Month: March 2018

If you want to be a Shareholder in our Canadian Business then you must Renounce U.S. Citizenship

Americans are experiencing discrimination in banking but also, as shareholders

cross-posted from citizenship solutions

    by John Richardson

The unified message from all should be that: The United States should stop imposing “worldwide taxation” on people who have “tax residency” in other countries and do NOT live in the United States! This is a message that all advocates of tax reform can support. As recently explained in a post from “ACA”, the mechanism (RBT vs TTFI) used to achieve this change is less important.

It is no secret that Congressman George Holding is working on a proposal to end the U.S. practice of imposing “worldwide taxation” on those who have “tax residency” in other countries. If successful, this would be a positive change for the United States, U.S. citizens who choose to live outside the United States and the residents of other countries. None of these should be burdened by the extra-territorial application of U.S. tax laws!

The specific content of the Holding proposal is certainly evolving. Regardless of the final content, Karen Alpert, Greg Swanson and I have proposed three core principles against which a final proposal should be measured. (We are not suggesting that these are the only principles.) These principles are found in Karen’s timely post where she discusses a “Residence Based Taxation Proposal”

The three proposed principle are:

1. American citizenship should not disadvantage a citizen living outside the US relative to expatriates from other nations.

2. We believe that freedom of movement is a basic human right. We also believe that freedom of movement and international trade go hand-in-hand. Governments should never impose laws, taxation, regulations, or other limitations on their citizens that hampers the freedom of movement of those citizens.

3. US citizens currently living outside the US who have arranged their financial affairs to be compliant with current US law should not be disadvantaged. Similarly, those non-residents who were unaware that they needed to arrange their financial affairs in accordance with US law should not have their savings confiscated just because they have foreign investments that are taxed punitively by the US relative to similar domestic US investments.

The practical reality of “Being American” and living in another country

Principle 1: One practical analysis – American citizenship should not disadvantage a citizen living outside the US relative to expatriates from other nations.

It is one thing for a country to restrict certain opportunities to citizens of that country. For example, many countries restrict voting and certain employment opportunities to citizens. But, most countries do NOT discriminate among various groups of “non-citizens”. Significantly, U.S. law has created huge incentives for Americans to be discriminated against as both matters of law and matters of practice.

Some examples:

Discrimination against Americans prescribed by law – Think FATCA:

Pursuant to FATCA and the FATCA IGAs imposed on the world, many countries have changed their laws to specifically discriminate against U.S. citizens in the area of financial services generally and banking in particular. It is well known and documented (nothwithstanding Robert Stack’s “It’s a myth claim”) that U.S. citizenship is now a reason for the denial of “banking privileges”.

Discrimination against Americans because of the dangers of business involvement with Americans – In the last year I have helped several Canadians renounce U.S. citizenship so that they were free to participate in various Canadian business opportunites

The simple FATCA of the matter is that many who understand that U.S. citizens are ruled by the Internal Revenue Code, will NOT allow U.S. citizens to become shareholders of smaller businesses. It’s quite simple really:

Sorry, but we can’t have you as a shareholder in our business if you are a U.S. citizen. Therefore, if you want to participate in this business opportunity you cannot be a U.S. citizen!

Those who will NOT allow U.S. citizens to become shareholders in their companies are absolutely right to do so. By way of example, consider the new U.S. Transition Tax. The whole point of the Sec. 965 “U.S. Transition Tax” is to confiscate part of the retained earnings of NON-U.S. companies! (Yes, you read correctly!) In a general sense, the “confiscation” reflects the percentage of U.S. ownership. The greater the percentage of U.S. ownership, the greater the confiscation. The less the U.S. ownership, the less confiscation. If ZERO U.S. ownership then ZERO confiscation! Do you get it?

If you were running a small business outside the United States, would you want a situation where the citizenship of some of your shareholders, could be used as an excuse to confiscate the retained earnings of the company?

The point is a simple one.

