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  • It's Official - America Now Enforces Capital Controls

    No it isn't official. This report is hysterical and inaccurate.
    Passage of HIRE Act Means Increased Foreign Account Reporting

    The HIRE Act imposes additional reporting and disclosure requirements for U.S. persons with any interest in a “specified foreign financial asset” if the aggregate value of all such assets exceeds $50,000. These reporting requirements apply to any domestic entity formed or availed of for purposes of holding directly or indirectly “specified foreign financial assets” as if the entity were an individual taxpayer. more...
    No new tax. No capital controls. Here's the real news:
    Jobs bill places Offshore Financial Firms under Reporting and Tax Regime (pdf)

    The Hiring Incentives to Restore Employment Act (HIRE), HR 2847, creates a vast new reporting and taxing regime for foreign financial institutions with U.S. account holders. Under Title V, the Foreign Account Tax Compliance Act, the legislation casts a wide net in search of undisclosed accounts and hidden income. It adds a new Chapter 4 to the Internal Revenue Code, essentially requiring foreign financial institutions to identify their customers who are U.S. persons or U.S.-owned foreign entities and then report to the IRS on all payments to, or activity in the accounts of, those persons. Participation in the existing Treasury Qualified Intermediary program will not exempt a firm from the new reporting obligations.
    Highlights
    ✔ New reporting and tax withholding requirements imposed
    ✔ Most foreign investment firms and entities covered
    ✔ IRS agreements specified for reporting, in lieu of withholding
    ✔ Qualified Intermediary program participants not exempted
    ✔ IRS authorized to establish verification and due-diligence procedures
    ✔ Bearer bond tax sanction extended to foreign markets
    ✔ Penalty for under-reporting foreign financial assets imposed
    ✔ Rules for determining if foreign trust has U.S. beneficiaries codified
    ✔ Dividend-equivalent payments subjected to withholding more...

    FIRE Economy interests will not like this bill. They will spin it as socialist, capital controls on the little guy, and so on. Why is Zerohedge helping them?

    When real capital controls are here for iTulipers to worry about, we'll let you know well beforehand.
    Ed.

  • #2
    It's Official - America Now Enforces Capital Controls

    Wow, this is getting REALLY interesting.

    http://www.zerohedge.com/article/its...pital-controls

    "
    It couldn't have happened to a nicer country. On March 18, with very little pomp and circumstance, president Obama passed the most recent stimulus act, the $17.5 billion Hiring Incentives to Restore Employment Act (H.R. 2487), brilliantly goalseeked by the administration's millionaire cronies to abbreviate as HIRE. As it was merely the latest in an endless stream of acts destined to expand the government payroll to infinity, nobody cared about it, or actually read it. Because if anyone had read it, the act would have been known as the Capital Controls Act, as one of the lesser, but infinitely more important provisions on page 27, known as Offset Provisions - Subtitle A—Foreign Account Tax Compliance, institutes just that. In brief, the Provision requires that foreign banks not only withhold 30% of all outgoing capital flows (likely remitting the collection promptly back to the US Treasury) but also disclose the full details of non-exempt account-holders to the US and the IRS. And should this provision be deemed illegal by a given foreign nation's domestic laws (think Switzerland), well the foreign financial institution is required to close the account. It's the law. If you thought you could move your capital to the non-sequestration safety of non-US financial institutions, sorry you lose - the law now says so. Capital Controls are now here and are now fully enforced by the law.
    Let's parse through the just passed law, which has been mentioned by exactly zero mainstream media outlets.
    Here is the default new state of capital outflows:
    (a) IN GENERAL.—The Internal Revenue Code of 1986 is amended by inserting after chapter 3 the following new chapter:
    ‘‘CHAPTER 4—TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS
    ‘‘Sec. 1471. Withholdable payments to foreign financial institutions.
    ‘‘Sec. 1472. Withholdable payments to other foreign entities.
    ‘‘Sec. 1473. Definitions.
    ‘‘Sec. 1474. Special rules.
    ‘‘SEC. 1471. WITHHOLDABLE PAYMENTS TO FOREIGN FINANCIAL INSTITUTIONS.
    ‘‘(a) IN GENERAL.—In the case of any withholdable payment to a foreign financial institution which does not meet the requirements of subsection (b), the withholding agent with respect to such payment shall deduct and withhold from such payment a tax equal to 30 percent of the amount of such payment."


