European banks shut Americans out over U.S. tax rules

European banks shut Americans out over U.S. tax rules

Scott Schmith started a photography business in Switzerland after a stint in the U.S. Army that included deployments in Germany and in the Middle East during the first Gulf War.

He’s still an American citizen, even though he’s lived and worked outside the United States for more than 20 years. But new U.S. financial regulations on bank accounts overseas have him, along with many other Americans working in Europe, mulling whether to renounce his citizenship.

That’s because European banks are balking at IRS demands that they disclose the assets of Americans overseas. Complaining that the regulations are too burdensome, European banks are in some cases banning Americans from doing business with them.

“I am still an American – I was born there,” said the native of Sioux City, Iowa. “But why should I be thrown to the wolves? Why should I be punished for being an American who chose to live outside the U.S.?”

The U.S. legislation is aimed at preventing tax evasion. But banks in Switzerland and elsewhere that say the requirement is too expensive and in some cases violates their country’s privacy laws are instead closing Americans’ bank accounts, banning new U.S. customers and even terminating mortgages.

One of the regulations — The Report of Foreign Bank and Financial Accounts (FBAR) — has existed since the 1970s but only recently has been enforced against small account holders. The other — The Foreign Account Tax Compliance Act (FATCA) — was passed by Congress in 2010 and requires foreign financial institutions to report to the IRS information about financial accounts held by U.S. taxpayers.

Banks contacted about the issue declined to discuss the matter publicly, but financial experts familiar with the situation say bankers do not want to act as de-facto agents of the IRS.

“Foreign banks that don’t comply with FATCA reporting rules could have a 30% tax imposed on all their U.S.-based transactions and those of their U.S. clients,” said Robert Bauman, legal counsel for International Living magazine and a former U.S. representative from Maryland, writing on its website. “But if they refuse to comply, the banks face a choice of paying that punitive 30% withholding tax or withdrawing completely from U.S.markets.”