This just came to my attention through my friend Andy Sundberg at American Citizens Abroad in Geneva.
A few month ago Ben Wright at the WSJ wrote about Toxic Citizens. The concerns that I have outlined in my earlier post on Fatca are also amplified here. It deserves a long excerpt [with my bolding]:
American expatriates are fast becoming the world’s financial refugees. Onerous legislation from the U.S. government is making it too difficult – and too expensive – for banks to service U.S. citizens that live abroad. Expats are being left with a fast diminishing range of options. An increasing number are taking the most drastic step and renouncing their citizenship.
So far the latest rules have drawn little comment. US expats don’t have much political influence as their votes are spread across their native country. And the law is popular domestically because it is seen as way of cracking down on tax-dodgers. Slowly, however, bankers, lawyers and accountants are waking up to the wider implications of the new rules. American expats, it seems, may only be the first to suffer.
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David Treitel, a tax director, at U.S. Tax & Financial Services, said that at least 20% of the American customers serviced by his company’s London and Swiss offices have had their bank accounts closed over the past year.
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The U.S. government already taxes expatriate citizens on their worldwide income regardless of where it is earned or where they live, making them the only people in the developed world who are taxed in both their country of citizenship and country of residence. Many expats complain that these rules are getting tougher and the penalties more draconian by the year.
A number of banks decided that the concept of U.S. citizenship was too nebulous for them to police. Darlene Hart, the chief executive of U.S. Tax & Financial Services says that when the rule came out in 2001 many of her U.S. clients received letters from their wealth managers telling them that their investment portfolios had been liquidated.
Now a second wave of banks – especially in Switzerland but increasingly in the UK and the Channel Islands – are closing their doors to Americans because of the added burden of the HIRE Act.
Mr. Krause, who is American, says: “The law is reasonably well intentioned. But what do they say about the path to hell? This law is going to have significant unintended consequences. Yes, it is going to give U.S. expats problems. But it will also engender immense ill will towards the U.S. because it rides roughshod over existing tax treaties, it will cost hundreds of millions in compliance and it could well discourage investment into the U.S.”
Nearly three-quarters of respondents to the Withers survey said they expected to see investment into the U.S. decrease in the coming years because of the HIRE Act. Wegelin & Co. is, for one, advising its clients to exit all direct investments in U.S. securities: “We do not deny that by doing this, we hope to significantly reduce the risk carried by our bank as an intermediary.”
Talk about shooting yourself in the foot.
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