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Logo of Phnom Penh Post newspaper Phnom Penh Post - Cambodia on alert for US taxpayers

A man walks into the Internal Revenue Service building in Washington, DC, earlier this year. Andrew Caballero-Reynolds/AFP
A man walks into the Internal Revenue Service building in Washington, DC, earlier this year. Andrew Caballero-Reynolds/AFP

Cambodia on alert for US taxpayers

With the Internal Revenue Service (IRS), the tax-collection arm of the United States government, stepping up its global sweep to catch American individuals and corporations hiding their overseas earnings, the American Chamber of Commerce in Cambodia yesterday held a presentation for investors and financial institutions to make sure they are in compliance with US tax laws so as to avoid the discomfort of an IRS probe.

Legal experts and banking officials warned of the strict penalties for US taxpayers and onerous standards on local banks outlined in the Foreign Account Tax Compliance Act (FATCA). The US tax legislation, which Cambodia has implemented since 2014, requires foreign financial institutions to hand over data on the identity and assets of US citizens and business interests to the US Treasury Department.

“If foreign financial institutions have American bank account holders, or are dealing with a potential US taxpayer, they are required to report to the IRS,” explained Joseph Lovell, a senior legal counsel at regional law firm Sciaroni and Associates.

Failure to adequately report has myriad consequences that can include a foreign bank withholding 30 percent of the payments for an individual or corporation, and thousands of dollars worth of fines, he added.

He said that under the FACTA framework, an American citizen that is living, working or merely holding a Cambodian bank account in Cambodia, would not likely need to file with the IRS unless their assets or income are valued above the $200,000 to $300,000 “trigger”.

While the onus inevitably falls on the US taxpayer, he nevertheless advised that vigilance was needed by Cambodian financial institutions to comply with US government regulations.

“The way to avoid [IRS scrutiny] is basically that financial institutions need to report all US citizen accounts and set up indicators for reaching that high threshold,” Lovell said. “But this increases the burden on the financial institutions’ customer requirements.”

He added that it was typically a costly and cumbersome task to make sure that all banks in Cambodia were properly following the regulations and identifying American account holders.

An even more strict provision that the IRS has been increasingly enforcing for American citizens abroad is the Report of Foreign Bank and Financial Accounts (FBAR), which demands that banks and individuals notify the IRS whenever an offshore bank account holds more than $10,000 in deposits.

Jim Swander, the American CEO of Oxley Worldbridge Specialized Bank, said that this regulation was already making waves throughout the industry.

“For FBAR, it is really confusing for bankers,” he said, adding that American businesses or US citizens involved in business are typically listed as shareholders or hold joint accounts.

“The precaution that US companies are starting to take is that they are dropping all American signers on accounts because it is too much of a risk,” he said. “The other thing is that the IRS does not trust that FBARs are accurately being filed.”

He said the tax measures were making it more difficult for Americans to open offshore accounts as traditional financial hubs like Singapore have been turning away business.

“I can say that there are also banks in Cambodia that are looking at the costs of FACTA and FBAR compliance as a major burden,” he said, adding that compliant banks were simply providing data dumps of account information to US authorities.

“As for our bank, we simply will not deal with any Americans,” he said flatly.

So Phonnary, executive vice president of Acleda Bank, said that while compliance with the US tax authorities meant that the bank had to invest capital into human resources and infrastructure for data sharing, the transmission of US account details was not easy.

“The issue that we have with data exchange is that we send the information of our American account holders to the General Department of Taxation, and then they verify it and send it to the US authorities,” she said.

However, “if our reports are not checked and verified within seven days, they are immediately dismissed and we have to send it again for authorisation”, she said, adding that the coordination between the two governments was not yet smooth and deadlines were often missed.

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JC DoubleTaxed's picture

The US has built a virtual Financial Berlin Wall to keep US persons in by punishing harshly those who have left – even those gone decades – all in the name of tackling US resident tax cheats with an account(s)/assets overseas. FATCA is part of this new Berlin Wall.

JFK famously said in Berlin 'we don't need to build walls to keep our people in.' Fast forward to the present day, and the US has done precisely that with its compliance and tax laws assuming all US persons live in the US, with extra penalties restrictions and disincentives for money, accounts, and investments in countries other than the US, even if you live permanently overseas and this money, earned income, accounts, and investments, are local to you.

The US Constitution did not confine liberty and the pursuit of happiness only to those US persons resident in the US. In an increasingly global and mobile world the US should not punish US persons living, working overseas, and expanding US influence and trade overseas. This is in complete contrast to all other OECD nations, thus disadvantaging those with US Citizenship.

The situation of US persons tax resident abroad:

Double Taxation (county of residence plus US tax via tax treaty gaps)

Without Representation (would never have agreed to it all) (without representation hopefully starting to change with passage of H.R. 5935 and successful lawsuit by fatcalegalaction dot com )

Without US Government Services (that US resident US persons may receive)

Without a Care By The US Government For One's Well Being (only about stick and compliance)

With Unfathomable Compliance (obligation to overlay the 74,000+ page US tax code on top of the tax code of one's country of residence - with inevitable tax treaty gaps through which double taxation flows through).

With Excessive Compliance Cost (see above - it all requires highly specialized assistance and can't be done with TurboTax, and you don't use that because of the potentially bankrupting penalties (that US residents do not face for their everyday accounts in the US if not done right).

With Excessive Compliance Penalties (The U.S. tax rules punish accounts and investments that are foreign to the USA. The compliance penalties for not reporting accounts right could be bankrupting even if no US taxes are owed)

It is all UnAmerican, has nothing to do with 'liberty and justice for all'', it is unfair and wrong!

Any US persons living overseas caught up in this must visit the message boards of The Isaac Brock Society , Facebook Citizenship Based Taxation and American Expatriates Groups, and FixTheTaxTreaty dot org; and consider supporting the Canadian FATCA IGA Lawsuit and contribute to the legal efforts of citizenshiptaxation dot ca. Republican Overseas is supporting a lawsuit (via fatcalegalaction dot com ) that FATCA and FBAR violate the US Constitution on 8 claims.

US citizenship should be about the greatest liberty in the world. Yet the truth is US persons living overseas are tremendously disadvantaged by the US government compared to nationals from all other OECD countries. The US should join the OECD and adopt Residence Based Taxation.