    This is Jesse's response to the ZH article. He seems to agree with FRED.

    by Jesse
    on Sun, 03/28/2010 - 14:58
    #278875

    Not to be nitpicky, but these are not "capital controls."
    Capital controls are restrictions on moving currency in and out of a country, in order to help to manage against volatile swings in valuation.
    These are tax controls on foreign held assets, part of the admittedly widening grip of the US on its citizens wealth. It is almost assuredly in anticipation of a 'capital flight' from those who wish to evade taxes as you suggest.
    China has capital controls. One cannot take their currency out of country when you leave. But given the huge amount of eurodollars and their relative free flow, it is a bit misleading to say that 'capital controls' are now in place.
    It sounds nitpicky again, I know. But it is important. Because if the US ever does put in genuine capital controls, you know the dollar is on the precipice.
    As it is this is just the taxman doing his thing, trying to crack the tax shelters, and upsetting some nations that made an industry out of it.

    Last edited by jtabeb; 03-28-10, 09:23 PM. Reason: ADDED JESSE FOLLOW-UP

    Comment


    • #3
      Re: It's Official - America Now Enforces Capital Controls

      Dang - interesting.

      Reading further in Zerohedge's post:
      The only exemption to the rule? If you hold the meager sum of $50,000 or less in foreign accounts.
      My strategy to avoid the financial tyrants by spending it all first is succeeding!
      Most folks are good; a few aren't.

      Comment


      • #4
        Re: It's Official - America Now Enforces Capital Controls

        Originally posted by ThePythonicCow View Post
        Dang - interesting.

        Reading further in Zerohedge's post:
        My strategy to avoid the financial tyrants by spending it all first is succeeding!
        So 1000 gold American Buffalos with a face value of $50 dollars each, or a total face value of $50,000 would be exempt. SWEET! Count me in!:p

        Comment


        • #5
          Re: It's Official - America Now Enforces Capital Controls

          Originally posted by jtabeb View Post
          Wow, this is getting REALLY interesting.

          http://www.zerohedge.com/article/its...pital-controls

          "
          It couldn't have happened to a nicer country. On March 18, with very little pomp and circumstance, president Obama passed the most recent stimulus act, the $17.5 billion Hiring Incentives to Restore Employment Act (H.R. 2487), brilliantly goalseeked by the administration's millionaire cronies to abbreviate as HIRE. As it was merely the latest in an endless stream of acts destined to expand the government payroll to infinity, nobody cared about it, or actually read it. Because if anyone had read it, the act would have been known as the Capital Controls Act, as one of the lesser, but infinitely more important provisions on page 27, known as Offset Provisions - Subtitle A—Foreign Account Tax Compliance, institutes just that. In brief, the Provision requires that foreign banks not only withhold 30% of all outgoing capital flows (likely remitting the collection promptly back to the US Treasury) but also disclose the full details of non-exempt account-holders to the US and the IRS. And should this provision be deemed illegal by a given foreign nation's domestic laws (think Switzerland), well the foreign financial institution is required to close the account. It's the law. If you thought you could move your capital to the non-sequestration safety of non-US financial institutions, sorry you lose - the law now says so. Capital Controls are now here and are now fully enforced by the law.
          Let's parse through the just passed law, which has been mentioned by exactly zero mainstream media outlets.
          Here is the default new state of capital outflows:
          (a) IN GENERAL.—The Internal Revenue Code of 1986 is amended by inserting after chapter 3 the following new chapter:
          ‘‘CHAPTER 4—TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS
          ‘‘Sec. 1471. Withholdable payments to foreign financial institutions.
          ‘‘Sec. 1472. Withholdable payments to other foreign entities.
          ‘‘Sec. 1473. Definitions.
          ‘‘Sec. 1474. Special rules.
          ‘‘SEC. 1471. WITHHOLDABLE PAYMENTS TO FOREIGN FINANCIAL INSTITUTIONS.
          ‘‘(a) IN GENERAL.—In the case of any withholdable payment to a foreign financial institution which does not meet the requirements of subsection (b), the withholding agent with respect to such payment shall deduct and withhold from such payment a tax equal to 30 percent of the amount of such payment."
          Healthcare bill passed, abysmal results at the last treasury auction, numerous raids around the country of so-called "militias", and now this.

