Swiss banking secrecy and the birth of a new tax law

It started with the Swiss banking scandals of 2009, when the US government aggressively went after banks that aided tax evaders. This effectively ended the reign of the famous, secretive “Swiss bank accounts” enshrined in thrillers like the Bourne Identity and James Bond films.

The US government, using its economic power, was levying a polite ransom on financial institutions across the world to reveal their rich, potentially tax-evading US clients, or else face humiliation at best and prosecution at the worst. The IRS, which lives under the US Treasury, was keen to collect the taxes that it believes it is fairly owed, mostly from wealthy Americans using offshore tax havens.

UBS settled with the US government, paying a fine of $780m for helping tax evaders. Other banks, including Credit Suisse, soon followed

The new ‘Berlin Wall’

Enter the “regulatory issues” that have bedeviled Dublin, Besser and other Americans living overseas.

The original Fatca law conjures an image of wealthy American individuals sipping cocktails on a beach somewhere with large offshore accounts filled with untaxed capital. But expats were never the targets, say experts. But Fatca’s impact has hit many of the seven million American expatriates who are not sipping umbrella-decorated drinks on exclusive beaches.

“Americans living abroad were not originally the primary target of Fatca,” says University of Virginia Law School professor Ruth Mason about the law, “which was designed principally to prevent offshore tax evasion by resident Americans.”

Expatriates such as Dublin spend several hours each year filing their US tax returns. Americans living overseas can exclude $100,000 a year of income from US taxes, according to David McKeegan, an international tax expert.

Many are caught by surprise. There has been no visible communication campaign to alert the millions of expatriates that they may be tax cheats.

“People are learning about this through websites, media, word of mouth and so forth. Where is the US government is in all this?” asks Victoria Ferauge, a Seattle native living in Paris who blogs about tax laws.

‘If they find out he’s married to an American, they might tell him to get lost’

Genevieve Besser, a dual German-American citizen and a communications consultant in Germany, says that among expats in Germany, the preferred term for the legislation is ‘Berlin Wall’.

“It’s shameful and humiliating that a country so free is so restricting,” she says.

Besser says her bank, ING-DiBa, told her that that it did not work with Americans anymore.

Besser was a co-signer on her daughter’s bank account. ING-DiBa closed it down because of Besser’s German-American dual citizenship.

Her husband had to take her name off their joint investment account. His checking accounts have so far been left untouched.

“But if they find out he’s married to an American, they might tell him to get lost,” Besser says.

Besser’s investment options are severely restricted as an expatriate forcing her to invest in financial products such as individual stocks instead of mutual funds. “I’m shut out because I live abroad,” she says.

The complications have become so prevalent that, as a last resort, thousands of Americans have asked US Consulates abroad to cancel their citizenship. In 2013, 2,999 Americans renounced their citizenship; in 2014 so far, it’s a little more than 1,500 people.

Possibly to stem the tide, the state department raised the fee for citizenship renunciation fourfold on September 12, from $450 to $2,350. Officials seem to be hoping the steep fee will discourage more people from giving up their passports.

Says Dublin: “For many years I’ve paid $500 for my blue passport. But it becomes a very expensive thing to have.”

American expatriates who have not taken the extreme move of renouncing are taking the rather precarious approach of waiting and watching for new legislation instead of complying with the current law.

“They just don’t pay [taxes] and hope it goes away”, says Besser.

‘My bank will not answer questions’

On a Skype call with a reporter, Victoria Ferauge sits in her sunlit Paris house, smoking the occasional cigarette, and following the day’s French Parliament session with particular interest.

Ferauge, a Seattle-born American married to a Frenchman, has been following and blogging about US tax laws for the last three years.

On this Thursday afternoon, France’s parliament is voting to approve an inter-governmental agreement with the US on Fatca compliance.

“A vast majority of Americans suddenly woke up to what’s going on,” Verauge says. She relates stories of fellow expatriates who have had to take their names off joint accounts – some holding small family inheritances – because banks would not accept US customers.

“My bank will not answer questions,” she says about her enquiries regarding their Fatca compliance.

Verauge is preparing to move to Osaka, but she has doubts how the law will play out in Japan. She is infuriated to be put in the position of suddenly finding herself in a foreign country and not having a dollar she can spend.

“I will give up my citizenship if it came to that.”

The woes of the accidental Americans

Even those Canadians who might be called ‘accidental Americans’ don’t like the long arm of the IRS.

Courtney Welch’s Canadian bank found out that he was, in spite of possessing a Canadian passport for the last 41 years, a dual citizen of US and Canada. He was naturalised as a child when his parents moved to Canada, but retains a dual-American citizenship because he was a minor.

To avoid breaking any laws, Welch will have to renounce his US citizenship and file five years’ worth of tax returns as well as possibly thousands of dollars to the US government in taxes on income he earned in Canada. He will have to foot bills for airplane flights and miss out on wages – and that’s not counting the $2,350 fee to renounce a citizenship he never assumed in the first place.

Welch, who has no intentions of living in the US, finds the idea that he has to pay taxes to the US government ridiculous.

“I feel about the same obligation to file US tax papers as you would if the supreme court of Uruguay all of a sudden decided you were a citizen and had to file a tax return there,” he tells the Guardian.

Read the full story = http://bit.ly/1rntFBI