The way that the United States imposes taxes on residents of other countries, necessitates that “informed people” limit their interaction with Americans.

Sad but true.

Because of the “Internal Revenue Code”, Americans are just not like citizens of the rest of the world. Best, to stay away from them.

Conclusion: The current “U.S. system of imposing “worldwide taxation” on those who have “tax residency” in other countries means that Americans will be discriminated against. It’s a fact. The the discrimination is caused by the Internal Revenue Code of the United States!

John Richardson

March 22, 2018 Canadian FATCA IGA Litigation in Federal Court Update: New Timetable

Canadian FATCA IGA litigation

UPDATE March 22, 2018

The attorneys for our side (our side are Plaintiffs Gwen and Kazia, the Alliance for the Defence of Canadian Sovereignty — the “client”, and our supporters) and the attorneys for Mr. Justin Trudeau’s Government have just agreed on the timing for the next steps of our Canadian FATCA IGA lawsuit in Canada’s Federal Court.

It is always possible that the Court might change some of the dates but here is the new timetable:

— Defence [the Government] evidence, except one expert report, filed April 16, 2018;

— Last defence expert report filed April 30, 2018;

— Notice of any objections to expert reports provided by June 15, 2018;

— CMC to discuss scheduling of any applications to strike all or portions of affidavits in

— Cross-examinations completed by July 31, 2018;

— Plaintiffs argument served and filed by September 28, 2018;

— Defence argument served and filed by November 16, 2018;

— Plaintiffs’ reply served and filed by December 7, 2018;

— Hearing the week of January 28, 2019, subject to the Court’s availability.

The key update is the hope/expectation that the Federal Court hearing will take place in January 2019.

Since the beginning of our lawsuit, many, many Canadian citizens (we have not been provided with the numbers) have been rounded up and turned over by Canada CRA to the United States IRS.

Yes, I know that our litigation has been moving at a glacial pace. Sorry…

Part 5: Responding to the Sec. 965 “transition tax”: Shades of #OVDP! April 15/18 is your last, best chance to comply!

cross posted from citizenship solutions
    by John Richardson

I suggested to John that some might not understand why a similarity between OVDP and the Transition Tax was being made. He asked me to introduce the post to make sure it was clear that the U.S. government has demonstrated that confiscation is the name of the game (NOT tax).

Some of you may wonder why a connection is being made between the OVDP program and the Transition “Tax.” The reason is very simple. We need to change the language. We need to call it what it really is. In the beginning, people were too frightened to understand what the OVDP really was. It took years before it was clear it was nothing less than confiscation. Fortunately, we knew prior to the passage of the Tax Jobs Cut Act that the Transition “Tax” was a blatant confiscatory provision.

The “Offshore Voluntary Disclosure Program.” An “amnesty” program. Nine years and many destroyed lives have exposed it for what it really was. No one could really have considered it “voluntary.” The IRS and the tax compliance community certainly presented as one’s only option. In 2011, we did not have the advantage of what we know now; the limitations of being discovered, the extremely difficult/unlikely ability of the IRS to collect. People who had no tax liability among other atrocities, were fined from 20 – 27.5% of their assets. There was no taxable event. This revolved around not filing a piece of paper. FBAR. An appropriate term used was “The FBAR Fundraiser.” Another word would be confiscation. IOW, OVDP was NOT about TAX.

Some words have powerful associations. Sometimes those associations grow into clichés. We are all familiar with the association that anyone who has left America is rich has done so to avoid tax. We have been working at this since late 2011. Seven years. No amount of trying to educate via comments on online articles etc. has put a dent in this erroneous and damaging perception. Recently, some of us have started replacing “citizenship taxation” with “non-resident taxation.” Non-resident taxation describes what it really is and dissociates from the idea that a patriotic citizen (American) should pay it. It appeals to the notion that reasonable people accept i.e., that one pays taxes (only) where one lives. It may take time but the value of changing the language in this situation, is obvious.