          This country is going to hell so fast, I can barely keep up. Truly, the United States of America has become a gigantic insane asylum.

          Comment


          • #6
            Re: It's Official - America Now Enforces Capital Controls

            Originally posted by Serge_Tomiko View Post
            Truly, the United States of America has become a gigantic insane asylum.
            Yup. Google 'ponerology' for one theory explaining this.
            Most folks are good; a few aren't.

            Comment


            • #7
              Re: It's Official - America Now Enforces Capital Controls

              Originally posted by FRED View Post
              FIRE Economy interests will not like this bill. They will spin it as socialist, capital controls on the little guy, and so on. Why is Zerohedge helping them?

              When real capital controls are here for iTulipers to worry about, we'll let you know well beforehand.
              Zerohedge is ALWAYS on some sort of anti-socialist agenda (health care is a great example) and they WILL DELETE and/or edit comments made by viewers that they DISAGREE WITH! Itulip may rant and rave you, but at least they allow you to express a relatively unfettered opinion. But ZH has had some really good stuff esp RE the gold and silver market manipulation and also on the pretend and extend potempkin economy, not to mention the energizer bunny auto-climbing stock markets.

              Just as there are several "FREDs" for Itulip, ZH has several "Tylers". And in both cases, the quality varies (not a swipe at you Fred, just saying people are different and some have better stuff than others)

              But this is an effort to prevent funds escaping the jurisdiction of the US Authorities, Right? But it's not capital controls, as in restrictions are not placed on capital movement (or are there restrictions)?

              Yeah, I think it's good too, BUT let's call it what it is shall we (whatever that is).

              From your source,

              here is the area in question and the confusion:

              Under the existing U.S. withholding rules, payments made to foreign persons of fixed or determinable annual or periodical (“FDAP”) income from U.S. sources are already subject to a 30-percent U.S. withholding tax, unless the beneficial owner qualifies for an exemption or a reduced withholding rate under an income tax treaty. FDAP income includes interest and dividends but not gains on sales of property. Statutory exemptions from withholding apply to interest on bank deposits, portfolio interest, and capital gains.

              The HIRE Act adds a new Chapter 4 to the Internal Revenue Code (Code Sec. 1471 through Code Sec. 1474, as added by Act Sec. 501). It provides for withholding taxes to enforce new reporting requirements on specified foreign accounts owned by specified U.S. persons or by U.S.-owned foreign entities. The Act establishes rules for “withholdable payments” to foreign financial institutions and for withholdable payments to other foreign entities. These rules are generally effective for payments made after December 31, 2012. However, they do not apply to any obligation outstanding on March 18, 2012 (the date that is two years after the enactment date), or from the gross proceeds from any disposition of the obligation.

              What is not clear is if the second paragraph is a new flow of funds that will ALSO be subject to the 30% withholding tax (and previously not subject to this tax).

              This is from the other source that you posted:

              The Act imposes
              substantial new reporting and tax-withholding obligations on a broad range
              of foreign financial institutions that could potentially hold accounts of U.S.
              persons. The reporting and withholding obligations imposed on the foreign
              financial institutions will serve as a backstop to the existing obligations of
              the U.S. persons themselves, who have a duty to report and pay U.S. tax on
              the income they earn through any financial account, foreign or domestic.
              These new reporting obligations for financial institutions will be enforced
              through the imposition of a 30-percent U.S. withholding tax on a wide
              range of U.S. payments to foreign financial institutions that do not satisfy
              the reporting obligations
              .

              They say "substantial new reporting and tax-withholding obligations ..."

              If they are new, do they cover the same transactions as before or an EXPANDED amount of entities and transactions. (Expansion would seem to indicate a Hike, right?)

