Koreans have protested the American FTA as being a means by which American law could be used to subvert Korean interests. Likewise, America has managed to insert themselves into other countries practices through treaty. One current bit of American legislation that has finally come about is the 2010 Foreign Account Tax Compliance Act (FATCA), which affects all Americans living overseas that keep a bank account in a foreign country.
South Korea has finally negotiated an reciprocal FATCA agreement with the US (that goes into effect this September) so that Korea can snoop on the Koreans that may have evaded paying Korean taxes by keeping their money in America. Likewise, the National Tax Services (NTS) will provide information about Americans, in Korea, with account balances of $10,000 or more to the U.S. Internal Revenue Service, beginning in September. This has happened because, the American Government thinks that there are so many Americans evading taxes overseas, thus robbing the country of money (they so desperately need to waste). The result is FATCA. The real fact is this treaty will not stop tax evasion and will likely cost the government more to implement it than is taken in by it:
. . . In the past, the OECD has used pressure and coercion to compel low-tax jurisdictions to agree to rules against their own economic interests. It is unclear how well such tactics will work in this instance, however, as the new rules impose a much more significant cost by signifying an end to the idea that nations can attract investment by offering more competitive tax systems than those of the high-tax welfare states. (cite).
So not only does America waste my tax money but South Korea will put the extra cost of reporting expatriates, through NTS, upon the already burdened banks (additional cite) or will they waste the tax I pay them here just to make American’s lives more complicated!?
Living overseas is already a burden for the American expatriate:
. . . No group is more severely impacted than U.S. persons living abroad. For those living and working in foreign countries, it is almost a given that they must report and pay tax where they live. But they must also continue to file taxes in the U.S. What’s more, U.S. reporting is based on their worldwide income, even though they are paying taxes in the country where they live. (cite)
Reading through the wiki article for FATCA lists the deficits of this treaty as:
- Cost. Although numbers are still somewhat speculative, estimates of the additional revenue raised seem to be heavily outweighed by the cost of implementing the legislation. The Association of Certified Financial Crime Specialists (ACFCS) claims FATCA is expected to raise revenues of approximately US$800 million per year for the US Treasury; however, the costs of implementation are more difficult to estimate, and estimates between hundreds of millions and over US$10 billion have been published. ACFCS also claims it is extremely likely that the cost of implementing FATCA (which will be borne by the foreign financial institutions) will far outweigh the revenues raised by the US Treasury, even excluding the additional costs to the US Internal Revenue Service for the staffing and resources needed to process the data produced. Unusually, FATCA was not subject to a cost/benefit analysis by the United States House Committee on Ways and Means.
- Capital flight. The primary mechanism for enforcing the compliance of foreign financial institutions is a punitive withholding levy on US assets. This may create a strong incentive for foreign financial institutions to divest (or not invest) in US assets, resulting in capital flight.
- Foreign relations. Forcing foreign financial institutions and foreign governments to collect data on U.S. citizens at their own expense and transmit it to the IRS has been called divisive. Canada’s Finance Minister Jim Flaherty has raised an issue with this “far reaching and extraterritorial implications” which would require Canadian banks to become extensions of the IRS and would jeopardize Canadians’ privacy rights. (also this article from Canada) There are also reports of many foreign banks refusing to open accounts for Americans, making it harder for Americans to live and work abroad.
- Extraterritoriality. The legislation enables U.S. authorities to impose regulatory costs, and potentially penalties, on foreign financial institutions who otherwise have few if any dealings with the United States. The U.S. has sought to ameliorate that criticism by offering reciprocity to potential countries who sign Intergovernmental Agreements, but the idea of the US Government providing information on its citizens to foreign governments has also proved controversial. The law’s interference in the relationship between individual Americans or dual nationals and non-American banks led Georges Ugeux to term it “bullying and selfish.”
- Citizenship renunciations. Time magazine has reported a sevenfold increase in Americans renouncing U.S. citizenship between 2008 and 2011, and has attributed this at least in part to FATCA. According to the The New American a record number of Americans have given up U.S. citizenship in 2012 “amid IRS Abuse” and “facing an increasingly out-of-control federal government in Washington, D.C” . According to the BBC, the act is one of the reasons for a surge of Americans renouncing their citizenship – a rise from 189 people in the second quarter of 2012 to 1,131 people in Q2/2013. Another surge in renunciations in 2013 to record levels has been reported in the news media, with FATCA cited as a factor in the decision of many of the renunciants. Forbes Magazine writes that the renunciation of citizenship by Americans is up by 221%, as of this time (cite).
- American citizens living abroad. According to the Canadian Broadcasting Corporation many Americans living abroad may face large fines as a result of this legislation. According to the story a forty-years old developmentally disabled man, and a Canadian man married to an American will become some of the victims of this law. According to Time (magazine) American citizens living abroad are unable to open foreign bank accounts.
- IRS not ready. According to the NYTimes it is unclear whether the IRS is ready to handle millions of new complicated filings per year. According to one former IRS Deputy Commissioner, this summer is going to be one large FATCA “train-wreck” (cite).
- Effect on “accidental Americans”. The reporting requirements, including penalties, apply to all U.S. citizens, including those who are unaware that they have U.S. citizenship. Since the U.S. considers “all persons born in the U.S., and most foreign-born persons with American parents, to be citizens, FATCA affects a large number of foreign residents who are unaware that the U.S. considers them citizens.
- Complexity. Doubts have been expressed as to workability of FATCA due to its complexity, and the legislative timetable for implementation has already been pushed back twice.
So, is FATCA good, bad or not a factor for Americans living in South Korea?
Bad – If you are living here and earning income, you will spend more time and money complying with this extra tax hassle just to prove you don’t owe anything to the government or have complied with current tax law. For foreign non-Americans, in America, this is possibly also bad news since under U.S. diplomatic agreements to enact FATCA, U.S. financial firms must share information on foreign-born U.S. residents with foreign governments (cite).
IMHO, this is bad legislation that is directly from the nightmares of so many Americans that fear ever increasing government encroachment into their private affairs if not pocketbooks. I place this sort of government handiwork into the same category as the Department of Justice arranging to arrest foreigners on a layover through the US because they run a foreign online casino that Americans might spend money on – forget the law or the rights of individual, this is all about a bungled, misinformed, congressionally-lead, grabbing of money and not about fighting tax evasion.
More useful links for Americans on FATCA and for information to fight this legislation: