By Peter Dougherty
WRITING financial advice for Americans who will soon be moving to Spain is a bit like a veteran sailor writing letters to first-time passengers about seasickness.
They may read every word carefully, but they probably won’t fully understand until the waves actually hit and they experience it firsthand.
Nothing illustrates this better than the topic of FATCA, the US Foreign Account Tax Compliance Act.
It’s a law requiring non-US banks and financial institutions – such as those in Spain – to identify and report accounts held by US citizens to the IRS.
Passed in 2010 to combat offshore tax evasion, FATCA casts a long shadow on the relationship between Americans in Spain and the Spanish banking sector.
Failure to comply can trigger withholding taxes and banking restrictions for these non-US financial firms.
The Global Compliance Institute certified me as a FATCA specialist in 2021, so I feel qualified to offer you my unsolicited opinion.
I think FATCA must have sounded like a good idea to bureaucrats working for the US government at the time: “How can we collect more taxes from Americans overseas? Why don’t we grab foreign financial institutions by their feet and hold them over a cliff, like in cartoons, and threaten to drop them if they don’t provide us information about the accounts of their American clients?”
But FATCA fails to follow a basic principle of international bilateral agreements: mutual benefit.
There’s neither upside nor reciprocity for foreign banks or financial institutions if they comply. Yet stiff penalties await them if they don’t.
From its inception, FATCA was a triumph of narrative over mathematics. On the cost side, the Swiss-American Chamber of Commerce Report estimated its worldwide implementation cost between $500 billion and $1 trillion, and that ongoing compliance costs would be $10-30 billion globally.
Yet, on the revenue side, the United States Congress Joint Committee on Taxation estimated it would produce an average of only $792 million in additional tax revenue a year (revenue projections from organizations other than the U.S. Congress were even lower).
At that rate, it would take more than 630 years simply to recover the global costs of initially implementing it.
Despite what those bureaucrats in Washington D.C. thought in 2010, they clearly failed to predict the reaction of many non-US financial entities to FATCA nor the impact this would have on Americans living abroad.
Today, the practical reality is this. Rarely does a company in the financial sector in Spain say: “We refuse to accept anyone holding a U.S. passport as a client.” Instead, an American entering a bank in Spain will likely receive different answers to three questions that to them don’t seem very different:
| Question | Answer |
| Will this bank let me open a checking account? | Often yes |
| Will this bank let me open an investment account? | Sometimes no |
| Will this bank actively want the relationship? | Highly variable |
Because of FATCA, the distinction between these separate questions is important to the Spanish bank but very rarely understood by the U.S. citizen who’s simply trying to open an account.
What the US citizen does understand is that they face: higher compliance burden, inconsistency among bank branches, slower onboarding, extra documentation, limitations on investment products, and scrutiny of their source-of-funds.
As one American told me: “A US bank verifies my identity. A Spanish bank verifies my identity, my address, my tax status, and whether my grandparents ever owned orange trees in Valencia.”
Americans who move to Spain become accustomed to hearing the word mañana, which sometimes refers to “tomorrow” and at other times to “don’t even think about getting it soon”.
So, they seldom recognize that when it comes to interactions with their bank or other financial entity in Spain, many delays can also be due to FATCA. They just know that it all seems like a lot of needless, time-consuming work.
Peter Dougherty is a Financial Planner at BISSAN Wealth Management in Spain. He holds an MBA in finance from Columbia University in New York and an MS in Spanish Taxation (Máster en Fiscalidad y Tributación) from Nebrija University in Spain. He is a European Financial Planner (EFP) in Spain and is a CERTIFIED FINANCIAL PLANNER™ professional and a Chartered Retirement Planning Counselor® in the United States.
For more information: https://www.financial-planning-in-spain.com
Peter Dougherty
- MBA in finance
- MS in Spanish taxation
- BS in Economics
- European Financial Planner in Spain
- Chartered Retirement Planning Counselor® in U.S.
- Author of two financial planning books
- Certified Financial Planner™ in U.S.
Click here to read more Business & Finance News from The Olive Press.