To refer to this new requirement as a “tax” is to immediately justify it as being reasonable. Take the Canadian government for example. It’s position is that the U.S. has the right to tax it’s own citizens and that Canada has no business interfering with that. Thus the IGA. Nevermind that the majority of the people affected are Canadian citizens and residents FIRST.

So what’s wrong with the term “Transition Tax?” As we all know, any expat with a “foreign” corporation will be unable to transition to a territorial system as will major multinationals . So to call it a “transition” is completely erroneous. As for “tax”, a general notion is that a tax is connected with delivery of services or benefits i.e., there is some relationship between the exchange of income for services. It is nothing short of bizarre to levy a 30-year retroactive tax on a group of people who were not residents, nor receiving anything in exchange for surrendering a considerable portion of what is primarily, their retirement pensions.

A phrase John has used repeatedly to describe the Transition “Tax” is “the confiscation of the retirement pensions of the citizens and residents of other countries.” That’s what it really is. Like the OVDP, it is a punitive tool that destroys the lives of long-term expats. We need to get that message across.

****

    by John Richardson

Introduction

This is the fifth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

The purpose of this post is to argue that (as applied to those who do not live in the United States) the transition tax is very similar to the OVDP (“Offshore Voluntary Disclosure Programs” which are discussed here. Some of initial thoughts were captured in the post referenced in the following tweet:

The first four posts about the “transition tax” were:

Part 1: Responding to The Section 965 “transition tax”: “Resistance is futile” but “Compliance is impossible”

Part 2: Responding to The Section 965 “transition tax”: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”

Part 3: Responding to the Sec. 965 “transition tax”: They hate you for (and want) your pensions!

Part 4: Responding to the Sec. 965 “transition tax”: Comparing the treatment of “Homeland Americans” to the treatment of “nonresidents”

*A review of what what the “transition tax” actually is may be found at the bottom of this post.

This post is for the purpose of the arguing that, as applied to those who live outside the United States, payment of the “transition tax” in 2018, is the financial equivalent to participation in 2011 OVDI (“Offshore Voluntary Disclosure Program”.

 

Seven Reasons Why The U.S. Transition Tax as applied to “nonresidents” is similar to the “Offshore Voluntary Disclosure Program As Applied To “Nonresidents” Continue reading “Part 5: Responding to the Sec. 965 “transition tax”: Shades of #OVDP! April 15/18 is your last, best chance to comply!”

IRS Announces the end of #OVDP – Fascinating Reactions from the Tax Compliance Community

 

OVDP Program

cross-posted from citizenshipsolutions

    by John Richardson

IRS announces the end of #OVDP: Fascinating tweets from the “OVDP Historians” who compose the tax compliance community

IRS announces the end of #OVDP: Fascinating tweets from the “OVDP Historians” who compose the tax compliance community

#OVDP: Reactions from the “tax compliance community” (and others who tweeted) to the termination of OVDP

(Note: For the purposes of this post I will use the terms “OVDP” and “OVDI” interchangeably. Each term describes a specific example of one of the “OVDP era” programs, as it existed at a specific point in time. A particularly good analysis of the evolution of the “OVDP era” programs is found here – of interest only to those who want to “OVDP Historians“!)

On March 14, 2018 Professor William Byrnes reported that:

The Internal Revenue Service today announced it will begin to ramp down the 2014 Offshore Voluntary Disclosure Program (OVDP) and close the program on Sept. 28, 2018. By alerting taxpayers now, the IRS intends that any U.S. taxpayers with undisclosed foreign financial assets have time to use the OVDP before the program closes.

“Taxpayers have had several years to come into compliance with U.S. tax laws under this program,” said Acting IRS Commissioner David Kautter. “All along, we have been clear that we would close the program at the appropriate time, and we have reached that point. Those who still wish to come forward have time to do so.”

