International financial consulting firm deVere Group says it has seen a 22% increase in inquiries from its American clients who are considering renouncing their citizenship as a result of an aggressive new U.S. tax initiative that is coming online on Jan. 1.
“The vast majority have told us that they are dissatisfied with the forthcoming Foreign Account Tax Compliance Act legislation and the adverse implications it could potentially have on them, their families and careers,” says Nigel Green, deVere’s CEO. “We’re aware of hundreds of American clients who have been either dropped completely by, or who are experiencing problems with, their foreign financial institutions.”
Global Battle for Tax Revenue
Under the new legislation (commonly known as FATCA), the U.S. will start requiring all of its citizens to report their worldwide assets and earnings to the IRS -- regardless of where they live, how long they have lived there, or whether any money is owed. Similarly, foreign financial institutions will also be required to disclose such information of any American clients that they may have.
The act, which was part of a 2010 economic stimulus package, seeks to retrieve billions of dollars in tax revenues that the U.S. government claims it loses annually to wealthy tax scofflaws who hide assets abroad.
However, critics think the U.S. is going to draconian lengths to hunt them down. Many foreign institutions are finding the compliance costs of serving U.S. clients are too high, critics say; some European institutions have already stopped serving American investors.
The rules will require all financial institutions abroad to report to the IRS any American clients with investment accounts that exceed certain thresholds -- in some cases as low as $50,000. If they fail to do so, these institutions -- banks, brokerage houses, hedge funds and other entities -- will face a 30% tax on all of their income derived from U.S.-based investments, from stakes in real estate and mutual funds to treasury bills.
The legislation also extends to all foreign companies in which Americans have beneficial ownership. It further requires all foreign financial institution to collect a 30% tax on any “pass-through” transactions made with banks that are not in compliance with the new rules.
“It’s their responsibility to withhold that money and send it to the U.S.,” Denise Hintzke, global leader for compliance with the new tax law at Deloitte, has said.
If the experience of clients with deVere Group is at all representative of American expatriate’s experiences in the post-FATCA world, it appears there could end up being widespread collateral damage among law-abiding citizens.
One advocacy group, American Citizens Abroad, claims that the new tax law will have “a devastating impact” on American citizens everywhere. It has launched a campaign to have the legislation repealed.
“Internationally, there’s a general sense that FATCA has gone too far,” Green says. “The fact that a growing number of the 6 million U.S. citizens who happen to live overseas are being refused bank accounts outside America, or that they are being turned away from jobs [because] that will mean opening up firms’ accounts to U.S. bureaucrats, or because the legislation could very well discourage foreign companies from doing business with American ones, is evidence that FATCA could have serious, unintended negative consequences for American citizens and, indeed the country itself.”