Let's suppose that a foreign investor trades stocks on a U.S. exchange, but his broker is FATCA non-compliant. One day he buys 10,000 shares of XYZ at $25 per share, and the next day, he takes advantage of a nice uptick of $1.00 in XYZ and sells at $26 per share. He makes a tidy profit of $10,000. But because his broker is non-compliant, the IRS now withholds 30% -- not of the profit, but of the gross proceeds of the sale! So the client now receives the sum of $260,000 minus 30%. The foreign investor is unhappy because his $250,000 investment has become $182,000. If he wants his money back, he must file a U.S. tax return.
No investor would accept such conditions. Hence, an FFI must either comply with the invasive regulations of FATCA or simply abandon the U.S. markets.
Tuesday, November 29, 2011
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Thanks for sharing my article. I appreciate the lines that picked out too. This dawned on me that the punitive measures were so stringent, that nobody would ever accept them.
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