*Music*
Herald Angel: So, they say that the only certainties in life are death and taxes
and even hackers have decided that death is easier to cheat.
[Pause] Life is about to get, way more interesting
for more than 60 million Europeans, and we're going to find out why here is the
taxman with the international exchange of tax information.
Why don't we give him a huge round of applause?
*Huge applause*
Taxman: C3 rocks! Yeah, thanks for being
here I deal with this stuff every day and I'm happy that some other people are
interested in this because I have the impression the subject hasn't really made
its way into the public. There's a lot of ignorance out there even among
specialists. So, thank you very much for listening to what I have to go through
nearly every day. What am I going to talk about? First, what are FATCA and CRS?
FATCA is the Foreign Account Tax Compliance Act. CRS, Common Reporting
Standard. From now on don't remember what it stands for. It's FATCA and CRS. I'll
give you some practical advice how FATCA affects you and what you can do about it.
And, at the end, since we're on the political section here at CCC I would like
to venture 2 or 3 thoughts on what FATCA and CRS means for, let's say, society as a
whole. Let's see, here we are! This is the most important slide of my talk, so, if
you got this one you can go home. What is going... What's going on here? You, the
listeners, we're the pink dudes. [Pause]
*Rattling sounds* ...with bank accounts, financial
institutions and the parlance of FATCA and CRS. Banks will collect information from
us, forward it to the local tax administration. In this case, the
Luxembourg flag suggests we're in Luxembourg. The Luxembourg tax
administration will collects this information and forward it to the
designated countries. On the top, we see a foreign tax administration that doesn't
have a flag. Imagine there's an American flag there. FATCA deals with forwarding
information from - the German, Luxembourg, French, etc, tax administration's - to the
United States. CRS the Common Reporting Standard took the idea, the model of the
American's, copied it and convinced about a 100 nations to sign up. Here in the
example, we see Germany, France, but China is among the nations that will receive and
provide information. Russia is there, Chile is there, just imagine the list of
signatories to the MCAA another abbreviation to the convention that was
signed on the 29th of October 2014 grows every day. 101 Nations is already pretty
big. If you look at this schema or at this structure there's something funny. They
want information about you but they're not gonna ask you. Who are they gonna ask?
Your bank. Banks are gonna get fined, banks are gonna get in trouble. But they
gonna forward your information. One of the problems with FATCA and CRS is that the
terms are rather vague and ill-defined. You think "yeah I've got a bank, I can
handle my bank no problem" but have you ever thought that your lawyer might need
to forward your information? Meaning you're a foreign -- you're a foreigner the
lawyer in his ordinary course of business accepts deposits -- in this case retainers
and client funds -- and has to forward this information.
Many lawyers are not aware of this, I believe the law is ambiguous, the reason
why I take lawyers as an example FATCA and CRS are pretty identical. Under FATCA the
Germans negotiated that lawyers don't have to report any information, under CRS we
don't have this exception. So, vague terms, ill-defined terms and a
huge amount of data being thrown around in the world. I was introduced with the
example of PayPal, PayPal in Luxembourg. My guesstimate is -- according to SEC
filings, PayPal has about 150 million accounts, Europe is an important market,
60 million accounts in Europe -- the tax administration's are going to receive 60
million notifications about PayPal balances and that's not all I mean think
about your bank whether your hold shares, whether you have the normal -- how do you
call it -- deposit, a deposit account, a savings account all this information is
going to be forwarded. Who is particularly affected? People with connection to
foreign countries. The guy in pink will be a person with the contact, with the
relationship, to a foreign country, I will show you what this relationship can look
like. Okay we're at CCC, XML schema, nothing new for you, it's a tree. Don't
worry, the more interesting stuff is going on here; the ambiguities in the schema.
It is promoted by the OECD, the Organization for the Economic Cooperation
and Development. Cooperation and development sound so good and at the end
they just pass our tax information around. Some of the problems here, one of the
problems, transliteration; a hundred and one nations as of December signing up.
What about the information we're going to get from China? Are they gonna send
Chinese characters? And imagine there's a German in China. A friend of mine, Robert,
his name in China is 罗伯特, how is this information gonna come back? If you look
at Bulgaria you have Cyrillic, Cyrillic, if you transliterate it to German is
transliterated in a special way, the Germans have a DIN, a norm, to
transliterate Cyrillic. That norm is not identical with how the French
transliterate Cyrillic characters, so if the Germans ask about suspicious character
Anton Chekhov and ask the French authorities, they might not talk about the
same guy, because the spelling is slightly different.
the ambiguities in this schema are in a way more irksome because here I just have
three nodes, the header, the financial information-- financial institution and
the person or account information. The OECD went overboard and has meta
information on each of those nodes, describing what type of information is
supposed to follow. So what's going to happen -- or how is anybody to interpret
information where in the header you say it's new, on the FI node you say it's
corrected and then the person/ account info you say it's gonna be deleted. How
are we going to resolve this? For me an example of lawyers and technology, meaning
anybody who works with this, will have some pain and suffering.