              Thoughts?

              As an aside, I'm starting to have to wonder if Obama is suffering from the Gorbachev Syndrome (trying to reform at pace he thinks system can tolerate while getting OBE'd due to internal and external contradictions)
              Last edited by jtabeb; 03-28-10, 08:41 PM.

              Comment


              • #8
                Re: It's Official - America Now Enforces Capital Controls

                Originally posted by jtabeb View Post
                Wow, this is getting REALLY interesting.

                http://www.zerohedge.com/article/its...pital-controls

                "
                It couldn't have happened to a nicer country. On March 18, with very little pomp and circumstance, president Obama passed the most recent stimulus act, the $17.5 billion Hiring Incentives to Restore Employment Act (H.R. 2487), brilliantly goalseeked by the administration's millionaire cronies to abbreviate as HIRE. As it was merely the latest in an endless stream of acts destined to expand the government payroll to infinity, nobody cared about it, or actually read it. Because if anyone had read it, the act would have been known as the Capital Controls Act, as one of the lesser, but infinitely more important provisions on page 27, known as Offset Provisions - Subtitle A—Foreign Account Tax Compliance, institutes just that. In brief, the Provision requires that foreign banks not only withhold 30% of all outgoing capital flows (likely remitting the collection promptly back to the US Treasury) but also disclose the full details of non-exempt account-holders to the US and the IRS. And should this provision be deemed illegal by a given foreign nation's domestic laws (think Switzerland), well the foreign financial institution is required to close the account. It's the law. If you thought you could move your capital to the non-sequestration safety of non-US financial institutions, sorry you lose - the law now says so. Capital Controls are now here and are now fully enforced by the law.
                Let's parse through the just passed law, which has been mentioned by exactly zero mainstream media outlets.
                Here is the default new state of capital outflows:
                (a) IN GENERAL.—The Internal Revenue Code of 1986 is amended by inserting after chapter 3 the following new chapter:
                ‘‘CHAPTER 4—TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS
                ‘‘Sec. 1471. Withholdable payments to foreign financial institutions.
                ‘‘Sec. 1472. Withholdable payments to other foreign entities.
                ‘‘Sec. 1473. Definitions.
                ‘‘Sec. 1474. Special rules.
                ‘‘SEC. 1471. WITHHOLDABLE PAYMENTS TO FOREIGN FINANCIAL INSTITUTIONS.
                ‘‘(a) IN GENERAL.—In the case of any withholdable payment to a foreign financial institution which does not meet the requirements of subsection (b), the withholding agent with respect to such payment shall deduct and withhold from such payment a tax equal to 30 percent of the amount of such payment."


                This is Jesse's response to the ZH article. He seems to agree with FRED.

                by Jesse
                on Sun, 03/28/2010 - 14:58
                #278875

                Not to be nitpicky, but these are not "capital controls."
                Capital controls are restrictions on moving currency in and out of a country, in order to help to manage against volatile swings in valuation.
                These are tax controls on foreign held assets, part of the admittedly widening grip of the US on its citizens wealth. It is almost assuredly in anticipation of a 'capital flight' from those who wish to evade taxes as you suggest.
                China has capital controls. One cannot take their currency out of country when you leave. But given the huge amount of eurodollars and their relative free flow, it is a bit misleading to say that 'capital controls' are now in place.
                It sounds nitpicky again, I know. But it is important. Because if the US ever does put in genuine capital controls, you know the dollar is on the precipice.
                As it is this is just the taxman doing his thing, trying to crack the tax shelters, and upsetting some nations that made an industry out of it.

                Here is the retort I liked:

                by Rogerwilco
                on Sun, 03/28/2010 - 15:22
                #278893

                They are indeed capital controls -- by proxy. The net result of these regulations is that many foreign banks will now simply refuse to do business with U.S. citizens to avoid the hassles and reporting requirements. The extremely wealthy will always find ways to move their assets, this law is aimed at the less-connected who may want to trake some retirement savings and invest overseas as a hedge. Without a foreign checking account or a local credit card, expats live at the mercy of the ATM machines. Ever try to buy a car or rent an apartment when the most you can pull out of ATMs is $500 a day?

