# FATCA- Gov't desperation, tyranny, or just standard business... **URL:** \ **Category:** Great Debates\ **Created:** [October 11, 2013, 12:59am UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933 "2013-10-11T00:59:08Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![FriarTed](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/friarted/32/1052_2.png) [@FriarTed](https://boards.straightdope.com/u/FriarTed)\ **Post date:** [October 11, 2013, 12:59am UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/1 "2013-10-11T00:59:08Z")
A friend is looking to move out of the country & was told about FATCA, which I had not heard of until she asked me about it. Basically, the US government takes 30% of money taken out of the US & up to 50% of US holdings if one renounces their citizenship. What are the limits of this, how Constitutional is this, and what safeguards exist around it? ---
**Author:** ![Richard\_Parker](https://avatars.discourse-cdn.com/v4/letter/r/35a633/32.png) [@Richard\_Parker](https://boards.straightdope.com/u/Richard_Parker)\ **Post date:** [October 11, 2013, 1:27am UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/2 "2013-10-11T01:27:36Z")
Your friend doesn’t understand FATCA. The law was passed to prevent hiding taxable assets in offshore accounts. The 30% withholding applies to deposits made into offshore accounts that don’t comply with IRS reporting requirements. Separately, there is an expatriation tax involving in renouncing one’s citizenship, that applies depending on a number of specific circumstances. It has existed for decades and was made harsher under the Bush Administration. Many countries have such a tax. As to constitutionality, what part do you think might be unconstitutional? ---
**Author:** ![Iggy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/iggy/32/3364_2.png) [@Iggy](https://boards.straightdope.com/u/Iggy)\ **Post date:** [October 11, 2013, 1:30am UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/3 "2013-10-11T01:30:23Z")
FATCA imposes significant issues on financial institutions which may not being doing business in the United States. It is an extra-territorial power grab on the part of the United States. ---
**Author:** ![Richard\_Parker](https://avatars.discourse-cdn.com/v4/letter/r/35a633/32.png) [@Richard\_Parker](https://boards.straightdope.com/u/Richard_Parker)\ **Post date:** [October 11, 2013, 1:35am UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/4 "2013-10-11T01:35:06Z")
It imposes burdens on them only if they have US citizen clients, right? ---
**Author:** ![Iggy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/iggy/32/3364_2.png) [@Iggy](https://boards.straightdope.com/u/Iggy)\ **Post date:** [October 11, 2013, 2:08am UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/5 "2013-10-11T02:08:18Z")
> [@Richard\_Parker](#): > > It imposes burdens on them only if they have US citizen clients, right? No. It also imposes requirements on foreign financial institutions if any of their international transactions transfer through a US clearing bank. The US government can seize 30% of those payments _even if the transaction is not involving US citizens_ unless the foreign financial institution provides FATCA filings. FATCA filings may be direct to the IRS or in a consolidated manner through a local financial authority. ---
**Author:** ![Human\_Action](https://avatars.discourse-cdn.com/v4/letter/h/ac91a4/32.png) [@Human\_Action](https://boards.straightdope.com/u/Human_Action)\ **Post date:** [October 11, 2013, 2:19am UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/6 "2013-10-11T02:19:41Z")
> [@Iggy](#): > > No. > > It also imposes requirements on foreign financial institutions if any of their international transactions transfer through a US clearing bank. > > The US government can seize 30% of those payments _even if the transaction is not involving US citizens_ unless the foreign financial institution provides FATCA filings. FATCA filings may be direct to the IRS or in a consolidated manner through a local financial authority. If it’s through a US clearing bank, then it’s not extra-territorial, is it? ---
**Author:** ![Richard\_Parker](https://avatars.discourse-cdn.com/v4/letter/r/35a633/32.png) [@Richard\_Parker](https://boards.straightdope.com/u/Richard_Parker)\ **Post date:** [October 11, 2013, 2:21am UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/7 "2013-10-11T02:21:01Z")
Is that in an IRS reg somewhere? I don’t see how that follows from the text of the law (on an admittedly quick skim). ---
