Monday, March 31, 2014

Uncle Sam goes overseas to get your tax dollars

I was alarmed to read that the United States Department of Treasury reported that a record 2,999 Americans renounced their citizenship in 2013. I assume the motivating factor for many was tax avoidance.

Most of us have a mental image of a greedy, selfish Thurston Howell type person looking to keep as much money as possible. Certainly that’s the case in some instances, but it’s definitely not true for everybody.

In fact, a lot of dedicated Americans working and living abroad are discovering that it’s becoming increasingly difficult just to transact some of the basic banking services that we take for granted. It’s actually becoming a very significant problem.

As American citizens, we’re required to file IRS form 8938, the Statement of Specified Foreign Financial Assets. The purpose of the form is to report ownership of foreign financial assets.

In 2010, the United States passed the Foreign Account Tax Compliance Act (FATCA.) The Act goes into effect on July 1, 2014, and, as the name implies, its intent is to improve compliance of U.S. taxpayers who hold foreign accounts.

It requires foreign businesses to report all assets held by Americans with the goal to prevent tax evasion. In other words, Uncle Sam wants to get its hands on all the additional tax dollars that U.S. citizens are trying to avoid paying. Businesses throughout the U.S. may be getting used to the bureaucracy of our highly regulated nation, but many foreign firms apparently feel differently.

For example, some foreign banks are finding our requirements so cumbersome and expensive that they’re simply choosing not to do business with Americans. Consequently, many Americans abroad are having difficulty finding a bank that’s U.S. compliant.

This is not just impacting wealthy Americans; it’s also difficult for those executives who are overseas on assignment. Many may be familiar with Eduardo Saverin, the billionaire co-founder of Facebook. He was one of the wealthy Americans who did, indeed, renounce their American citizenship.

But, as the globe shrinks, and more and more hard-working Americans are working overseas, I’m concerned about their ability to bank, invest and, yes, pay they fair share of taxes like you and me. If the policy of foreign banks is simply not to do business with Americans, what happens if a young college-age student gets an opportunity to study abroad and finds it nearly impossible to do basic banking?

The chief executive officer of the Bank of Singapore stated that they have turned down millions of dollars from Americans because the bank “doesn’t want to deal with the regulatory hassle. It is too complex, too challenging.”

I’m also concerned about the status of the U.S. dollar as the world’s reserve currency. It’s easy to take for granted, but we’ve all enjoyed the benefits of our dollar being the currency of choice. Some experts estimate that if the dollar ever lost its international currency status our buying power could be reduced by as much as 20 percent.

I can’t think of any clients or readers that want a 20 percent pay cut. But if we continue with heavy-handed regulation, we could jeopardize the dollar’s elite status.

As the world shrinks, we need to find a better balance between tax evasion, reasonable regulation and simplified compliance for our citizens, wherever in the world they may be.

No comments:

Post a Comment