                Comment


                • #9
                  Re: It's Official - America Now Enforces Capital Controls

                  Does this in any way affect a BV account?

                  Comment


                  • #10
                    Re: It's Official - America Now Enforces Capital Controls

                    Originally posted by charliebrown View Post
                    Does this in any way affect a BV account?
                    It doesn't seem to me that it does, since a BullionVault account is an arrangement between your (American, I presume) bank account and BV's account at Bank of America, New York. Any foreign held property (say that gold in Switzerland) is done entirely on BV's account.

                    However I have no particular confidence that I'm right here.
                    Most folks are good; a few aren't.

                    Comment


                    • #11
                      Re: It's Official - America Now Enforces Capital Controls

                      It seems to me that this law could only apply to foreign banks that have branch offices in the US; otherwise, the US has no mechanism to enforce any kind of reporting requirements, etc. Assuming that's correct, one possible side-effect could be the closure of many such branches, due to increased overhead, loss of customers, etc, etc. Could that be one of the underlying goals?

                      Comment


                      • #12
                        Re: It's Official - America Now Enforces Capital Controls

                        In EJ's latest subscription article (which I won't post here in the public section), he mentioned capital controls that China has implemented in the past (IIRC)and indicated they basically tax withdrawals as their means of capital controls.

                        Isn't this the exact same thing? I mean it is unclear to me what happens to say an $100,000 AFTER TAX deposit made to a foreign account with this law change.

                        Does the foreign institution now take $30,000 and send that to uncle sam and stick me with the privilege of convincing said uncle that I already paid the taxes on that money?

                        Is this law going to be net neutral with regard to folks sending money overseas if they think they will potentially have 30% of after tax money confiscated upon withdrawal? I don't think so.

                        Just like folks won't be sending money to China once they start taxing withdrawals, no one is going to be sending money offshore, at least to institutions that comply with this nonsense, once this gets widespread attention, IMO.

                        So regardless of what everyone decides to name this law, it is a defacto capital control and was probably designed to be such.

                        Comment


                        • #13
                          Re: It's Official - America Now Enforces Capital Controls

                          Originally posted by skidder View Post
                          In EJ's latest subscription article (which I won't post here in the public section), he mentioned capital controls that China has implemented in the past (IIRC)and indicated they basically tax withdrawals as their means of capital controls.

                          Isn't this the exact same thing? I mean it is unclear to me what happens to say an $100,000 AFTER TAX deposit made to a foreign account with this law change.

                          Does the foreign institution now take $30,000 and send that to uncle sam and stick me with the privilege of convincing said uncle that I already paid the taxes on that money?

                          Is this law going to be net neutral with regard to folks sending money overseas if they think they will potentially have 30% of after tax money confiscated upon withdrawal? I don't think so.

                          Just like folks won't be sending money to China once they start taxing withdrawals, no one is going to be sending money offshore, at least to institutions that comply with this nonsense, once this gets widespread attention, IMO.

                          So regardless of what everyone decides to name this law, it is a defacto capital control and was probably designed to be such.
                          It is not a defacto capital control. Excerpt from the ‘‘Foreign Account Tax Compliance Act of 2009’’ that was tagged on as an amendment to HIRE.
                          MCG09515 S.L.C.

                          A BILL

                          To amend the Internal Revenue Code of 1986 to prevent
                          the avoidance of tax on income from assets held abroad,
                          and for other purposes.