Since the OVDP’s initial launch in 2009, more than 56,000 taxpayers have used one of the programs to comply voluntarily. All told, those taxpayers paid a total of $11.1 billion in back taxes, interest and penalties. The planned end of the current OVDP also reflects advances in third-party reporting and increased awareness of U.S. taxpayers of their offshore tax and reporting obligations.

I have heard it said:

The good thing about bad things is that they come to an end.

The bad thing about good things is that they come to an end.
Continue reading “IRS Announces the end of #OVDP – Fascinating Reactions from the Tax Compliance Community”

Part IV-Sec 965 Transition Tax – Comparing Treatment of Homeland Americans to the Treatment of Non-Residents

 
cross posted from citizenshipsolutions     by John Richardson
 

CLICK TO ENLARGE

 
 
 
 
 
 
 
 
 
 

Attorney Monte Silver has organized a worldwide petition to prevent the application of the “transition tax” and GILTI to “tax residents” of other countries. Please support him by participating. You will find his petition and further information here:

https://www.democratsabroad.org/remedy_repatriation_gilti_taxes

And now, back to our regularly scheduled programming.

Introduction

This is the fourth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

The first three posts were:

Part 1: Responding to The Section 965 “transition tax”: “Resistance is futile” but “Compliance is impossible”

Part 2: Responding to The Section 965 “transition tax”: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”

Part 3: Responding to the Sec. 965 “transition tax”: They hate you for (and want) your pensions!

Last night I was discussing the “transition tax” with an “individual” who is impacted by the tax AND is a Homeland American. He is a “tax resident” of ONLY the United States. For Homeland Americans who are subject to ONLY the U.S. tax system the “transition tax” is NOT a bad thing. For “non-residents” it is a terrible thing, which may destroy their retirements. The reason is that “nonresidents” are subject to both U.S. taxation and taxation in their countries of residence. The “transition tax” is an extremely egregious example of the terrible effects of the U.S. practice of imposing “worldwide taxation” on the residents of other countries. I hope that “the transition tax” will be the “straw that breaks the Camel’s back” and ends the U.S. practice of imposing taxation on people who don’t live in the United States.

After the discussion, I summarized our conversation in the following letter to him. Here is the letter.

Continue reading “Part IV-Sec 965 Transition Tax – Comparing Treatment of Homeland Americans to the Treatment of Non-Residents”

Part 3-Responding to the Sec 965 Transition Tax- They Hate you for Your Pensions!

cross posted from citizenshipsolutions

by John Richardson

Introduction

This is the third in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.

The first two posts were:

Part 1: Responding to The Section 965 “transition tax”: “Resistance is futile” but “Compliance is impossible”

Part 2: Responding to The Section 965 “transition tax”: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”

Immediately prior to the passing of President Obama’s “Affordable Care Act” (which was subsequently ruled to be constitutional BECAUSE it was a “tax”), legislators were faced with a comprehensive, complex and incomprehensible piece of legislation. Very few members of Congress understood the details and impact of what they were voting for.

Nancy Pelosi secured her in place of history by suggesting that:

“We really need to pass the law so that you can see what’s in it!”

Ms. Pelosi meant (I think) that it’s one thing to know what a law says. It’s quite another to know how it actually impacts people.

Notwithstanding the April 15, 2018 deadline for the first “transition tax” payment, very few “tax professionals” understand what the Internal Revenue Code Sec. 965 “transition tax” says, (let alone what it actually might mean – assuming it applies).

What the application of the “transition tax” might actually mean in the life of an individual owner of a Canadian Controlled Private Corporation Continue reading “Part 3-Responding to the Sec 965 Transition Tax- They Hate you for Your Pensions!”

FOI CHALLENGE – Calling all MODEL 1 IGA COUNTRIES

 


Over at FixTheTaxTreaty! we wanted to know how much FATCA data was
being sent from Australia to the IRS, so we submitted a Freedom of Information request to the Australian Tax Office.
We found that the numbers were much higher than we had expected. As much as 6%(!) of the non-retirement financial assets of Australian households and businesses was reported to the IRS for 2016, along with A$ billions in interest and dividend income.

by Karen Alpert

FATCA requires Australian financial institutions (very broadly defined) to report account holder details as well as account balance, dividends, interest and other income paid, and gross proceeds from sale or redemption to the ATO for transmittal to the IRS. It is evident from the graphs below that the amount of data going to the IRS has exploded since the initial data transfer of 2014 data (transferred 30 Sept 2015).

