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Banking

“If neither foreign nor American banks will take American customers, how will the millions of citizens living abroad bank?” -Representatives Carolyn B. Maloney and Joe Wilson, co-chairs of the Americans Abroad Caucus

bankingDuring Overseas Americans Week 2009, meetings were held with the American Bankers Association (ABA) and with FinCen in the Treasury Department (Financial Crimes Enforcement Network, which develops regulations on banking operations). We discussed the fact that our organizations have received multiple complaints from Americans overseas that U.S. banks either forcibly closed their account on short notice or have refused to open a bank account because of their foreign address, most often citing the Patriot Act as the reason.

Both the ABA and FinCen confirm that there is no provision either in the Patriot Act or in the FinCen regulations that prohibit banks from opening and maintaining accounts for American citizens with a foreign address. The ABA also made a telephone survey with top officials in large American banks to find out if there existed anywhere an official internal bank policy to refuse overseas Americans as clients. The answer was no. It was specifically stated that if one has a U.S. bank account and moves overseas, there should be no problem in maintaining that account. Yet the problem exists.

icon Steps to follow if a U.S. bank refuses to open or to maintain an account because of an American client's foreign address. (You must be logged in to view PDF.)

For a more detailed analysis of the issue, please consult AARO's Position Paper on Banking.


FATCA Update and French Inheritance Law

Inheritance in France and recent developments on FATCA

AARO tax specialists Tim Ramier and John Fredenberger presented a review of the recent Inter-Governmental Agreement on FATCA signed on November 14 between France and the United States followed by an overview of inheritance and how it is managed in France and the US.

Over 60 attendees came to the Forum 104on December 9 for this meeting – an excellent turn-out. The documents that were cited during the meeting will be posted on the AARO website for members to download.

FATCA

John Fredenberger, our tax specialist who has been following FATCA closely ever since it was first introduced in the HIRE Act in 2010, gave us a rather positive outlook on this Inter-Governmental Agreement (IGA). He began his talk with some background: how FATCA started and has evolved over the past three years.

Historical Background

FATCA, the Foreign Account Tax Compliance Act, was signed into law by President Obama in 2010 as part of the HIRE (Hiring Incentives to Restore Employment) Act. The immediate impact on individual taxpayers was a new requirement that US citizens (and other US persons) with foreign accounts (non-US accounts) would attach a statement with that account information to their tax returns if the aggregate (combined) balance of those foreign accounts was over $50,000.

After protests from overseas organizations, the US Treasury recognized that the $50,000 threshold was too low for non-resident US citizens, so they raised the threshold for bona-fide residents living outside the US to $200,000 for individuals filing separately, and $400,000 for married persons filing jointly.

This “statement” became Form 8938 in November of 2010. Today, if a US person has foreign accounts that, combined, are equal to or above the threshold amounts, he must attach Form 8938 to his yearly tax return. This new form does not replace the annual FBAR (Foreign Bank Account Report) Form TD F 90-22.1 which US Persons must file with the US Treasury Department by the end of June every year.

That was the new requirement for taxpayers but FATCA also included new rules for foreign financial institutions (FFIs). In order to verify that US persons were correctly reporting their foreign accounts, the IRS decided to extend their domestic document matching program which has been in effect in the US since 1974. In the US, American financial institutions are required to send account and income information to both the taxpayer and to the IRS. The IRS then matches what the taxpayer declares on his return with what the bank reports. In the 1990s, the IRS suspected that US persons were circumventing the document matching program by investing in US markets through financial institutions abroad that were not subject to US reporting requirements. This led the IRS to launch a program that certified financial institutions as “Qualified Intermediaries” (QI) and required them to issue W9 forms to their US customers.

FATCA is a further extension of this. It requires foreign financial institutions (FFIs) to actively seek out and identify their customers who are US persons and to report their account information to the IRS. The penalties for non-compliant FFIs are significant - a withholding tax of 30% on their operations in the US market. This new compliance burden has meant that some FFIs are choosing to simply exclude all customers who may be US persons.

The uproar over the expense of identifying such customers, and the burdensome reporting to a foreign authority, which in many cases may be against other country's laws, has led to the negotiation of Inter-Governmental Agreements (IGAs). There is some confusion about what these agreements actually are: treaties or competent authority agreements? There are two standard IGAs: under the Model I a country’s FFIs report directly to the IRS while under a Model II they report to their government’s tax authorities which, in turn, report to the IRS.

