American in the EU -- problems with IB acct

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sean.mcgrath
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American in the EU -- problems with IB acct

Post by sean.mcgrath » Thu Jul 12, 2018 1:51 pm

Hi all,

I'd like to hear other Americans' experiences with the new European investment regulation.

I am an American in Europe with a US Interactive Brokers account. Today it blocked me from buying shares in a US ETF because "this product is currently unavailable to clients classified as 'retail clients'". The help file states that "Clients entering opening orders for products covered by the PRIIPs Regulation where the issuer has not provided the required disclosure documents or Key Information Documents (KIDS) will have their order rejected."

PRIIPs is the "Packaged Retail and Insurance-based Investment Products Regulation - EU No 1286/2014 (“PRIIPs Regulation” or “PRIIPs”) entered into force on 29 December 2014 and its requirements become applicable on 1 January 2018. The Regulation requires product manufacturers to create and maintain Key Information Documents (KIDs) and persons advising or selling PRIIPs to provide retail investors based in the European Economic Area (EEA) with KIDs to enable those investors to better understand and compare products."

Fair enough -- consumer protection -- but another post on this forum states one of the requirements is that the KIDs must be in the local language (Dutch in my case). I can't buy ETFs in Europe because the taxes are punitive (same reason, they don't pass US consumer protection requirements); now it looks like I can't buy them in the US either.

Are other European based Americans running into this, and do you have any advice?

Cheers,
Sean

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BeBH65
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Re: American in the EU -- problems with IB acct

Post by BeBH65 » Thu Jul 12, 2018 4:54 pm

Others will be along soon.

Are you aware of our wiki pages non us domiciles: tax issues
Last edited by BeBH65 on Fri Jul 13, 2018 2:18 am, edited 1 time in total.
BeBH65. (only an investment enthusiast, not a financial adviser, perform your due diligence).

sean.mcgrath
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Re: American in the EU -- problems with IB acct

Post by sean.mcgrath » Thu Jul 12, 2018 7:32 pm

Hi Be,

Yes, I am aware and have benefited from them. Unless I have missed it, I have not seen posts on this topic.

Any help appreciated!
Sean

TedSwippet
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Re: American in the EU -- problems with IB acct

Post by TedSwippet » Fri Jul 13, 2018 2:48 am

sean.mcgrath wrote:
Thu Jul 12, 2018 7:32 pm
Unless I have missed it, I have not seen posts on this topic.
PRIIPs in general has come up a couple of times, for example here.

It doesn't seem as if any ready solution to your particular problem has emerged so far, though. Your best (or perhaps only) option might be passively managed individual stocks.

sean.mcgrath
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Re: American in the EU -- problems with IB acct

Post by sean.mcgrath » Fri Jul 13, 2018 4:57 am

Thanks, Ted -- I missed that one. Indeed, one option does seem to be to change classification as a professional investor. I'm giving it a try, and will let the forum know how it goes.

Given the large number of Americans in Europe on this forum, I did want to open this thread also to gather any experience of (hopefully) solutions that people have found.

Regards,
Sean

NoHeat
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Re: American in the EU -- problems with IB acct

Post by NoHeat » Fri Jul 13, 2018 7:50 am

Does PRIIPS affect mutual funds at IB also? There are plenty of funds, including Vanguard, offered by IB.
https://www.interactivebrokers.com/en/i ... =1563&p=mf

It will be interesting to hear of your experience when claiming to be a professional investor regarding your IB account. I can see how that could have the benefit of exemption from unwanted rules intended to protect the unsophisticated public. I just wonder if there are any practical downsides.

TedSwippet
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Re: American in the EU -- problems with IB acct

Post by TedSwippet » Fri Jul 13, 2018 9:41 am

NoHeat wrote:
Fri Jul 13, 2018 7:50 am
Does PRIIPS affect mutual funds at IB also? There are plenty of funds, including Vanguard, offered by IB.
Not an IB customer (nor a US citizen, gratias Deo), but I suspect that the funds you linked to are only available to US residents. And everything in the mutual fund range for non-US residents will be a US PFIC, with all the appalling US tax misery that carries as baggage.

Assuming passively managed individual stocks are unpalatable, the OP's next best bet may be to pass themselves off as a US resident, either at IB or perhaps more easily at a different US broker now that IB knows they are not in the US. The trick to doing this is coming up with a usable US address, but if Mail Boxes Etc doesn't appeal or won't suffice then using the address of relatives in the US might.

It is annoying to have to indulge in this subterfuge, but there is nothing non-legal about it. US brokers refuse US expats for commercial reasons but not legal or regulatory ones. And most evidence suggests that checks into residence address are at present perfunctory -- if you say you live there, and you clearly receive snail-mail there, that seems to be enough, at least for now.