Once we had the data, we wrote a blog post and sent out a media release . The story has been picked up by the Sydney Morning Herald .Increased visibility of the sheer volume of data and exposure of local assets to US taxation can only help gain sympathy and support in the countries where we live. With this visibility, we can start to move the conversation to the costs and benefits of FATCA, and a discussion of how to protect the sovereignty of our home countries.

Clearly the IRS must be drowning in data. We would like to get a better idea of the global scale of this data dump. So, we’re challenging the rest of the world to try the same thing. If you live in a country with a Model 1 IGA (where the data goes to your country’s tax authority for transmission to the IRS), submit your local equivalent of a FOI request. Let us know in the comments at Fix The Tax Treaty when you submit your request and when you receive a response. If the response is not easy to analyse, we can help, just email us admin at fixthetaxtreaty dot org.

Part 2: The transition tax: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”

 

cross-posted from citizenshipsolutions blog

by John Richardson

Beginning with the conclusion (for those who don’t want to read the post) …

For the reasons given in this post, I believe that there are grounds to argue that the imposition of the Sec. 965 “transition tax” on Canadian resident/citizens DOES violate the Canada U.S. tax treaty. It is my hope that this post will generate some badly needed discussion on this issue.

If you are an individual who believes you may be impacted by the “transition tax”, you should consider raising this issue with the Competent Authority. I would be happy to explore this with you.

Need some background on the Sec. 965 “U.S. transition tax”?

The following tweet references a 7 part video series about the Internal Revenue Code Sec. 965 “Transition Tax” created by John Richardson and Dr. Karen Alpert.

(Video 6 gives examples of what various approaches to “Transition Tax Compliance” might look like.)

A reminder of what the possible imposition of the “transition tax” would mean to certain Canadian residents

Interesting article that demonstrates the impact of the U.S. tax policy of (1) exporting the Internal Revenue Code to other countries and (2) using the Internal Revenue Code to impose direct taxation on the “tax residents” of those other countries.

Some thoughts on this:

1. Different countries have different “cultures” of financial planning and carrying on businesses. The U.S. tax culture is such that an individual carrying on a business through a corporation is considered to be a “presumptive tax cheat”. This is NOT so in other countries. For example, in Canada (and other countries), it is normal for people to use small business corporations to both carry on business and create private pension plans. So, the first point that must be understood is that (if this tax applies) it is in effect a “tax” (actually it’s confiscation) of private pension plans!!! That’s what it actually is. The suggestion in one of the comments that these corporations were created to somehow avoid “self-employment” tax (although possibly true in countries that don’t have totalization agreements) is generally incorrect. I suspect that the largest number of people affected by this are in Canada and the U.K. which are countries which do have “totalization agreements”.

2. None of the people interviewed, made the point (or at least it was not reported) that this “tax” as applied to individuals is actually higher than the “tax” as applied to corporations. In the case of individuals the tax would be about 17.5% and not the 15.5% for corporations. (And individuals do not get the benefit of a transition to “territorial taxation”.)

3. As Mr. Bruce notes people will not easily be able to pay this. There is no realization event whatsoever. It’s just: (“Hey, we see there is some money there, let’s take it). Because there is no realization event, this should be viewed as an “asset confiscation” and not as a “tax”.

4. Understand that this is a pool of capital that was NEVER subject to U.S. taxation on the past. Therefore, if this is a tax at all, it should be viewed as a “retroactive tax”.