**Author:** ![Iggy](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/iggy/32/3364_2.png) [@Iggy](https://boards.straightdope.com/u/Iggy)\ **Post date:** [October 11, 2013, 2:53am UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/8 "2013-10-11T02:53:41Z")
Pass through payments may be subject to withholding: > [@Ernst & Young](#): > > General withholding rule on payments to FFIs (Foreign Financial Institutions) > Treas. Reg. Section 1.1471-2(a) generally provides that withholding agents must withhold at 30% on payments to certain FFIs beginning with withholdable payments made after 31 December 2013, subject to the transitional exception discussed below. However, withholding is not required when a withholding > agent can reliably associate the payment with documentation from a payee that it may treat as exempt from withholding or when the payment is made with respect to a grandfathered obligation (defined below). Payments that are exempt > from withholding based upon valid documentation from the payee include (i) payments to exempt beneficial owners, (ii) payments to deemed-compliant FFIs, (iii) payments to a “territory financial institution” (a financial institution organized in a US territory), (iv) subject to certain rules, payments to participating FFIs, (v) payments to an account held with a clearing organization with FATCA-compliant > membership (details reserved), and (vi) payments to certain excepted > accounts. So… 30% gets withheld _unless_ documents are provided showing the beneficial owner receiving the payment is not an American. Or the 30% is withheld if the payment is to a clearing organization that is not FATCA compliant. The only way for a foreign bank to comply is to undertake a set of record keeping and disclosure that may not be required under the laws of the jurisdiction where they do business. And then to make FATCA filings to disclose certain details about American clients, or conversely, demonstrate that certain transactions do not involve Americans. It is a bit like a hypothetical where the State of California tells merchants in Nevada to collect California sales tax on all purchases unless the customer proves he is not a California resident. The penalty for failing to comply is that the California state government will withhold 30% of all payments to that Nevada merchant that pass through any California bank, even if it is for a purchase not involving a California resident. With FATCA, some banks are choosing to try avoiding doing business through the US. Most banks are complying because the US controls something like 95% of the international payments clearing. International merchants in some countries are stuck because major electronic payment processing (credit cards mostly) for international transactions are almost all routed through the US. ---
**Author:** ![Richard\_Parker](https://avatars.discourse-cdn.com/v4/letter/r/35a633/32.png) [@Richard\_Parker](https://boards.straightdope.com/u/Richard_Parker)\ **Post date:** [October 11, 2013, 1:58pm UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/9 "2013-10-11T13:58:44Z")
Ah, now I understand. There is a presumption that the FFI has U.S. clients unless they prove otherwise, essentially. I guess whether that’s unreasonable or not depends on how burdensome the process of proving you don’t have US clients is. It sounds like it’s pretty burdensome. The other thing this bumps up against is what territorial jurisdiction means in a world in which an electronic transaction might simply pass through a US server. That’s a hot topic in many areas of law, and we probably won’t resolve it for a couple more decades. ---
**Author:** ![sailor](https://avatars.discourse-cdn.com/v4/letter/s/a587f6/32.png) [@sailor](https://boards.straightdope.com/u/sailor)\ **Post date:** [October 11, 2013, 6:55pm UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/10 "2013-10-11T18:55:37Z")
> [@Richard\_Parker](#): > > Separately, there is an expatriation tax involving in renouncing one’s citizenship, that applies depending on a number of specific circumstances. It has existed for decades and was made harsher under the Bush Administration. Many countries have such a tax. Can you name some countries? Because it makes no sense to me. Only the USA taxes residents abroad based on citizenship. Since other countries don’t it makes no sense. A Spaniard cannot renounce his citizenship _ **for the purpose of avoiding taxes** _ because income tax is based on residency, not citizenship. So what countries charge a tax on renouncing citizenship other than the USA (and Cuba)? ---