Okay, practical advice. First of all, what type of information is going to be
reported. You see here the name, address, the
jurisdictions of residence, TINs, that's a tax payer information number, and the date
of place of birth. So at one point I was trying to make the
presentation a little more visual and I was looking for images for place-- place
of birth and I found somebody who wrote to this-- to this request to provide this
information -- home delivery. No that's not what is meant when the OECD asked for
the place of birth it's the date of birth is important. If you have two Pierre
Dupont that's the way to keep them apart, meaning your birth date information is
relevant to keep you apart from other people having your name. The information
itself is fairly technical, there's nothing really going overboard. The idea
of FATCA and CRS was to catch individual tax cheats. We're not talking about
corporations dodging taxes or anything. We are trying to-- or FATCA is trying to
catch people who evade taxes. How did Americans in particular evade taxes in the
past? They had a trip to the Bahamas with the suitcase full of money and deposited
the money in an account there. Maybe they got a credit card and used the credit card
in the United States to live off the interest that the account accumulated.
Since Bahamas, Cayman Island, Turks, Caicos didn't have any exchange in regards
to this information with the United States. These Americans went home free
thus cheating the taxman. Later on they became a little smarter, instead of
signing up for an account themselves they created corporations or trusts. So it's no
longer in the name of your own name but in the name of your trust that you hold these
funds. So the information that the banks are forwarding, is actually -- how to say
-- it's fairly technical, they are not going overboard. That having said you
might disagree with the whole idea of tax exchange-- of exchanging tax information
but this is basically what you expect to see when you're looking for tax cheats.
Number 5, not only your account balance as of the 31st of December so you still have
a chance to change that today and tomorrow, if you take all the money out
then nothing is gonna be reported, and your dividends and gross proceeds of--
gross proceeds for the sale of shares or other financial assets is going to be
reported. That's-- that's a lot. Okay how do banks
find out whether you are a potential tax cheat? I listed the three main criteria
they're looking for. They ask you-- or if they know whether you're resident of
reportable jurisdiction; if you are an American your birth certificate is
sufficient. I've seen it with other banks that they come around now to ask "Show me
a birth certificate", if you're an American, your information is gonna be
reported to the United States, to the IRS. If you give the-- a mailing address or a
residence address in a country abroad, that similar will trigger the bank to look
a little more carefully at your account. What banks typically do is when they find
this information they send you a self- certification. They ask you "Please
certify this information". They basically ask you "Were your tax resident and is the
mailing address correct?". And think about number three: Phone numbers. The phone
number the bank has on record will trigger this additional search or sending out the
self-certification form. Meaning, you've got a Google number with a zero zero one
country code your bank is gonna ask you and if you don't respond, they're gonna
send this information to the United States. Your tax account information.
What can you do about it? Be local. Meaning check with your bank, whether all
the information the bank has on file about you reflects a local residence. I have
heard -I cannot verify it- that certain countries make this a business by
providing easy resident certificates, meaning you can go to countries so easily
obtain a certificate of residence then go to your bank and open an account. When the
bank is reviewing the information it sees taxman local guy.
This information doesn't have to be forwarded to another country because he
supposedly is paying his taxes locally. Is there a legal option; is there a legal
opportunity or is there a case for lawyers here? It's a little doubtful.
In Germany, the Germans changed the law in the fiscal code regarding the
consultation. Typically, or before the automatic exchange of tax information, the
Germans asked you, consulted you, gave you a chance to voice your objections, before
they would forward your information to another country. For automatic exchange of
information like FATCA and CRS, this is no longer the case. Nevertheless, there has
been a case in Germany decided by the fiscal court in Cologne, where the German
tax administration wanted to forward information to the Turkish government in
regards to some payment, a German company has made.
So, the German company thought, their contact and Turkey would be burnt and they
provided an expert opinion, that turkey does not safeguard tax information. The
Turkish finance minister claimed the country, but the court was not convinced.
So the court in Cologne said: "German tax administration, you can not forward this
information to a country that doesn't follow data privacy laws!" Let's look at
FATCA and CRS. We're talking about 60 million; hundred million accounts being
distributed all over the world. The courts are not -I believe- not going to shoot
down CRS and FATCA. They will not ask the tax administration to hear you, before
your information is being passed on to another country. However, if you can come
up with an expert opinion and say: "My information is gonna hurt me in Turkey or
wherever", I believe the fiscal courts in Germany would issue an injunction, would
prevent the German tax administration in Bonn, to forward the information. Think
about turkey. Turkey, nothing incentive, but it's a third world country. Compared
to any other third world country in the world, you can most likely obtain an
expert opinion from -regarding any third world country- that they are not
protecting data; that they are not protecting tax information in the country.
They're gonna use it to shame you, so even though I'm not really convinced, that the
legal solution is a good one, it will be interesting to see what the courts say in
this regard. A little ray of hope was, that for another
tax information exchange, the French, their Conseil d'État, recently decided,
based on a law signed -oh, it wasn't a law, it was a decree by Louis XVI.
*Laughter* This was, I means,
it must have been weeks before he was beheaded 1791, that they didn't want
to participate in this other tax information exchange, which is a country-
by-country reporting regarding companies. So maybe -we have not heard the courts
yet- maybe, there's still something to come. Ok, let's look at the consequences
of this. I'm very concerned about CRS and FATCA.