                          TITLE I—INCREASED DISCLOSURE OF BENEFICIAL OWNERS
                          Sec. 101. Reporting on certain foreign accounts.
                          Sec. 102. Repeal of certain foreign exceptions to registered bond requirements.
                          TITLE II—UNDER REPORTING WITH RESPECT TO FOREIGN
                          ASSETS
                          Sec. 201. Disclosure of information with respect to foreign financial assets.
                          Sec. 202. Penalties for underpayments attributable to undisclosed foreign financial assets.
                          Sec. 203. Modification of statute of limitations for significant omission of income in connection with foreign assets.
                          TITLE III—OTHER DISCLOSURE PROVISIONS
                          Sec. 301. Disclosure of assistance in acquiring or forming a foreign entity.
                          Sec. 302. Reporting of activities with respect to passive foreign investment companies.
                          Sec. 303. Secretary permitted to require financial institutions to file certain returns
                          related to withholding on foreign transfers electronically.
                          TITLE IV—PROVISIONS RELATED TO FOREIGN TRUSTS
                          Sec. 401. Clarifications with respect to foreign trusts which are treated as having a United States beneficiary.
                          Sec. 402. Presumption that foreign trust has United States beneficiary.
                          Sec. 403. Uncompensated use of trust property treated as a distribution.
                          Sec. 404. Reporting requirement of United States owners of foreign trusts.
                          Sec. 405. Minimum penalty with respect to failure to report on certain foreign trusts.
                          TITLE V—DIVIDEND EQUIVALENT PAYMENTS RECEIVED BY
                          FOREIGN PERSONS TREATED AS DIVIDENDS
                          Sec. 501. Dividend equivalent payments received by foreign persons treated as dividends.

                          1 TITLE I—INCREASED DISCLOSURE OF BENEFICIAL OWNERS
                          2
                          3
                          4 SEC. 101. REPORTING ON CERTAIN FOREIGN ACCOUNTS.
                          5 (a) IN GENERAL.—The Internal Revenue Code of
                          6 1986 is amended by inserting after chapter 3 the following
                          7 new chapter:
                          8 ‘‘CHAPTER 4—TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS
                          ‘‘Sec. 1471. Withholdable payments to foreign financial institutions.
                          ‘‘Sec. 1472. Withholdable payments to other foreign entities.
                          ‘‘Sec. 1473. Definitions.
                          ‘‘Sec. 1474. Special rules.
                          11 ‘‘SEC. 1471. WITHHOLDABLE PAYMENTS TO FOREIGN FI12
                          NANCIAL INSTITUTIONS.
                          13 ‘‘(a) IN GENERAL.—In the case of any withholdable
                          14 payment to a foreign financial institution which does not
                          15 meet the requirements of subsection (b), the withholding
                          16 agent with respect to such payment shall deduct and with
                          17
                          hold from such payment a tax equal to 30 percent of the
                          18 amount of such payment.

                          If a financial institution is not exempt from the existing taxes that have been in place under the IRS code since 1986, enacted under the Reagan administration by the way, and is found to have not complied with the law, they will pay a rate of 30% instead of the lower rate they would have paid if they'd complied with the law.

                          Where are the capital controls?
                          Ed.

                          Comment


                          • #14
                            Re: It's Official - America Now Enforces Capital Controls

                            This article has prompted hysteria in the blogosphere. I was hoping to see this posted here and the reaction of the iTulip management to this article. Seeing the response has re-affirmed my faith in iTulip stewardship. This was a litmus test for me to separate the phonies from the truly knowledgeable. ZeroHedge is too steeped in conspiracy and hysteria to be of any worthwhile use, S/N ratio is way too high.

                            Thanks for the clarifications, FRED.

                            Comment


                            • #15
                              Re: It's Official - America Now Enforces Capital Controls

                              Originally posted by FRED View Post
                              Where are the capital controls?
                              I'm confused.

                              Are we stumbling over two different meanings of the word control?

                              If my town installs traffic lights and cameras at an intersection, would that be installing "controls?"

                              Or would they only be "controls" when the light is red and the camera is used to issue tickets?

                              In an other analogy, are the "naked body scanners" air traffic "controls?" They presumably don't stop any law abiding, legitimate travelers.

                              I would say, if speaking carefully that all these mechanisms are not controls per se, bur rather are mechanisms that enable control. It would be the future, potential use of these presently enacted mechanisms that would be the actual control.

                              Still, to call these mechanisms "control" is an abuse of language with which I am quite comfortable. Complaints that the institution of these mechanisms is an objectionable intrusion are valid in my view, and dismissing such complaints on the technicality that the word "control" is confused with the phrase "mechanism enabling control" is a regrettable distraction (in my view) from a valid objection to these mechanisms.
                              Most folks are good; a few aren't.

                              Comment

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