress by Nina Olson, I can see that NO ONE is listening. Not even to you, a FATCA co-enabler.

Here is another reality you might not wish to acknowledge in the internet fantasy game you mention.

The U.S. by these unilateral actions and by Treasury/IRS FATCA implementation strategies, is turning 7 million U.S. Persons abroad into an active negative marketers rather than good will Ambassadors we once were.

Why do you want to create the policies and conditions that impel someone like me to become an activist for the first time in my 65 years? For what? A pittance of revenue over 10 years? A revenge vendetta on the Rich that manipulate every rule and regulation you create? Or is it just Control you want?

The U.S. will certainly will NOT be getting much revenue for the aggrevation. They have NEVER done a cost vs benefit analysis of their actions, but you don't have to be a MBA to see it is a BAD ROI. The Rich that you stereotype and apparently despise will still escape their nets. They always do.

What next then? What new restrictive, coercive, authoritarian method will they try when this one leaks like a loophole exemption and "deemed compliant" sieve?

How will they assure NO one escapes their net? What does that world look like to you? An internet fantasy game indeed!

Moby McMinnow said...

@Nate

Your justification for the IGA uses two fallacious arguments:
1) NZ needs an IGA.
NZ *doesn't* need an IGA to retain access to the US financial system. Banks can comply with FATCA if they want, it is completely workable. They can do it in compliance with NZ laws too. There is no need for the IGA. Banks simply need to choose whether to comply with FATCA or not. The ones that comply with FATCA can access the US financial system, the ones that don't can't. Anyone banking with the FATCA banks would have all their various citizenships and permanent residences info reported to the IRS by the bank without exception. That way there is no discrimination based on national origin. People not wanting access the US financial system and not wanting their information shared with the IRS would use a non-FATCA bank. Most people have only domestic banking needs and would opt for non-FATCA banks.

2) The US will provide reciprocal information sharing via the IGA.
This is a load of manure. The IGA makes vague arm-waving indications of possible future consideration of reciprocity. Guess what; once the US govt has the signed IGA in its pocket countries like NZ have no negotiating position. The US govt has got what it wanted and has no reason to give something away for free that it doesn't have to. The US banking system makes very nice living out of providing offshore tax-haven services to the rest of the world. There is no way that money-earner is being given up on an ex gratia basis. Stating reciprocity as a reason for signing an IGA is simply invalid.

In summary, NZ signing an IGA is not a way out. It is simply a bad decision that is compounding the stupidity of FATCA.

Moby

TeNgaere said...

Good comment Moby!

If you are still reading comments on this post, there has been a new analysis of the IGA legislation by Osgood posted here...

http://bit.ly/1dmm0Oj

I would encourage you to read it. You can post comments online until February 5th, and Kiwis who DON'T think the FATCA IGA is a good idea, should have their opinions heard.

TeNgaere said...

Kiwis should be watching the developments in Canada where FATCA is getting much more play in the media than NZ, where the media is silent.

Today we had a trifecta out of CBC

The radio story first: US Tax By Default
http://www.cbc.ca/metromorning/episodes/2014/01/13/us-tax-by-default/

The articles on CBC. (BTW, maybe the NZherald could take a hint from this. There has been years of silence on the subject!)

FATCA facts: What Canadians need to know about new U.S. tax law
New international sharing pact will put banks, unsuspecting Canadians under scrutiny.

"Who is affected by this law? The short answer is almost every Canadian."
http://bit.ly/1eOZzhP


U.S. FATCA tax law catches unsuspecting Canadians in its crosshairs

Many 'accidental Americans' could face hefty fines, accounting costs.

Tax law expert Allison Christians calls the Tapanila case "ridiculous" and a "classic example of why the law is unjust."
http://bit.ly/1gANhej

Wake up Kiwis, as all of this is equally true in the Land of Mordor! :)

TeNgaere said...

and now CBC TV News coverage of FATCA and its impacts with Allison Christians.. Very good.

Kiwis should be watching this...

http://www.cbc.ca/player/News/ID/2429871653/