The French IGA

The French IGA was signed on November 14, 2013 between Pierre Moscovici, the French Finance Minister, and Charles Rivkin, the US Ambassador. It is a Model II agreement which will take effect “when their necessary internal procedures for entry into force have been completed”.

Under the French IGA, reporting to the IRS will be phased in over three years:

  • For reportable (see below) accounts existing in 2014 French FFIs will report the name, address, US Social Security number, account number and balance on December 31 of that year.
  • For reportable accounts existing in 2015 (reported in 2016), FFIs will report the same information and the interest, dividends and other income credited to the account.
  • For reportable accounts existing in 2016 (reported in 2017), the FFIs will report the same information as above and include the gross proceeds credited to the account from the sale of capital assets.

What accounts are not reported?

  • Any accounts prior to 2014.
  • Accounts existing prior to June 2014 with a year-end balance of under $50,000.
  • Any of the following account types: Livret A and Livret Bleu; Livret de Développement Durable (LDD); Livret d'Epargne Populaire (LEP); Livret Jeune; Plan d'Epargne Logement (PEL) and Compte d'Epargne Logement (CEL); Plan d'Epargne Populaire (PEP); Accords de Participation; Plan d'Epargne Entreprise (PEE) and Plan d'Epargne Inter-Entreprise (PEI); Plan d'Epargne pour la Retraite Collective (PERCO and PERCOI; and blocked “comptes courant”. Also, certain retirement contracts and schemes, such as the MADELIN, MADELIN AGRICOLE, PERP, PERE, and PREFON and those found in Articles 39, 82, and 83 of the code des impôts.

Which accounts will be reported?

  • Any account not cited above that has more than $50,000 but less than $1,000,000 (low-value accounts) will be reported with limited due diligence requirements. The FFIs will run an electronic search only for possible US person account holders.
  • Accounts over $1,000,000. The FFI have greater due diligence requirements.

What is unresolved?

  • We still don't know how the reciprocity part of the IGA will be handled. Will the US be reporting to France the US accounts held by US citizens who reside in France? If so, will this reporting include IRAs, 401Ks or Trusts?
  • Assurance-Vie: Is it included in the excluded retirement contracts, or is it simply another reportable investment account?
  • Joint accounts held by Americans with non-US citizens (family or spouses, for example).
  • And is this IGA a treaty subject to ratification in the US?

The US version of the IGA: http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/BilateralAgreementUSFranceImplementFATCA.pdf

The French version of the IGA: http://www.economie.gouv.fr/files/usa_accord_fatca_14nov13.pdf

Surviving Death in France as a US Citizen

Tim Ramier presented inheritance issues for US citizens in France. The key, no matter where you live, is to organize and plan, while you are alive.

Residency

Both the US and France are interested in our estates, even if we are residents in France. For both countries your estate is based on your worldwide assets. Furthermore, if the estate (the “succession”) is handled in France, there is still an obligation to report to the US. Which country handles it depends on your residence status. Be aware that France determines residency on more than just presence in the country. If you have attachments in France (children in school, for example) you can still be considered a French resident even if you maintain your tax residence in the US, or elsewhere.

Who inherits?

In the US you get to decide via a will. Probate is handled on the state level, not the Federal level. Generally, the surviving spouse is tax exempt and can inherit the total amount. The US is not interested in who inherits and will tax the estate before distribution. For 2013, only estates over $5,250,000 are taxable. The lifetime distribution of gifts is added back to the estate to determine the total.

In France, there are forced heirs by law. The share of the surviving spouse or civil union partner is tax exempt and the amount you can leave by will is determined by the number of children. If there is one child, you can will up to 50% of your estate; two children, they will inherit 2/3 of your estate; and three or more children take ¾ of your estate. Each child has a €100,000 deduction and then pays tax on a progressive scale according to how much taxable estate is left. Other heirs (brothers and sisters, parents, nieces and nephews) have fewer tax exemptions and higher tax rates. Unrelated heirs pay 60% in tax and have only a €1,500 deduction.

The Process

In France, the concept of the estate is different; the “succession” is an automatic transfer of ownership at the moment of death. In France it is a notaire who manages the succession. In the US, on the other hand, the estate is an entity that exists from the moment of death until the settlement. The estate is managed by an executor or administrator, approved and empowered by a probate court, in accordance with your will or by petition to the court if intestate (no will).