5. Under general principles of law, common sense and morality (does any of this matter?) the retained earnings of non-U.S. corporations are first subject to taxation by the country of incorporation. The U.S. “transition tax” is the creation of a “fictitious taxable event” which results in a preemptive “tax strike” against the tax base of other countries. If this is allowed under tax treaties, it’s only because when the treaties were signed, nobody could have imagined anything this outrageous.

6. It is obvious that this was NEVER INTENDED TO APPLY TO Americans abroad. Furthermore, no individual would even imagine that this could apply to them without “Education provided by the tax compliance industry”. Those in the industry should figure out how to argue that this was never intended to apply to Americans abroad, that there is no suggestion from the IRS that this applies to Americans abroad, that there is no legislative history suggesting that this applies to Americans abroad, and that this should not be applied to Americans abroad.

7. Finally, the title of this article refers to “Americans abroad”. This is a gross misstatement of the reality. The problem is that these (so called) “Americans abroad” are primarily the citizens and “tax residents” of other countries – that just happen to have been born in the United States. They have no connection to the USA. Are these citizen/residents of other countries (many who don’t even identify as Americans) expected to simply “turn over” their retirement plans to the IRS???? Come on!

Some of theses thoughts are explored in an earlier post: “U.S. Tax Reform and the “nonresident corporation owner”: Does the Section 965 “transition tax apply”?

And now, on to our “regularly scheduled programming”: The possible use of the U.S. Canada Tax Treaty to as a defense to the U.S. “transition tax”

In Part 1 of this series, I wrote: “Responding to the Section 965 “transition tax”: “Resistance is futile and compliance is impossible“. I ended that post with a reminder that the imposition of Section 965 “transition tax” on Canadian residents has (at least) four characteristics:

1.The U.S. Transition Tax is a U.S. tax on the “undistributed earnings” of a Canadian corporation; and

2. Absent deliberate and expensive mitigation provisions, the U.S. transition tax contemplates the “double taxation” of Canadian residents who hold U.S. citizenship.

3. The “transition tax” is a preemptive “tax strike” against a corporation in Canada. Historically Canada would have the first right of taxation over Canadian companies.

4. The U.S. Transition Tax creates a “fictitious” taxable event. It is not triggered by any action on the part of the shareholder.

The purpose of this post is to argue that the Canada U.S. tax treaty may be a defense to the application of the Section 965 “Transition Tax”

Part A – Exploring what a “Subpart F” inclusion really is

Part B – The Canada U.S. Tax Treaty: Relevant provisions

Part C – Impact of the “Savings Clause”

Part D – The Interpretation of the tax treaty: WHO interprets the treaty and HOW is the treaty to be interpreted

_________________________________________________________________________

Continue reading “Part 2: The transition tax: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax””

Part 1: Responding to The Section 965 “Transition Tax”: “Resistance is Futile” but “Compliance is Impossible”

 

Cross-posted from the citizenshipsolutions blog

by John Richardson

Introduction and background …

“This legislation is being interpreted by a number of tax professionals to mean that individual U.S. citizens living outside the United States are required to simply “fork over” a percentage of the value of their small business corporations to the IRS. Although technically “CFCs” these companies are certainly NOT foreign to the people who use them to run businesses that are local to their country of residence. Furthermore, the “culture” of Canadian Controlled Private Corporations is that they are actually used as “private pension plans”. So, an unintended consequence of the Tax Cuts Jobs Act would be that individuals living in Canada are somehow required to collapse their pension plans and turn the proceeds over to the U.S. government” -John Richardson

I have previously suggested that the Section 965 “transition tax” should not be interpreted to apply to Americans abroad. This argument was based largely on a “lack of legislative intention” coupled with the fact that individuals (whether in the USA or living abroad) do NOT get the benefits of the transition to “territorial taxation”.

These are difficult times for many Canadians who are the owners of Canadian Controlled Private Corporations. Canadian residents use Canadian Controlled Private Corporations (“CCPCs”) to operate small businesses and to create pension plans for their retirement. Importantly a Canadian corporation meets the definition of a “CCPC” only if it is controlled by residents of Canada. By definition all “CCPCs” are local to their owners. The use of “CCPCs” reflects the reality of Canadian tax laws going back to 1972. Governments the world over are taking steps to ensure that corporations cannot be used for the deferral or avoidance of taxation.

