Recent changes to the FACTA legislation – the Foreign Account Tax Compliance Act – have placed both
investors and jurisdictions in a state of some concern. For instance, for gold investors there are issues
about bullion storage and one of the solutions for many, identified by NZVault, is storing in a jurisdiction
that has no direct connection with the US regulatory regime under FACTA.
Forbes recently looked at what Russian oligarchs are doing, particularly the issues relating to the “hurtling freigh train that is FACTA”, as columnist Robert Wood writes. Russian businessmen and investors are significant users of foreign jurisdictions like Switzerland and the Cayman Islands.
And while China hasn’t yet inked a FATCA deal, China has pledged to fight tax evasion. Russia too would seem like a logical fit. Why has Russia grown colder to the idea? It’s not entirely clear whether the U.S., Russia or both are turning down the temperature. A few months ago it looked as if even Russia would sign up. After all, Russia like other countries was negotiating information-sharing agreements with the U.S.
However, once Russia annexed Crimea and fueled movements in eastern Ukraine, the U.S. Treasury stopped talking about a deal with Russia. As FATCA’s July 1 deadline draws near, Russian banks may worry that the cost of U.S. investments will go through the roof. The U.S. imports billions of dollars in goods from Russia, and export billion of dollars in goods to Russia.
Russian institutions do not want to be left behind. A requirement that banks have to start withholding could spread like cancer, particularly given the complex web of relationships global banks have. Most foreign nations and foreign banks are keen to hand over American account holders to the feds. In return, the foreign nations and banks get unfettered access to U.S. capital markets.
Foreign banks must hand over the details of American account holders with over $50,000 on deposit. Institutions that fail to comply could effectively be frozen out of U.S. markets entirely. Eventually, the banks would be forced with withhold a 30% U.S. tax on every transaction. And those consequences for any nation are big.
That’s why the U.S. Treasury Department has signed up so many nations. With prosecutions, summonses, and the IRS voluntary disclosure programs, the IRS is getting quicker, better and more complete information than ever. And FATCA will expand it like a fire hose.
After foreign institutions identify U.S. account holders, FATCA requires the institutions to impose a 30% tax on payments or transfers to any who refuse to step up and get into full U.S. compliance. The withholding applies to stocks and bonds, including U.S. Treasuries. Some previously owned securities are exempt from withholding. In general, though, previously owned stocks are not exempt.
See more about Robert Wood at the link below.
Note: The IRS clarification:
If you hold precious metals for investment, such as gold, and they are held in a foreign country the assets do not need to be reported on Form 8938 because they are “not specified foreign financial assets”
Similarly with a safe deposit box at a foreign financial institution it is not regarded by the IRS as a financial account within the terms of the IRS requirements.
Ask NZVault or financial advisers for more information, or check with the IRS website.
Read more about Robert Wood’s article at Forbes or Wood LLP