Lovely how a synonym can lead to mental disturbance. I’ve been involved in an implementation of the Foreign Account Tax Compliance Act (FATCA) for over a year now. Somewhere down in the relevant regulations there’s the concept of Controlling Person, that may be a U.S. Person for tax purposes. These Controlling Persons need to be disclosed by a so-called Passive Non-Financial Foreign Entity (NFFE). For reasons of compliance I was interested in the definition of a Controlling Person.
In the Netherlands the United States tax regulations (US Code 26 section 1471 for those who love the details) are somewhat relieved by a bilateral intergovernmental agreement (IGA). And Dutch financial institutions like bank and insurers are subject to that IGA, which will be implemented in local legislation. The IGA defines a Controlling Person as
“the natural persons who exercise control over an entity. in the case of a trust, such terms means the settler, the trustees, the protector (if any), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust, such term means persons in equivalent or similar positions.”
If you’re not satisfied with this, like I wasn’t, the IGA redirects you to the Recommendations of the Financial Action Task Force (FATF) for the interpretation. Right……or wrong, because the FATF’s Glossary doesn’t define Controlling Persons.
So, how do you recognize a Controlling Person?
Once a guy loses a connection with himself, which formed his reality, control is pursued in the exterior world.
From Aussie wisdom to Wikihow. Those who try to control other people are, simply put, neither nice nor respectful. While a controlling personality belongs to someone who probably has deeper issues, such as codependency, narcissism, sociopathic tendencies or just sheer stubbornness, none of these negative traits should be shouldered by you.
Controlling people are selfish at the core, immature at heart and likely to put the brakes on your leading a fulfilling life if you’re in constant close proximity to them.
Sounds like bullying, right? That’s what a lot of US expats think of their US Internal Revenue Service (IRS) as well. FATCA as lex americana universally applicable. Taxation: love it or hate it. KPMG tax consultants restored my mental connection to the question: “Controlling Persons is not specifically used in that FATF Recommendations report. It does provide that controlling ownership interest depends on the ownership structure of the company. It may be based on a threshold, e.g., any person owning more than a certain percentage of the company (e.g. 25%). Given this, the Model IGA appears to require the FI to identify those owners that hold a 25% interest and then determine whether those persons are U.S. citizens or residents. (…) So, a financial institution must identify whether there are any Controlling Persons and must determine whether such Controlling Persons are U.S. citizens or residents based on self certifications.
Don’t let deeper issues be shouldered by you
FATCA’s all about avoiding tax evasion by U.S. Persons, wherever they hide their money. KPMG tax consultants observe: “Given that many U.S. persons hiding income offshore sign their tax return and certify, under penalties of perjury, that the income reported is accurate (when, in fact, it is understated), it is unlikely that a self-certification from such persons to their bank would be reliable. Thus, the value of the information obtained from the due diligence requirements set forth in the Model IGA will be diluted (i.e., it is not likely to include the accounts held or controlled by the U.S. tax evaders the legislation was enacted to target).”
Who will carry the burden?
Foreign (i.e. everything and everyone outside the United States of America) Financial Instiutions (FFIs) now carry the financial and administrative burden to implement FATCA regulations into their due diligence and reporting processes and supporting IT systems. No single US dollar compensation is given to them. I often am asked if it’s true that the United States actually can impose this on the rest of the world. As for now, the answer’s yes.
FATCA, as part of the HIRE Act in 2010, was meant to raise money for the employment projects of the Barack Obama administration. If insufficient money comes back to the IRS, then the good old money press will print additional notes (again). Due to inflation we all pay for that Act. And unemployed will not be helped all back into business again.
Who will confront the Controlling People?
As the Tower of Power states in the third step to deal with Controlling People: speak up to controlling people. You cannot shatter the idealized image placed on you until you speak up to face the problem. Though you are a victim of someone’s hurtful behavior, you are responsible for your response.
NoticePitfall 1: copying behavior may turn a victim into a Controlling Person. Pitfall 2: The grass may not be that green elsewhere.
Important!By no means this blog post is meant as tax advice. I don’t have a subscription to the IRS mailing list, except from an occasional e-mail digest from the IRS or Treasury with notices like postponing deadlines 6 months (yours truly is a victim project manager, but taking responsibilities) or the publication of more (draft) tax forms (where I stick to the KISS principle). Don’t forget to have fun in your project(s). Humor heals.