After years of commentary on FATCA from a distance, this writer got a little taste of it up close. It left a very unpleasant aftertaste and is taking a long time to go down. FATCA is bad for America.
While knowing of, and criticising FATCA for years, it finally became a little less theoretical this week. Like others, I’ve tried to limit my American exposure for fear of having to ever have to fill out a form for the IRS lest a holiday to America turn into an up close experience with America’s private prisons due to an error of paperwork.
Anyone opening more than one bank account in Hong Kong over a ten year stretch now finds the paperwork inexplicably more complicated for no apparent reason, even though every other transaction in their life has become simpler. We manage our long-distance providers online, buy movie tickets online and even take out loans on our smartphones. Even government has streamlined procedures in many instances in Hong Kong (credit where credit is due!). We pay taxes at 7-11 or online, get our ID cards in a flash, and recently, can update our voter registration online.
Opening a bank account now, however, due to pressure from the OECD and the United States, has become more complex. This week, a new business partner sent us some forms so we could receive what will likely be a small monthly payment, under $10,000 HKD month, from their US subsidiary (to start). Their internal finance form was simple, understandable and a snap to complete with relevant information.
Then came the government form: W-8BEN-E (2-2014)
The horror, the horror
No doubt an American accountant reading this is having a little chuckle, but for a small business person in Hong Kong trying to do the right thing, it’s more than a little insane.
Question 2 was the first hang up – Hong Kong or China? An easy one. Then the jargon began.
Disregarded entities, 11 categories of companies. TIN, GIIN, FFI, 501(c), NFFE or NFFE affiliate? The FFI alone had 16 flavours . 31 choices of my FATCA status. It’s a Baskins and Robbins of bureaucracy.
That was page 1.
8 pages and 30 Parts make up the document, finishing with a place to put your signature attesting to the fact you understand the document and are confident everything you have said is true, so help you God, on pain of perjury.
Fortunately, our new partners were apologetic and very helpful and maybe I won’t go to jail in lieu of a Seattle shopping trip.
The land of the free is still the world’s biggest economy, but rather than using its power to project the values that made it great, it is projecting Soviet style bureaucracy and fear in response to its compounded fears over terrorist funding, native tax evasion and more.
While this journal normally only discusses Hong Kong matters, Hong Kong businesses are facing the onerous rules forced on us by America due to its dominance of currency and economic and financial heft. However, many businesses are working to make themselves ‘anything but American’ to avoid the IRS. No American investors, partners, suppliers, even customers if the business is too small to justify the expense and risk of compliance. Law abiding people are concerned a misstep in a massive complex pile of paperwork will turn them into criminals in the eyes of the US. So they just avoid the US where they can.
Good Americans, terrible policy
As word gets out, people avoid doing business with Americans, which is a shame as they have a huge repository of many of the world’s best business people. Their entrepreneurial zeal and sense of fair play should make them welcome partners everywhere. Those with great businesses to invest in may turn to other honest brokers from countries like Canada or the UK, but may choose capital from, and spread their innovative technology to, those who aren’t so America friendly.
Hong Kong has much to teach in this area. Our ‘local activity only’ tax systems contrast starkly with America’s grasping hand seeking to turn every financial institution, globally, into a branch of the IRS. Hong Kong’s prudent finances means it doesn’t care what its people and companies do offshore and can’t be bothered to collect the information, making it a sensible, welcoming jurisdiction for headquarters activities.
Unfortunately, our sensible system is being undermined by a Potemkin bureaucracy that turns friends who champion American values of economic freedom through property rights, like Hong Kong, into reluctant bailiffs of Americans and anyone who contracts with them.
As mentioned, our American partner will help us through the paperwork. But it is a shame that those who would welcome more American engagement have learned to fear it through the monster that is FATCA.