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.
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"(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.
Clarifying who this law applies to:
"(C) in the case of any United States account maintained by such institution, to report on an annual basis the information described in subsection (c) with respect to such account, "(D) to deduct and withhold a tax equal to 30 percent of
"(i) any passthru payment which is made by such institution to a recalcitrant account holder or another foreign financial institution which does not meet the requirements of this subsection, and
"(ii) in the case of any passthru payment which is made by such institution to a foreign financial institution which has in effect an election under paragraph (3) with respect to such payment, so much of such payment as is allocable to accounts held by recalcitrant account holders or foreign financial institutions which do not meet the requirements of this subsection.
What happens if this brand new law impinges and/or is in blatant contradiction with existing foreign laws?
"(F) in any case in which any foreign law would (but for a waiver described in clause (i)) prevent the reporting of any information referred to in this subsection or subsection (c) with respect to any United States account maintained by such institution
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"(i) to attempt to obtain a valid and effective waiver of such law from each holder of such account, and "(ii) if a waiver described in clause (i) is not obtained from each such holder within a reasonable period of time, to close such account.
Not only are capital flows now to be overseen and controlled by the government and the IRS, but holders of foreign accounts can kiss any semblance of privacy goodbye:
"(c) INFORMATION REQUIRED TO BE REPORTED ON UNITED STATES ACCOUNTS. "(1) IN GENERAL. The agreement described in subsection (b) shall require the foreign financial institution to report the following with respect to each United States account maintained by such institution: "(A) The name, address, and TIN of each account holder which is a specified United States person and, in the case of any account holder which is a United States owned foreign entity, the name, address, and TIN of each substantial United States owner of such entity. "(B) The account number. "(C) The account balance or value (determined at such time and in such manner as the Secretary may provide). "(D) Except to the extent provided by the Secretary, the gross receipts and gross withdrawals or payments from the account (determined for such period and in such manner as the Secretary may provide).
March 31, 2010