**Author:** ![Richard\_Parker](https://avatars.discourse-cdn.com/v4/letter/r/35a633/32.png) [@Richard\_Parker](https://boards.straightdope.com/u/Richard_Parker)\ **Post date:** [October 11, 2013, 6:57pm UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/11 "2013-10-11T18:57:09Z")
> [@sailor](#): > > Can you name some countries? Because it makes no sense to me. Only the USA taxes residents abroad based on citizenship. Since other countries don’t it makes no sense. A Spaniard cannot renounce his citizenship _ **for the purpose of avoiding taxes** _ because income tax is based on residency, not citizenship. > > So what countries charge a tax on renouncing citizenship other than the USA (and Cuba)? Expatriation, not necessarily renunciation. Canada. South Africa. China. I’m sure there are others. ---
**Author:** ![Richard\_Parker](https://avatars.discourse-cdn.com/v4/letter/r/35a633/32.png) [@Richard\_Parker](https://boards.straightdope.com/u/Richard_Parker)\ **Post date:** [October 11, 2013, 7:01pm UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/12 "2013-10-11T19:01:21Z")
By the way, Spain taxes citizens who move to certain other countries for their first five years of non-Spain residency. Lots of countries have similar rules, and the US is not alone in taxing citizens abroad in perpetuity. ---
**Author:** ![sailor](https://avatars.discourse-cdn.com/v4/letter/s/a587f6/32.png) [@sailor](https://boards.straightdope.com/u/sailor)\ **Post date:** [October 11, 2013, 8:07pm UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/13 "2013-10-11T20:07:51Z")
> [@Richard\_Parker](#): > > By the way, Spain taxes citizens who move to certain other countries for their first five years of non-Spain residency. I have never heard of this. Where do you get this information? The [official Spanish Treasury web site](http://www.agenciatributaria.es/AEAT.internet/Inicio_es_ES/La_Agencia_Tributaria/Campanas/No_residentes/Impuesto_sobre_la_Renta_de_No_Residentes/Cuestiones_sobre_residencia/Contribuyentes_por_el_Impuesto_sobre_la_Renta_de_las_Personas_Fisicas_e_Impuesto_sobre_Sociedades_y_contribuyentes_por_el_Impuesto_sobre_la_Renta_de_no_Residentes.shtml) says otherwise. It only talks of residents and does not say a word about citizenship. > [@](#): > > Lots of countries have similar rules, Such as? Care to name a few? > [@](#): > > and the US is not alone in taxing citizens abroad in perpetuity. Again, care to name a few? ---
**Author:** ![sailor](https://avatars.discourse-cdn.com/v4/letter/s/a587f6/32.png) [@sailor](https://boards.straightdope.com/u/sailor)\ **Post date:** [October 11, 2013, 8:13pm UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/14 "2013-10-11T20:13:59Z")
> [@Richard\_Parker](#): > > Expatriation, not necessarily renunciation. Canada. South Africa. China. I’m sure there are others. Can you expand and document this? I have never heard of this. What exactly is “expatriation” and how do they tax it? My girlfriend is Chinese living abroad and has not had to pay any tax to China for leaving AFAIK. Can you explain further? When a Canadian leaves Canada do they ask him when he intends to return and they tax him depending on how long he will be out of the country? How does an “expatriation tax” work? ---
**Author:** ![Richard\_Parker](https://avatars.discourse-cdn.com/v4/letter/r/35a633/32.png) [@Richard\_Parker](https://boards.straightdope.com/u/Richard_Parker)\ **Post date:** [October 11, 2013, 8:52pm UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/15 "2013-10-11T20:52:13Z")
This is all on Wikipedia. See “expatriation tax” and “international taxation:citizenship” wikis. ---
**Author:** ![sailor](https://avatars.discourse-cdn.com/v4/letter/s/a587f6/32.png) [@sailor](https://boards.straightdope.com/u/sailor)\ **Post date:** [October 11, 2013, 9:29pm UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/16 "2013-10-11T21:29:15Z")
> [@Richard\_Parker](#): > > This is all on Wikipedia. See “expatriation tax” and “international taxation:citizenship” wikis. This does not answer my questions and I am not going to do your legwork for you. > [@](#): > > Spain taxes citizens who move to certain other countries for their first five years of non-Spain residency. I am waiting for a confirmation or retraction on this. What countries tax their citizens worldwide? Names? What countries tax on expatriation and how does the tax work? Again, only Americans can benefit from renouncing their citizenship because only Americans are taxed worldwide. No other country taxes those renouncing their citizenship that I know of. You are welcome to show I am mistaken but “look it up in Wiki” does not cut it around here. I want names and proof, not hot air and hand waiving. ---
