Will Canada Save Us?
FATCA, officially known as the Foreign Account Tax Compliance Act, is probably the worst law that most Americans don’t know about.
I’ve written about this monstrous law repeatedly, most recently here. But now, it looks as if the prospects for FATCA’s implementation could be throttled by the courts of meek and mild-mannered Canada, of all places.
If you haven’t heard of FATCA, you’re not alone. US citizens living in the US who don’t invest outside the US aren’t affected by the law. But if you’re a US citizen living in another country, or one who invests outside the US, FATCA is very bad news, indeed.
In short, FATCA demands that every foreign financial institution (FFI) in the world sign and strictly comply with an agreement with the IRS to turn over account information with respect to its US clients. FFIs that fail to do so are subject to a 30% withholding tax on certain “withholdable payments” from U.S. sources. They’ll also likely be subject to 30% withholding on payments from participating FFIs as well, anywhere in the world.
FATCA is especially hard on US citizens living outside the US. That’s because US, uniquely among major nations, imposes the same tax and reporting obligations on US citizens living outside the US as those living in its territory. With careful maneuvering, it’s generally possible for such persons to avoid being taxed twice on the same income. But income that’s legally tax deferred in, say, a country like Canada, might not be tax deferred in the US. That leads to unexpected and occasionally tragic results, as I discussed in this essay.
To implement FATCA, a country must first sign an inter-governmental information-exchange agreement (IGA) with the IRS. The agreements vary, but all of them require the signatory country to require its financial institutions to identify their US clients. Then, each financial institution must either turn over information on its US clients directly to its own tax authority for transmission to the IRS (“Type 1” agreement) or directly to the IRS (“Type 2”) agreement.
In many countries, information that the IGA requires either FFIs or foreign tax
You can read the rest of this article at: https://www.lewrockwell.com/2015/09/mark-nestmann/will-canada-save-us/