On the one hand, anybody who is a little international, might run into problems.
For FATCA, Americans have problems opening bank accounts in Europe, because the
European banks think, it's not worth the trouble. So Americans are complaining
about not being able to bank outside the United States. With CRS this is a little
different, because a hundred nations; they can't always refuse foreigners. But you
see, that the target of FATCA and CRS are individuals like you and me, who are a
little mobile and travel and work across the globe. Our life is a little more
difficult with this. The other thing is: If you think that you want to create a
start-up in the space, the compliance burden is very high. This type of law
prevents starts of innovation in the space.
That's it already. I hope you have some questions, so I can elaborate a little
more on individual details, that you might be interested in. Thank you very much.
*Applause*
Herald: Great! So, questions. If you have a question: Again,
please, the microphones are here and here in the aisles, so
already in the back. Person 1 from audience: Yeah, hi! I was
wondering, if it was possible to know, if the information has already been traded or
sent to other countries or things like that.
Taxman: FATCA was originally implemented in 2010. The first exchange, I mean banks
were required to submit the information, on the 30th of June 2015. So we've already
seen two rounds of exchanging data with the United States. For the Common
Reporting Standard, CRS, we're going to see the first exchange next year. Until
the 30th of June, banks were required to submit the information, until the 30th of
June. The tax administration itself has three more months, until the 30th of
September, to forward the information to the respective countries.
Herald: Great! Do we have a question from the internet?
Angel: Yes. Somebody on IRC wants to know, because when you have an American social
security number or someone, you can commit identity theft. Is the problem the same
for German tax IDs or are they more immune to that?
Taxman: To be honest... Okay, 2 parts to the answer: a) I'm not an expert on German
tax numbers and identity theft, in the United States social security number is a
lot more important. So, once you have social security number, you get loans and
everything else. Typically when you apply for a loan with a car or wherever, you
don't -- at least according to my experiences, which is very limited -- you
don't provide your German social security number. The encryption of the information
etc. is something I would not be worried about. I mean encryption in this space is
a solved problem and the tax administration, they'll follow best
practices, so that the information is going to be used by third party, I
believe, is not a major problem. The other thing is, however, that everybody is
basically considered... everybody who has connection with a foreign country is
basically considered a tax cheat and will be treated differently from local
residents. That is a problem I see. Herald: All right. From up front.
Person 2 from audience: So, I've had the displeasure of having to file an F bar
and, as part of the F bar, it asked for the highest amount of money in my account
at any point in time in the year. And I filled all that out and so forth, as
condescending as it was, but now you're saying the fact, actually, now wants to
report my amount of money at the end of the year. The two are completely
incongruent! Like how... I mean you're kind of spelling out that there's going to
be a giant data mess. Is this going to factor into that? Do have any thoughts on
this? Taxman: As I mentioned about FATCA, the
date to report information is the 31st of December; that's for account balances. For
sale of shares, any time during the year. For information regarding interest and
dividends, any time during the year. Talking about "data mess": Yes, I'm pretty
much convinced this will be a huge data mess. Think about for Germany: German
public servants receiving 20 million records -- and this is only PayPal, we're
not talking about credit cards, we're not talking about bank accounts. This is just
one measly little company. So, and it's not only the Germans, and, by the way,
American tax administration was completely overwhelmed by the implementation of
FATCA. You could see it that they changed the technical requirements by changing the
FAQs on the website. So, you went to the website a week later and found out "Oh,
there're 10 new special characters we can't use", so the tax administrations
across the globe, they are overwhelmed, and what's going to happen with these
data... It will depend on each country and the data privacy standards. I mean, the
Germans take this very seriously, but think about a small country whether it's
Luxembourg or some country in the Caribbean, Panama: These guys, they lack
certain practices; they haven't been, so to speak, under attack; they haven't been
able to develop the defenses. So, a lot of data will float around the internet in the
end, I believe. Herald: Okay, we have time for one short
one and a very short answer, so can we go to the front here?
Person 3 from audience: Yeah, one question: In which country are you tax
resident when you are living in several countries for quite a long time in the
year? For instance, 3 countries, four months. How is it decided?
Taxman: Very good question and banks are supposed to figure this out, but banks ...
*quiet laughter* Yeah, I mean the bank has to report, so banks are overwhelmed, so
that makes you an expert in the different laws of each jurisdiction you're in. For
Germany, I believe it's 183 days residence here. In the United States and Eritrea...
Hey, something Eritrean and the United States have in common, place of birth is
enough. In Eritrea, I was told, paying taxes more of an option, but okay.
*laughter* So you are... the bank will ask you on the self-certification "Where are
your tax resident?" and you are supposed to know, which is a little painful. I
mean, you're for 4 months in the country. Are you tax resident? You don't know the
funny tax laws everybody has. So, the burden is on you. I mean, the bank tries
to put the burden on you, because you're not going to get fined, the bank is going
to get fined. Herald: Great. Let's give the taxman a
warm round of applause. [Applause]
[Music]