Uncle Sam Versus the Tax Bear

I just put the finishing touches on my US tax return today and stuck it in the mail to Austin, Texas. Yes, that's my US tax return. Of course, as everyone in the States knows, the deadline for filing federal income taxes is April 15^th, a date marked with hectic last-minute form-filling and inevitable anti-tax protests – also a date that we passed a few weeks ago. Luckily, us Americans living overseas get an automatic two-month extension, which I almost always take advantage of, since, well, why not?

Now, some folks might wonder why someone who has not lived or worked in the US for over thirty years would be subject to American income tax. Good question. This is why the United States often gets mistaken for Eritrea, the only other nation that requires its citizens to pay tax, no matter where they call home. It’s another example of American exceptionalism.

In reality, for Americans here in Finland, the possibility of having to pay tax to Uncle Sam AND to the Finnish verokarhu (“tax bear”) isn't necessarily that high, thanks to a tax treaty between the two countries. In practice, American expats here have to pay US tax only on income over a certain threshold, which is high enough (for 2013 it was $97,600) that I can essentially scratch US taxes from my list of things to worry about.

But, I still have to file a return. In my case, this has always been relatively simple. I am, after all, a simple man with a simple financial existence. In addition to the normal 1040, the only other tax form I need fill out is one (2555-EZ) to show that I qualify to have my income excluded from US taxes, in other words, that I really do live outside the US full-time and didn’t make over $97,600 last year (damn it!).

It’s always been an easy, though pointless, process. This year, it’s all becoming a bit more onerous. The reason is a new form called FBAR, the result of a new law called FATCA. They couldn’t have picked a more appropriate acronym than “FBAR”, which stands for “Foreign Bank Account Report”, but instantly brings to mind (my mind at least) the old Army slang, “FUBAR”, which – as I remember from my days of watching “Saving Private Ryan” – has a meaning that is completely different, but uncannily apt in this case. Look it up. 

The basic idea behind FBAR is that, not only do Americans have to report their overseas income; we also must report all the money we have parked in overseas accounts. As a liberal, happy to pay taxes myself and happier for rich people pay even more, I applaud the motivation here, which is to ferret out secret offshore stashes of untaxed cash.

However, there are other consequences, unintended to be sure, that have driven many American expats to renounce their US citizenship. And I’m not talking about cases of tax avoidance like Facebook’s co-founder Eduardo Saverin, who ditched his US passport and jumped ship, so to speak, allegedly to avoid paying capital-gains taxes on his huge wealth. (Or for that matter, former Frenchman Gerard Depardieu, who did the same when he fled, figuratively, to the tax haven of Russia. I guess that may be slightly off-topic.)

It’s one thing for middle-class Americans who happen to reside in another country, living ordinary lives, working at ordinary jobs, drawing ordinary salaries, to have to fill out one additional form in order to provide details about their local bank accounts to the Treasury Department. It wasn’t a big deal for me, though others surely have more financially complex lives that make the task actually burdensome.

But, declaring your accounts at the local banco, banque, or pankki is only part of it. The banks holding your accounts are also required to comply with the new law. Imagine the joy of a small-town bank in Poland when it is confronted with the need to file paperwork with Washington just because an American living down the street chose to open an account there.

You wouldn’t necessarily think this was a problem, but I have seen reports of some banks, faced with this unwelcomed hassle, turning away American customers or closing their accounts, no doubt causing all kinds of everyday aggravation. This is not a case of some Master of the Universe being unable to open a hidden account in the Cayman Islands (I’m all for that!), but rather some average wage-earner being unable to use the ATM at his local grocery store. The good news is that I’ve seen no indications of this happening in Finland. Not yet, anyway.

As I see it, a clear problem with what might otherwise be a reasonable law is the threshold for reporting. Americans must declare any bank account that has held $10,000 or more at any time during the year. That’s currently a little over 7,000 euros.

When I was living in Georgia in my 20s, working as a lab tech or studying, I couldn't imagine having that much money in my checking account. In the context of living in Finland, however, you don’t have to be Donald Trump to have a saldo of 7,000 euros, at least for some brief transitory period.

It’s as if, in order to catch tuna, you designed a net that also catches all the shrimp. It’s unfortunate that such a well-intentioned law might be forcing some average Americans rooted on foreign soil to choose between giving up ordinary bank services or giving up their US passport. Whether coincidentally or not, last year after the law took full effect nearly 3000 Americans chose the latter, a record increase of 221%.

That’s a drastic rise in Americans taking an equally drastic step. It’s a step I could never contemplate taking myself – at least, not as long as I’m able to deposit money somewhere safer than my own mattress.

Taxes

Last November one of the richest men in Finland visited my daughter’s school to join the country’s foreign minister in a small ceremony kicking off “Mission to Finland!”, a campaign to boost Finland’s international brand image.

The wealthy businessman on the little stage in the school lunchroom was Jorma Ollila, the former CEO of Nokia and the man widely recognized as responsible for transforming that company into the world’s biggest mobile phone maker.  While Ollila has since retired as the head of Nokia, he still has a day job as chairman of the board, not only of Nokia but also the oil giant Shell.  And he’s still being well compensated – by Finnish standards, that is.  This best-known titan of Finnish industry made just under 6.1 million euros ($8.5 million) in 2009, making him Finland’s number one salaried employee for that year. 

