By Nzeemin [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons
AEOI, FATCA, CRS and BEPS,not to mention the OECD and the IMF are impacting you in ways they never have before. It is a fair bet that the almost daily changes that are occurring in the banking world today have most people who read this column behind the curve. When that happens to us we tend to fall back on old patterns of thinking. That’s not because of some innate character flaw but because that’s one of the ways the body conserves energy.
Thinking is hard work and your brain is predisposed to be lazy. This is one of those times that you need to give it a swift kick in the behind, so to speak. Old patterns of thinking can end up being very costly to you.
“My life is just fine,” your brain thinks, “I don’t need to be thinking about my bank accounts. It’s just too bothersome and things are going okay.”
A cow’s brain is thinking the same way the day before it heads to the slaughter-house. Life is pleasant until it suddenly isn’t.
Behind the Scenes of AEOI
Virtually every country is in some degree of financial trouble. Misspending, greying populations and crafty citizens are just three of the many causes. When politicians have a problem, their first reaction is to reach for the chequebook but often these days the bank account is overdrawn. Because they want to be re-elected, politicians will do almost anything before they raise taxes. So they cast around for ways to get money without raising tax rates.
A few years ago the search for taxes led the U.S. to implement FATCA to make it hard for its citizens to hide untaxed money abroad. OECD politicians said “Hey! What a great idea!” and so they came up with a similar plan for their own citizens called the Automatic Exchange of Information (AEOI).
FATCA is born
When the U.S. was trying to implement its early form of international tax reporting the project was an utter failure. Governments refused to co-operate as they all saw an advantage for their banks if they just stuck with the old ways. So the U.S. strong-armed individual banks. “Co-operate with us,” they said, “or you’ll never be able to transfer money or deal in dollars again!”
Unsurprisingly, the banks all stood up, saluted and cheerily waved their little American Flags. It didn’t really matter, they thought, it was only the American taxpayers who were in trouble. Sell them out and everything else will be just fine.
That fine state lasted only a couple of years when all the other industrialised countries realised that they could do it too. So they came up with AEOI which, because of the number of nations backing it, is a really big deal. Nearly every country that matters is moving quickly down the road to implementation. By the end of 2019, the world is going to be a very inhospitable place for those who want to minimise their taxes or keep their wealth out of the hands of distant relatives, Even those who simply want to do business efficiently and economically now find their jobs more difficult.
Not every country is one where you want to put your money… exchange rates are volatile, governments are fickle and bank staff are unhelpful. And as for the safety of the banks themselves, well that’s a whole story unto itself. There are plenty of offshore banks that take your money and charge you for the privilege. Then they take most of it and invest it, keeping the profits for themselves.
There is no bank authority worth the name to tell you how safe those banks are. Their countries have joined AEOI so they will report your balances and deposits to whatever country you are a tax resident of.
Surprisingly, though, the country that kicked this off, the United States, may now be the best place to put your money. It already has FATCA in place and has no need to participate in AEOI to collect its taxes. It has states that provide a fair level of privacy and its banking regulation is among the world’s best.
For the moment Singapore has advantages like the U.S. Its banks are among the worlds strongest and the MAS is one of the world’s most stringent regulators. For the present, Singapore is slow-walking its participation in AEOI and may ultimately have little more than token participation.
We have taken the time to do a financial and jurisdictional analysis of a number of banks around the world. Contact us for our recommendations and assistance.