In France the family will receive a death certificate from the mairie (mayor’s office). The notaire will create the deed of heirship and will take care of all the official declarations to banks and the government.

In France, the heirs or legatees have 6 months to file an inheritance tax return and pay any taxes. In the US, taxes are due after 9 months, but there are extensions. When inheriting from a US resident estate, Tim recommended filing form 706 with the IRS, even if there is no US tax due, to avoid confusion in France.

What you inherit from someone resident and a US citizen in the US this falls under the US-France Estate Tax Treaty and the estate is not subject to double taxation. So if you fulfill the tax requirement in the US (even if nothing is due) you have fulfilled the requirements under the tax treaty and by virtue of the treaty provisions no tax on such gifts and legacies is payable to France. This treaty overrides local French tax law.

Some tips:

  • Take inventory of your worldwide assets.
  • Create an estate file including what you own, what accounts you have, who to contact. (A worksheet for this file will be made available to members on the AARO website.)
  • Create a will – for France and the US
  • Create a Health Care Proxy and a living will in case you are incapacitated or have a terminal illness and you need to name someone who will make healthcare decisions for you.
    (Note: a living will, as Americans think of it, does not exist in France. In France there is the “Mandat de protection futur” wherein you can name a person to make financial and healthcare decisions in case of verified incapacity. It must be set up by a notaire.) You can also do French and American Powers of Attorney or Procuration to appoint someone to act on your behalf.

Here are the full-length videos of these two presentations.

FATCA with J. Fredenberger and T. Ramier:

Inheritance in France with T. Ramier and J. Fredenberger:


 

European Parliament Committee Hearing on FATCA

The fight against tax evasion - FATCA as a step towards international automatic exchange of information?

Summary prepared jointly by Ellen Lebelle and Victoria Férauge

We attended this public hearing on May 28th at the European Parliament in Brussels. Before the meeting started, we were fortunate to have an opportunity to speak with Sophie in't Veld, the MEP from The Netherlands. She had read the letter that AARO's president and FAWCO's U.S. Liaison Lucy Laederich had sent to her ('t Veld letter) and we were able to discuss those and other points with her. To be clear, she is a supporter of the fight against tax evasion, but insists that initiatives to combat it must be debated in a public, transparent, democratic way.

Read more: European Parliament Committee Hearing on FATCA


   

Contact Congress about Overseas American Banking Issues!

During Overseas Americans Week 2010 (OAW), the co-chairs of the Americans Abroad Caucus, Carolyn Maloney (D-NY) and Joe Wilson (R-SC) formally requested that the House Financial Services Committee hold hearings on the difficulties overseas Americans encounter with opening and maintaining bank accounts in the US and overseas.

Now we need your help to ask the leaders of that committee to listen. Just go to http://financialservices.house.gov/contact.html and complete the form to send your message to the committee.

We suggest that you insert into the "city" and "state" fields either the city and state where you vote or the city and country where you live overseas.

For your background, click here to read the letter sent by Representatives Maloney and Wilson. Feel free to use the following brief model to prepare your message. If you have any questions, do not hesitate to contact Andy Coyne.

Model Letter:

Dear Chairman Frank and Ranking Member Bachus,

As a member of the Association of Americans Resident Overseas, I urge you to take note of the letter sent to you on April 21 by Representatives Carolyn Maloney and Joe Wilson, the co-chairs of the Americans Abroad Caucus, and promptly hold hearings on the difficulties encountered by overseas Americans in opening and maintaining bank accounts in the United States and abroad. We are counting on the Committee on Financial Services to investigate these issues and ensure that overseas Americans have access to necessary financial services under reasonable conditions.

Regards,

[Your name and location; for example, Andy Coyne, Riyadh, Saudi Arabia]


   

FYI - Banking

  • How New US Banking Laws Threaten Overseas Americans A recent article in the Wall Street Journal headlined "Toxic Citizens?" examined the potential dangers of recent US legislation for overseas Americans who want to open or even maintain bank and financial...
  • Banks blasted for fee smokescreens June 02, 2010 – Banking charges in France are becoming more complicated and more expensive, an investigation by a consumer group has revealed. Read more: http://www.connexionfrance.com/banking-charges-fees-france-complicated-expensive-consumer-group-investigation-11727-view-article.html...

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