I happen to know this because, as for practically everyone else in Finland, Ollila’s taxable income is a matter of public record.  Every autumn, the Finnish tax authorities make available data (income, capital gains, and tax rate) for all taxpayers making over €10,000 ($14,000) in the previous year.  Opening up such information to anyone who cares to ask for it is a kind of transparency (or, as many in the States would see it, lack of privacy) that might well be unique to Finland. 

It also uncovers a rich vein of data that the news media can mine for juicy tidbits on how well the Finnish well-to-do are doing.  Just after the 2009 data became available, the Helsingin Sanomat, the nation’s biggest daily, ran its traditional four-page spread profiling the top earners in different niches of public life.  At the centerpiece of the paper's coverage are two lists, one ranking the 50 individuals with the biggest paycheck and a separate one listing those true capitalists who make most of their money not with a salary but from stocks and other capital gains. 

It’s no real news that ex-CEO Ollila came in at the top of Finland’s wage earners, a position he held in 2008 and, for that matter, probably since the 1990s.  The total tax rate on Ollila’s seven-figure salary, combined with his €222,000 in capital gains, was 45%, allowing him to pocket a net of €3.5 million (less than $5 million).  For comparison’s sake, The New York Times has reported that last year’s median pay for 2000 CEOs of major US firms was $9.6 million. 

In the top-fifty ranking Ollila is in familiar company.  Eight of the earners on the list are Nokia executives, which seems to me to be a bit fewer than in previous years.  One of the fellow Nokians is Ollila’s successor as CEO, Olli-Pekka Kallasvuo, who earned €4.75 million ($6.6 million) in 2009.  When I used to work at Nokia’s glass-and-steel headquarters in Espoo, you could see these two mobile-phone millionaires almost daily sharing a table in the company canteen at lunchtime with a couple of other top Nokia bosses, often right next door to your own table.  I always loved that kind of “common touch” atmosphere that seems typical at Nokia. 

Even perched as they are at the top of the list of high earners, it would be wrong to think Ollila and Kallasvuo are the richest Finns.  When you add investment income -- for example, from stocks -- nine other individuals made more than Ollila.  Most belong to old-money families, with the owners of the Helsingin Sanomat publishing group most prominent, including the group’s biggest owner who earned €16 million ($22 million) from his investments in 2009. 

In addition to the top-fifty list, Hesari (everything in Finland has a nickname, including newpapers) ran small articles highlighting those who made the most in different fields.  In sports for 2009, it was a golfer who earned €305,000 ($425,000).  If you think that’s a pittance compared to what athletes in the States make, keep in mind that Finland’s wealthiest sports stars, including Formula One drivers and a couple dozen NHL players, mostly live abroad in more taxpayer-friendly countries. 

In the arts, the top spot for 2009 went to the conductor Jukka-Pekka Saraste, who pulled in €603,000 ($841,000) to rank 160th among all Finnish wage earners.  Again, as with the biggest sports stars, Saraste, who has spent most of his career working in Toronto, London and Oslo, pays most of his taxes abroad.  The highest-paid Finnish writer and the biggest-grossing pop musician each earned around half a million.  Sofi Oksanen, the prize-winning author and currently hottest young talent in Finnish literature, ranked 296^th with her nearly €480,000 income. 

Hesari also lists the top ten earners among trade union bosses and their counterparts in industry organizations (€286,000 for the chairman of the Finnish teacher’s union, versus €420,000 for the head of the forestry trade group).  The paper especially notes that a lobbyist for the nuclear-power industry made €140,000 in 2009, almost as much as the government minister responsible for overseeing that industry. 

Other details give a similarly revealing look at who's making the most money and how.  For example, number nine in the wage-earner list is a 30-year-old professional poker player who – maybe quite literally – raked in a pot of €1.7 million ($2.4 million) in 2009.  Or, consider the fact that only four women made it into the ranks of the top 100 earners, with the best-compensated female coming in at number 40.  

While broadsheets like Hesari take a more-or-less journalistic approach to the release of tax information, the tabloids here go a step further to satisfy their reader’s inner voyeur by publishing the raw data for thousands of ordinary citizens, in fact, anyone making more than €150,000 ($210,000).  If that’s not exactly “ordinary”, it’s quite a bit closer to it than someone making €16 million. 

The newspapers, of course, are simply packaging info that anyone on their own can request from the tax authorities, even for those of us making less than €150,000.  I’m not sure how you go about doing this, or how often those people who always wondered what their neighbors or co-workers were making actually go to the trouble of finding out. 

Apparently, there is a market for such information, however, especially if you cut out the middleman (or in this case, the taxman).  Showing a certain enterprising spirit, at least one Finnish company was until recently offering a service where mobile phone users could send a text message requesting the income info on anyone in the tax authority’s database and have their curiosity satisfied in a matter of seconds. 

It was no doubt a profitable service, but has now been shut down due to privacy concerns.  Disseminating public information about private persons is one thing, but profiting from it by making it so damn easy perhaps crossed the line. 

P.S.  As tax rates seem to be a never-ending obsession for most Americans, especially today April 15^th,  it’s interesting to see that tax rates for Finland’s top-fifty earners in 2009 ranged from 31% to 51%.  Some Americans might find this confiscatory, but here such rates seem generally accepted as important for keeping Finnish society moving forward.  Happy Tax Day, America!