**Author:** ![Richard\_Parker](https://avatars.discourse-cdn.com/v4/letter/r/35a633/32.png) [@Richard\_Parker](https://boards.straightdope.com/u/Richard_Parker)\ **Post date:** [October 11, 2013, 9:44pm UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/17 "2013-10-11T21:44:28Z")
> [@sailor](#): > > You are welcome to show I am mistaken but “look it up in Wiki” does not cut it around here. I want names and proof, not hot air and hand waiving. You can keep on being ignorant or you can spend 15 seconds in Wikipedia. The choice is yours my friend. I have no interest in copying out paragraphs for you, as I’m not trying to persuade you of anything. ---
**Author:** ![sailor](https://avatars.discourse-cdn.com/v4/letter/s/a587f6/32.png) [@sailor](https://boards.straightdope.com/u/sailor)\ **Post date:** [October 11, 2013, 10:10pm UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/18 "2013-10-11T22:10:01Z")
OK, so you got nothing. Spain does not tax Spanish citizens who do not reside in Spain. I already linked to the Spanish tax agency site which proves it. America is pretty much the only country which taxes its citizens residing abroad. According to [File:Individual taxation systems.png - Wikipedia](https://en.wikipedia.org/wiki/File:Individual_taxation_systems.png) the only other country in the world to do this is Eritrea. And I’d like to see how effective they are, how they enforce it and how much they collect on that account. Even though Americans residing abroad are required to file with the IRS I believe most of them don’t because they would not have to pay and doing the paperwork is a PITA. Now, regarding the main subject of the thread I do not know anything about FATCA but I do know some European banks (I know specific examples Swiss and British) refuse to do business with American citizens or residents and I suppose this is to avoid the headache of having to deal with this issue. ---
**Author:** ![Dr.Drake](https://avatars.discourse-cdn.com/v4/letter/d/ad7895/32.png) [@Dr.Drake](https://boards.straightdope.com/u/Dr.Drake)\ **Post date:** [October 12, 2013, 1:29am UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/19 "2013-10-12T01:29:19Z")
> [@Richard\_Parker](#): > > You can keep on being ignorant or you can spend 15 seconds in Wikipedia. The choice is yours my friend. I have no interest in copying out paragraphs for you, as I’m not trying to persuade you of anything. I spent the 15 seconds on Wikipedia. The countries: 1 Canada—this sounds like a customs / exportation issue rather than any income tax or true capital gains tax. In other words, any assets you export along with yourself are subject to taxation, regardless of your citizenship status when you leave. 2 Nazi Germany—no longer exists. 3 Netherlands—specifically, if you to to Belgium or Portugal, but not France. No word on hundreds of other countries. 4 South Africa—only beyond some ridiculously large amount. 5 United States—the major difference is that unlike the three countries above, the US charges expatriates an income tax, and like a medieval feudal lord requires you to clear your exit with them if you really want to renounce citizenship. When I left the US and entered Canada, I paid nothing to move my entire worldly goods across the border. It sounds like that would not be the case the other direction. However, if I renounce my US citizenship, I have to pay a fee in order to do so, and am subject to weird taxation laws for some time in the future, whereas if I had renounced my Canadian citizenship while still in the US there would be no tax requirements to file with Revenue Canada. Also, the US wants to know all of my foreign bank accounts, while Canada does not care so long as I report income. ---
**Author:** ![Richard\_Parker](https://avatars.discourse-cdn.com/v4/letter/r/35a633/32.png) [@Richard\_Parker](https://boards.straightdope.com/u/Richard_Parker)\ **Post date:** [October 12, 2013, 1:32am UTC](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933/20 "2013-10-12T01:32:14Z")
You’re conflating the income tax issue and the expatriation issue. If you go to the other wiki I suggested, it walks through all the countries that charge income tax to citizen nonresidents under various circumstances. [Next page](https://boards.straightdope.com/t/fatca-govt-desperation-tyranny-or-just-standard-business/670933.md?page=2)