The election of the Trudeau Liberals resulted in the Government of Canada taking an interest in “Tax Reform” (or at least “tax reform” in relation to Canadian Controlled Private Corporations. On February 27, 2018 Finance Minister Morneau delivered the Liberals third budget. Although not widely publicized, the budget including major changes in how the passive income of CCPCs is to be taxed in Canada.

Of course those “CCPC” owners who have U.S. citizenship must also deal with the U.S. tax system. Interestingly, both the Government of Canada and the Government of the United States have the owners of “CCPCs” on their radar.

Canada – On the “Home front” (meaning in Canada) the Liberal Government of Justin Trudeau and Finance Minister Bill Morneau are targeting the “retained earnings” in their corporations. Specifically they believe that “retained earnings” that were subject to the lower small business tax rate provide an unfair tax deferral, resulting in more capital to invest, which allows for the creation of additional passive income. The February 27, 2018 Canadian budget is a direct response to this perception.

The United States – The “Homeland” has just passed the TCJA (“Tax Cuts Jobs Act”). One provision of the TCJA amended Internal Revenue Code Section 965 to impose a one time tax on the “United States shareholders” of “Deferred Foreign Income Corporations” (a “DFIC”). This tax is based on the “undistributed earnings” of corporations. The application of this tax to U.S. citizens living outside the United States is newsworthy, is debatable (and is being debated). The application of the Section 965 “transition tax (assuming the applicability of the tax to Canadian resident owners of “CCPcs”), would be a direct, retroactive tax on the “retained earnings” of Canadian Controlled Private Corporations. Notably these “retained earnings” were NEVER subject to U.S. taxation before (it’s retroactive). The mechanism that the U.S. Government is using to impose direct taxation on the retained earnings of “CCPCs” is to (1) attribute the corporate undistributed earnings to the individual shareholder and (2) impose taxation directly on the individual shareholder. For “Tax Geeks” (and those who want boring cocktail conversation), from a U.S. perspective this process of income attribution is called “Subpart F” income. (You can learn all about it by reading Internal Revenue Code Sections 951 – 965). I emphasize that a Subpart F inclusion (by definition) attributes corporate income to a “shareholder” without any realization event whatsoever.
Continue reading “Part 1: Responding to The Section 965 “Transition Tax”: “Resistance is Futile” but “Compliance is Impossible””

Solving U.S. Citizenship Problems – London U.K. – March 7, 2018

 

WEDNESDAY MARCH 7, 2018 LONDON UK
7:00 – 9:00 pm

Are you a US citizen living abroad?

Should the U.S. be able to tax the residents and citizens of other countries?

What factors are involved; how do I make a reasonable decision about what to do?

  • How will recent Tax Reform affect my situation?
  • What do I do if I have never filed an FBAR?
  • I am an “Accidental American” – do I really have to comply with all these requirements?
  • Should I register my children with the State Department?
  • I am self-employed; do I have to worry about this Transition Tax?

Please register in advance/obtain details by email: nobledreamer16 at gmail dot com
 
JVENUE near Russell Square Station
ADMISSION: £10
WHO: John Richardson, B.A., LL.B., J.D., is a dual Canadian-American residing in Toronto. He is a lawyer focusing on the unique problems of non-resident US citizens. He is a member of the bars of New York, Massachusetts and Ontario. He is the co-chair for the Alliance for the Defence of Canadian Sovereignty as well as the Alliance for the Defeat of Citizenship Taxation.
He has been at the forefront of the expatriate movement since 2011 and has engaged extensively in a worldwide educational outreach directed toward “US Persons” via seminars, interviews, and blogs.

Information presented is NOT intended or offered as legal or accounting advice specific to your situation.