The US Treasury doesn't display the bumbling incoherence of Brussels - By Kitty Miv, Editor
Kitty Miv, Editor
19 April, 2012
After ten years of struggle, America's tax authority has finally committed itself to another important step towards the systematic destruction of the country's financial sector with its issuance of 'final rules' for the reporting of interest payments to non-residents. It's easy to forget by now that the origins of this measure are to be found in the unholy alliance forged between left-leaning European and American administrations in the mid-1990s which spawned the EU's Savings Tax Directive and began the transformation of the OECD from a benevolent provider of economic statistics into a trades union for rich country tax collectors and the scourge of the low-tax world of offshore.
The Savings Tax Directive, like most beasts designed by committees, is scarcely viable, easy to avoid, and has been largely ineffective in its stated purpose, being the eradication of unreported and untaxed deposits in European banks, although some of the bigger European nations have achieved comparable goals through a combination of theft (of computer disks) and pragmatic deal-making (with Switzerland and Liechtenstein, mostly). The main result however of all this activity has been to drive savings out of Europe, and this is what is going to happen in America.
Specifically, it was Laurence Summers at the US Treasury who hatched the plan to impose non-resident reporting requirements on US banks. Although he has long gone from that role, he has been one of President Obama's key economic advisers, and it's easy to imagine that he has been instrumental, if only indirectly, in the final emergence of the plan he hatched so long ago. The US Treasury doesn't display the bumbling incoherence of Brussels, and is that much more dangerous as a result. It is only a matter of weeks since the Treasury provided a more or less final set of rules for the operation of FATCA, which is just as damaging for financial institutions as the non-resident reporting rules, if not more so.
There is no doubt of course that the combination of FATCA and the reporting rules, together with Dodds-Frank and assorted other post-Lehman legislative strait-jackets, will make it next to impossible for investors with US institutions and their affiliates to be other than fully transparent in regard to their investments and their fiscal responsibilities. The question is whether they will hang around to put it all to the test, or whether they will simply march quickly in the direction of Hong Kong, Singapore, the Cayman Islands et al.
It is not just, or even at all a question of honesty. Of course this column doesn't support the deliberate evasion of taxes, but many people's tax situations are complex and uncertain. Such individuals and companies take advice and do what they suppose is correct; but they dread the expense and stress of investigations by the IRS or any other tax authority. Recent experience in Canada resulting from the operation of the reporting rules shows that the IRS uses a heavy, insensitive hand in pursuing what it supposes, often incorrectly, might be irregular situations. Action by the Canadian Prime Minister, no less, forced apologies and back-tracking by the IRS. But if the IRS can behave in such a cack-handed way with Americans in its own backyard, what can be expected when for example the subject is a foreign national investing with the Cayman branch of a US bank?
Surely the result of all this activity will be to reduce the attractiveness of investment in America and with US institutions. Is this what the authorities want to achieve? I hope not; or are they so blinded by jealousy, the 1% mantra and the Buffett heresy that they cannot see past the ends of their inquisitive noses?
« Go Back to Blogs