FATCA has landed in France like in other European countries. This article of the US tax code, put in place in 2010, requires banks in signatory countries to provide very specific information about accounts held by US citizens abroad. Why such an inquiry? What are the consequences?
The FATCA, which stands for “Foreign Account Tax Compliance Act”, is designed to counter tax evasion. It originated with the discovery of more than 50,000 US citizens’ offshore accounts on UBS’s books.
This framework requires international financial institutions to send information about bank accounts held by US taxpayers to the authorities.
More than 50 countries have signed this agreement, including Liechtenstein, China, and Russia. The text of the FATCA agreement between France and the United States was published in the French Official Journal (JO) on 2 January 2015.
Accounts with more than $50,000 for individuals are subject to reporting. In France, a total of 230,000 bank account holders would be potentially liable to the US tax authorities.
The United States had already taxed its US residents as residents abroad, but some of them did not necessarily file returns.
The United States, the first beneficiary
According to IRS estimates, more than $8 billion could go into Uncle Sam’s coffers in the first 10 years of application of the programme, due to the discovery of offshore accounts.
According to the Association of Certified Financial Crime Specialists (ACFCS), this figure could be substantially exceeded. The “Offshore Voluntary Disclosure” programme, which offers amnesty to unscrupulous taxpayers, has generated substantial revenues.
Between March 2009 and the end of 2014, 43,000 US taxpayers agreed to disclose their holdings to the IRS, generating more than $6 billion in revenue from a combination of taxes, interest, and penalties.
Negative impacts on banks
Given its impacts, The Economist has called FATCA a “tax bomb”. What does FATCA require from banks of signatory countries?
- automatic exchange of information
- if necessary, forcing non-residents to pay their taxes to the United States
In order to penalise foreign financial operators who fail to apply FATCA, the IRS has introduced a new 30% withholding tax to be applied to very broad categories of US-source payments (passthru payments).
This threat is taken extremely seriously by financial institutions, particularly by the smallest of them, which could go bankrupt under the weight of penalties for negligence.
A costly reform
- the necessary expenditures, especially computing expenditures, to meet these requirements are estimated at between 200 and 300 million euros for the five largest French institutions
- plus new and recurring expenses (collection, processing, monitoring, etc.).
- this new framework impacts the entire bank, including the operations department, which participates in the application of the withholding tax.
The intergovernmental agreement on FATCA thus actually places financial institutions under US tax law. Coercive measures
While no one can dispute the need to combat tax evasion, FATCA damages the banking relationship, given that this agreement, in addition to the paperwork that it creates, can bring about mistrust between the parties.
- therefore, some banks are now quite simply refusing to open accounts for US persons
- others are closing existing accounts held by US persons
- other institutions are increasing their fees, given the bureaucracy generated and the risks involved
Unease among expatriates
According to the same experts, this unnecessarily complicated system can lead to unexpected shocks for certain expatriates, who were unaware that they are US persons or considered as such under IRS criteria.
These constraints affect many middle-class nationals. US senator Rand Paul and plaintiffs represented by the organisation Republicans Overseas Action Inc. dispute the constitutionality of this text and want to reopen discussions on it. Specialists feel that their action has no chance of succeeding.
Access to mortgage loans
Carte Financement notes real difficulties in obtaining a mortgage for non-US residents who wish to invest in France. Very few credit institutions agree to process loan applications from US clients, as banks prefer to systematically reject them rather than taking even the slightest risk with the IRS. This is true even for very good profiles with significant income and several million euros in holdings. However, as noted earlier, the few banks equipped to handle non-US resident clients and agreeing to do so have an undeniable competitive advantage. On certain quality applications for exceptional home purchases, some banks find that they are the only institutions able to take action, whereas they normally engage in fierce competition. Regularly consulted by an international client base, Carte Financement is also able to support non-US residents investing in France.