Functioning financially as a US citizen outside of the US has become hugely more difficult over the past four or five years than it used to be. HEART, FATCA, CRS, MiFID II, PRIIPs and so on have together created almost a perfect storm for US expats. I am starting to wonder if the 'US expat' may now be an endangered species. The choices are narrowing to: move back to the US; or 'go native' and renounce US citizenship. Options not at one of these extremes are now becoming very tricky to operate.

jminv
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Re: American in the EU -- problems with IB acct

Post by jminv » Fri Jul 13, 2018 10:03 am

You need a working us address where you send your mail to. It's a simple, legal solution. Use a state that doesn't have taxes on capital gains and dividends just to be on safe side.

I doubt IB would care at all if you moved back to the usa and changed your account type with them. I know other brokers don't care.

It's becoming more difficult to be an expat. We are already at a disadvantage due to our relatively unique worldwide taxation system and now with the creeping requirements foreign banks have to meet for the us we are becoming more and more unwelcome at our local banks, too.

NoHeat
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Re: American in the EU -- problems with IB acct

Post by NoHeat » Fri Jul 13, 2018 11:46 am

jminv wrote:
Fri Jul 13, 2018 10:03 am

It's becoming more difficult to be an expat.
I feel sorry for ex-pats today. It used to be a great experience all around, but the US rules have changed.

When I was an ex-pat in Germany in the late 2000s, I had no problem in continuing to hold accounts with US banks, US brokers, and a US account with Vanguard, all using a German residential address. It was just a simple change of address. Moreover, there was no problem with a US citizen living in Germany holding an account at a local German bank; it only required showing a passport and visa when opening the account. It sounds as if those good days are gone.

Nate79
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Re: American in the EU -- problems with IB acct

Post by Nate79 » Fri Jul 13, 2018 11:51 am

I disagree with reporting a false residential address when asked for such if they are not asking for a mailing address. Where you reside is not just some family members address or a mailing address only. Falsifying an address may constitute fraud and likely voids your contract with the broker and any potential legal protections you may have. Whether it is even legal issue or not is a whole issue in and of itself that isn't so clear. But you know what? You play the game and you better be prepared for the consequences.

sean.mcgrath
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Re: American in the EU -- problems with IB acct

Post by sean.mcgrath » Sat Jul 14, 2018 3:23 am

Yes, meeting the criteria of a professional investor or having a US residence seem to be the most likely solutions. We actually own a house in the US that we live in for part of the year, so I could look into that. But it seems such a large, general problem, I'm a bit surprised that I don't see more news about it (like there was when Europeans started denying bank accounts to American residents).

TedSwippet
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Re: American in the EU -- problems with IB acct

Post by TedSwippet » Sat Jul 14, 2018 3:44 am


sean.mcgrath
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Re: American in the EU -- problems with IB acct

Post by sean.mcgrath » Sat Jul 14, 2018 4:21 pm

Thanks, Ted; very interesting. Just curious, as you are not American, why do you follow this topic?

Cheers,
Sean

TedSwippet
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Re: American in the EU -- problems with IB acct

Post by TedSwippet » Sat Jul 14, 2018 6:23 pm

sean.mcgrath wrote:
Sat Jul 14, 2018 4:21 pm
Just curious, as you are not American, why do you follow this topic?
I still hold accounts -- 401k, IRA, Roth, and taxable -- in what is to me a foreign country. This feels precarious. US tax law is generally xenophobic. I don't have a vote or voice in the US, leaving me wide open to political risk. I have already experienced one very close brush indeed with the execrable US 'exit tax', something that left a lasting (and hugely negative) impression of US tax laws. Quick and decisive action allowed me to escape it unscathed, but this was possible only because I was fully awake to the effects of the 'exit tax' before it passed into law.

As a result, I am now permanently on the lookout for whatever nonsense the US congress (or my own government, or the EU) might come up with next to frustrate or maybe even destroy my future financial security. For example, it doesn't take a lot of imagination to conceive of a future in which PRIIPS prevents me from rebalancing in or otherwise using my 401k or IRAs. Or one in which I cannot draw on my 401k or IRAs because of US 'medallion signature guarantee' issues, or Patriot Act restrictions, or 'enhanced' FATCA withholding, or the passage of the Ex-PATRIOT act, or tax treaty breakdown, or ...

Now, parts of these imaginings are undoubtedly entirely paranoid, no question. But which parts? Just over a decade ago nobody would have imagined that the US would enact its own Soviet-style 'exit tax'. Nor that it would coerce every other countries' banks into becoming unpaid IRS informants. Nor that it would raise the cost of citizenship renunciation from $0 to now the highest on the face of the planet at $2,350. Yet here we are.

sean.mcgrath
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Re: American in the EU -- problems with IB acct

Post by sean.mcgrath » Sun Jul 15, 2018 7:50 am

Fair enough. :(

I really hope post 9/11 is a speed bump, and not the end of the golden era of international institutions. I really wonder how complicated all of this multiple countries bit will be for my kids when they start filing...

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