We are now firmly in the FATCA era and moving on to the post
FATCA era. With the first FATCA reports being submitted in March
2015, by now many FFIs have registered and obtained their GIINs,
trustees are documenting their trusts, holding companies have
entered into appropriate sponsorship agreements, and the financial
world is a flurry of W-8BEN-Es and tax status questionnaires. Many
have come to the realisation that, although an annoyance, FATCA
compliance is manageable. As many of us predicted, for compliant
Americans, it is really just another form.
However this has not stopped financial institutions from using
FATCA as an excuse either to exclude US clients or impose special
requirements (for instance, minimum account balances) on US clients
wishing to open or maintain bank accounts. Some financial
institutions are offering to help clients with FATCA compliance for
a fee, which is a handy way to generate revenue from a government
requirement.
Americans residing outside of the US have long bemoaned the pariah
status that FATCA seemingly imposed on them from the beginning. As
labourers in the FATCA vineyards we are now coming to the
conclusion that FATCA is being blamed for all the ills of the
financial system, in some cases unfairly. It seems, despite the
efforts of the US and local jurisdictions to ease the reporting
implications of FATCA, primarily through the Intergovernmental
Agreements, Americans still face difficulty when dealing with banks
and other financial institutions. Perhaps these banks with some
exposure are still smarting from their dealings with the US
Department of Justice, either under a criminal investigation or a
non-prosecution agreement.
Banks will need to develop a reasonable approach to FATCA reporting
since, relatively soon, the OECD's Common Reporting Standard
(CRS) will also come into effect. The CRS is the first genuinely
multinational automatic tax information exchange and will see OECD
countries (including just about all European countries) voluntarily
exchanging information about each others' residents. It is
intended to be consistent with FATCA reporting – so US
citizens will not be alone.
When the US introduced FATCA many European countries objected to
the long arm of US tax jurisprudence and claimed that data
protection rules prevented compliance. Gradually the EU and OECD
countries came round to thinking that, if adopted it could provide
a good basis for implementing the long standing OECD information
exchange initiative, and so most of the OECD countries have entered
into intergovernmental agreements with the US to implement FATCA
consistent with data protection laws. These agreements have formed
the basis for implementation of CRS. And they can blame the
Americans when anyone complains.
But the problems that US citizens can face in opening and
maintaining investment accounts outside the US are not really
related to FATCA in our view. Instead the blame should be laid at
the door of a different part of the alphabet soup of cross border
regulations.
The AIFMD (Alternative Fund Managers Directive) has
combined with the SEC and Dodd Frank US regulations mean that
managers offering fund investments on a retail basis now face a
much higher degree of regulation. So Americans can still open bank
accounts but finding an investment manager is more challenging.
Partly this also reflects the competing US and UK tax issues for
fund investors.
So Americans abroad can still have cash deposits, buy equities and
bonds and trade currencies. But if they want to buy funds they will
need to seek out the small, but growing, number of managers who are
geared up for the new fund regulatory environment. So this
Thanksgiving Americans should pardon the FATCA turkey and hunt for
sophisticated fund managers for their investments.
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