Canadatopia

The purpose of the United States’ recent Foreign Account Tax Compliance Act (FATCA) is a noble enough one- seeking out tax cheats hiding assets with no-questions-asked foreign financial institutions (FFIs). Estimations of FATCA vary markedly, of course, with some hailing it as a much-needed and long-overdue overhaul of a broken system that nurtures greedy tax frauds. Its critics condemn it as the ultimate in pointless, overreaching, ineffectual and economy-poisoning government bungling. What the eventual effectiveness, result, staying power, fallout and legacy of FATCA will be remains to be seen. For our purposes though, the question is: how will FATCA affect British investment in general and QROPS in particular right now?

In an interview with the expatriate investment site iExpats, former American diplomat and US Senate staffer turned human rights lawyer and anti-FATCA lobbyist James Jatra fervently criticized the legislation. One of his chief beefs with the Act was the legitimacy of the intergovernmental agreements (IGAs) between the US government and the foreign governments which are necessary for FATCA’s success. On the list of current and probable future IGA cooperators (a list he disparages as “bald-facedly padded”) are three Jatra dismisses as “tiny British Crown Dependencies”. Presumably those three are Guernsey, Jersey and the Isle of Man.

By most international/political/world market standards- size, population, trade, resources, GDP, political clout- those three Dependencies don’t carry a lot of weight, it’s true. However, if they were to be measured according to their importance with regards to expatriate investment, particularly British Qualified Recognised Overseas Pension Scheme (QROPS) investment, the three would be major players if not superpowers. Guernsey in particular, reigned for several years as the unequivocal QROPS world heavyweight champion, with a third or more of all QROPS under their umbrella.

In 2012 Her Majesty’s Revenues and Customs (HMRC), UK equivalent to the American Internal Revenue Service, enacted legislation that razed 99% of Guernsey’s Crown-endorsed QROPS economy, precipitating a flood of pension investors to seek (tax and pension) shelter elsewhere. Malta quickly emerged as their preferred destination for QROPS reinvestment.

In an investment-growth calculated decision, Malta formatted their tax and investment policy to conform both to HMRC standards and to withstand the attentions international scrutiny (like FATCA). They likewise aggressively sought double taxation agreements (DTAs) to eliminate redundant taxation with a number of other states, landing 60 of them (so far).  Included in that 60 are virtually all of those popular with British pensioner-retiree-expats. This arrangement allowed UK retirees to invest their pension (and sometimes other assets) in a Malta QROPS while living in Spain, the United States, Ireland, etc., without being taxed by both governments. A number of other nations have been working to set up similar systems, Gibraltar being a notable example.

The top ten most popular expat retirement destinations for British pensioners are Australia, the US, Spain, Canada, Ireland, France, New Zealand, South Africa, Germany and the UAE. Since the options has been available, the most popular places to establish a QROPS are Guernsey, New Zealand, Australia, Cyprus (less so recently), the Isle of Man, Hong Kong, Malta and Jersey, with comers like Gibraltar catching up fast. The nations that the US has either signed IGAs with or is in a dialogue about doing so include- Guernsey, The Isle of Man, Jersey, France, Germany,Spain, Ireland, Canada, Malta, New Zealand, Australia, Gibraltar, the UAE, South Africa, Cyprus and… you get the picture.

The US government is also pressing some of the traditional asset-sheltering hubs like the Caymans, Switzerland and comparable offshore havens to sign on. So, at long last- as the FATCA push is obviously targeting those nation-states most active in banking and investment, foreign and domestic, legitimate and dodgy, how will QROPS be affected?  The good news for QROPS-holders is: they probably won’t be affected much at all. FATCA is primarily designed to seek out American tax cheats and most of those investing in QROPS aren’t Americans, obviously.

With the FFIs of so many QROPS hotspots being compelled, or so the US government hopes, to open their books, there is always the possibility that peripheral QROPS information will be revealed. It’s pretty universally presumed, however, that the US government doesn’t have the time, inclination, manpower nor fervency for the hassle that putting any legitimate investments under the microscope would entail. So long as one’s followed the proper steps, gone through the proper channels and has established and maintained a legitimate QROPS through a knowledgeable and legitimate QROPS and investment specialist, they should have little to worry about.

Mario Vitanelli is a freelance writer and blogger who specializes in international politics and finance, retirement and investment. His areas of expertise include European, Asian and Latin/South American economic policy and QROPS pension schemes. When away from his keyboard, he enjoys photography and appreciates the rest of the Vitanelli family’s endless patience with his football dependence.

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