FATCA: A Reminder of the Social Role of French Banks (The Huffington Post)
As a result of the fight against tax fraud undertaken by the Obama administration, the U.S. Congress passed « FATCA » (« Foreign Account Tax Compliance Act ».) This law requires foreign banks, under the threat of severe penalties, to inform U.S. authorities on transactions and assets from those of their customers who are taxable in the United States.
To facilitate the implementation of this law, the United States have negotiated with a number of allied countries various treaties to ease in the exchange of information. One such agreement was recently signed with France.
Under this agreement, any citizen of one country holding financial assets in the other country will be the subject of a report covering his financial balance, financial income and the amount of his assets to the tax authorities of his country of origin. We are, therefore, making the transition from a system of individually targeted information requests to an automatic information sharing system.
French banks serving clients taxable in the United States will also, in some cases, comply with U.S. laws. U.S. rules are of course different from French and European rules, and compliance may necessitate the creation of a new specialized administrative department. It is clear that the administrative cost incurred by the French financial institution is out of proportion to the profits realized on the portfolio of the affected clients.
In response to these new constraints and to avoid the administrative burden that follows, certain French institutions have begun to notify their clients taxable in the United States of the closing of their accounts.
Many of our citizens residing in the United States who have retained assets in France are therefore requested to withdraw their assets, without recourse; some are simply unable to open a bank account in France.
Everyone understands the need to fight against tax evasion and undeclared foreign accounts. Nobody feels sorry for the fraudsters who get caught in the net; they are the ones who should be in the crosshairs. Now, there will be no place to hide.
This being said, our French citizens living in the United States, and even some French citizens living in France, are bearing the burden of a perverse side effect.
Now, a French citizen naturalized American who decides to return to France to retire may not be able to open an investment account.
A French citizen who is established in the United States but has maintained household investments in France may be forced to liquidate despite any legitimate tax planning done beforehand.
Some Americans established in Europe, now renounce their U.S. citizenship to escape these constraints.
This situation is the result of a poorly negotiated agreement, which has focused, rightly, on fraud and tax evasion, but has been written too narrowly and did not take into account possible side effects.
If everyone understands the need to fight against tax fraud, everyone can agree that law abiding taxpayers should not pay the price.
That is why it is essential that our government remind financial institutions of their duty and not sacrifice their social role attached to banking in France and remind them of their obligations.
Therefore, we call on the Government to take all the necessary steps in this direction.
The government’s undertaking as announced during a parliamentary session must be fully implemented. France’s large banks must pledge not to penalize law abiding citizens.
But what about the future?
What about the re-negotiation of the FATCA agreement?
To accept FATCA is tantamount to accepting the American principle of taxation based on nationality instead of taxation based on residence as it is the case in the rest of the world.
One solution could be to offer to the United States, as an alternative, to share into the new residence based OECD automatic data sharing platform.
We challenge France to lead a European counter-proposal. The situation is identical in Germany.
Let’s protect the European model while actively fighting fraud.
Frédéric Lefebvre, Ancien Ministre, Député
Olivier Piton, Attorney
Dominique Lemoine, Attorney at Law, member of the New York and Georgia Bars
Jean-François Bonneté, PPLLC director general
Jacques Brion, Real Estate Developer
Anissa Gossman, « Washington Humane Society »
Gatien Bon, Graduate student, Harvard Kennedy School