International exchange of tax information (33c3)

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.

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]

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