This Train Is Roaring Down The Tracks
“You have about 15 months to make your plan,” concluded international tax and structures attorney Joel Nagel.
Joel had just finished walking the group assembled for our Emergency Offshore Summit through specific language of the new U.S. HIRE Act. As Joel put it, “If you can see the freight train coming from a few miles down the track, you should be able to save yourself from being run over.”
The freight train is coming. Unprecedented legislation will take effect starting Jan. 1, 2013, that will affect and seriously restrict the ability of Americans to move their money around as they want. Some say it’s the first step toward exchange controls.
I pay close attention to this stuff, and, I have to admit, even I was concerned by the realities of what this new legislation is going to mean, in practical terms, after Joel had walked us through it.
Joel didn’t embellish the particulars of the legislation. He didn’t interpret. He simply projected the language of the bill, verbatim, line by line, up on to the screen at the front of the meeting room and read along with our group.
It was a sobering three days, during which experts with decades of experience addressing these issues, including Joel Nagel, former Congressman Robert Bauman, gold and precious metals guru Egon von Greyerz, international banker Peter Zipper, and others, did their best to help those assembled understand the implications of what’s coming.
Starting Jan. 1, 2013, for example, every time U.S. dollars are wired offshore, the U.S. bank involved in the wire transfer will have to make a decision. Is tax owed on this money? If yes, the bank will be required by law to withhold that tax (at a rate of 30%) before making the transfer of funds.
If the bank fails to take any withholding, and it turns out the owner of the funds in question did, in fact, owe tax on the money transferred, the bank will be liable for the entire amount of the tax. If, on the other hand, the money is not taxable, but the bank mistakenly withholds the 30%, no harm, no foul, as far as the U.S. Treasury is concerned. In other words, no penalty for the bank.
Potentially big liabilities if they make a mistake in one direction. Not so much as an admonishment if they make a mistake in the other.
In which direction, therefore, would you imagine banks are likely to err?
Joel and others at our Emergency Summit last week explained that they’ve spoken with dozens of banks about the new legislation, and the bankers’ off-the-record responses are the same in every case: We’ll have no way of knowing when tax is owed and when it’s not.
Really, it’d be impossible for a bank to make this determination. Therefore, they’ll likely withhold the 30% from every transaction.
Meaning that, starting Jan. 1, 2013, any time you arrange to wire money to another country, you’ll have to count on 30% being taken off the top, in the form of tax withholding.
This isn’t a new tax. Theoretically, you should be able to have any amount withheld in error refunded to you after you’ve filed your taxes for that year.
The underlying issue here, though, has to do with something even more troubling than the mistaken withholding of some of your hard-earned money.
It has to do with a shift in how taxation works in the United States.
Until now, Americans have paid their taxes according to a kind of honor system. We Americans know that we must pay our taxes, but we also understand that we have the right to figure the amount owed ourselves. We declare our income and our assets, and then we calculate what’s due Uncle Sam as a result.
With this new legislation, banks will become responsible for figuring when tax is owed. And for withholding it.
These were the kinds of worrisome realizations we addressed last week during our Summit. We did our best, as well, though, to present interesting, viable, and (important) fully compliant options for organizing your financial affairs and for diversifying your life so that you can get out of the way of the approaching freight train.
It’s not too late. As Joel explained, you have about 15 months to get your and your family’s house in order…
Kathleen Peddicord
