There was a large turn out for François Jubin’s and Andrew Hodder’s talk on November 18th on investment options for Americans living in France. Respectively president/executive officer of Wiséam and senior advisor of Witam, their talk was centered on the questions of: How can we invest abroad as U.S. persons? How do we work around the challenges that FATCA presents?
Andrew Hodder, a financial advisor who works as an intermediary between the investor and the investment management company, began by introducing the two companies, French investment advisors who have been actively working on the question of investments for U.S. persons. Wiséam is a financial management company registered with the SEC. He then did a brief overview of FATCA and its implications for U.S. persons living in France and elsewhere. FATCA provides for the gathering and storing of financial information on U.S. persons living outside the U.S. The American government essentially leaves it to foreign financial institutions (FFIs) to implement the information gathering procedures. FFIs must search their databases for U.S. persons, send out and collect paperwork, and store all the information they gather. Andrew Hodder points out that this mass of information now held by these financial institutions represents a potential security problem, and in this way FATCA is at odds with the reality of the modern world.
The implementation of FATCA has also been very costly. The estimated revenue from FATCA is estimated to be $800 million, with a cost of around $40 million in the U.S. The bulk of the implementation costs have been exported to FFIs; Australia estimates that FATCA cost its country $343 million in the first year, while Germany estimates that it cost $445 million. FATCA is intended to chase down money that is not being reported to the IRS. In reality, about 82% of U.S. persons filing from abroad owe no tax to the IRS.
In most countries that have signed onto FATCA, banks must prove that clients are NOT U.S. persons, by sending out forms to every single client. They also must bear the costs of training their staff to deal with this regulation. It is for this reason that certain FFIs—mainly small to medium sized ones—have stopped dealing with clients who are U.S. persons because the cost is too high. In some countries, such as Switzerland, U.S. persons simply do not have access to financial services. This has, of course, contributed to the increasing number of individuals renouncing their U.S. citizenship.
Andrew Hodder and François Jubin have been exploring ways to handle clients who are U.S. persons and find good investment options for them. One option they have been using is investing funds of American clients in Luxembourg “assurance vie”. An “assurance vie” is a tax-efficient investment, and beyond a certain amount of money invested in Luxembourg, the banker and investment manager can be two different individuals, making it easier to keep the clients’ investments out of funds that are forbidden to Americans. An audience member wondered if such a solution would still be considered a PFIC (passive foreign investment company), which are complicated to declare to the IRS. François Jubin responded that unfortunately this is still a problem they face even with “assurance vie” in Luxembourg.
Witam are currently preparing a presentation for the AMF, the French public body responsible for safeguarding investments, explaining the problems of U.S. persons residing and investing in France. They hope to soon make some headway with the AMF. For the time being, Witam offers its clients “assurance vie” contracts that are conceived to avoid problems with U.S. regulations.
François Jubin concluded in saying they do not yet have all the answers for the problems U.S. persons face, particularly on tax issues, but that they are constantly improving their knowledge and the service provided to their U.S. person clients.