Part 9-2: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana” (cont)

 

This is a continuation of the post “Part 9: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana”
cross-posted from citizenshipsolutions by John Richardson

The first portion of the post was published here.
Links to the first eight posts in my “transition tax” series are listed at the bottom of this post.

Part D: Citizenship and the expansion of Empire – Ancient Rome

As described by Andrew Henderson of Nomad Capitalist, in 212 AD the Roman Emperor Caracella expanded Roman citizenship by bestowing Roman citizenship on all free men. A listing in Wikipedia suggests that:

The Roman jurist Ulpian‘s Digest stated, “All persons throughout the Roman world were made Roman citizens by an edict of the Emperor Antoninus Caracas” (D. 1.5.17).

The context of the decree is still subject to discussion. According to Cassius Dio, the main reason Caracalla passed the law was to increase the number of people available to tax. In the words of Cassius Dio: “This was the reason why he made all the people in his empire Roman citizens; nominally he was honoring them, but his real purpose was to increase his revenues by this means, inasmuch as aliens did not have to pay most of these taxes.”[2] It should, however, be noted that Cassius Dio generally saw Caracalla as a bad, contemptible emperor.

Another goal may have been to increase the number of men able to serve in the legions, as only full citizens could serve as legionaries in the Roman Army. In scholarly interpretations that followed a model of moral degeneration as the reason for the fall of the Roman Empire, notably the model followed by Edward Gibbon, the edict came at the cost to the auxiliaries, which primarily consisted of non-citizen men, and led to barbarization of the Roman military

Clearly Rome was not the last empire to associate “citizenship” with “taxation”.

Part E: Empire and taxation: As goes taxation, so goes civilizations

As the late Charles W. Adams wrote in his classic book – “For Good and Evil: The Impact Of Taxes On The Course Of Civilization” – the evolution of civilizations is a function of the tax policies of the civilization. Presumably as “civilizations expand into empires”, the tax policies of an empire are more likely to expand beyond the borders of the nation and into other nations. What the United States calls “citizenship-based taxation” (making it seem patriotic) is really the policy of imposing “worldwide taxation” on the “tax residents” of other countries. It is explainable as a part of the creation and expansion of empire. FATCA is the way that the American Empire has forced other nations to (1) impose U.S. taxation on the residents of those countries and (2) force those other countries to bear the cost of so doing.

Canada is probably the number one victim of U.S. “extra-territorial taxation”.

Part F: Public Perception of Empire

Former Canadian Liberal Leader Michael’s Ignatieff writing on American Empire – 2003

Former Canadian Liberal Leader Michael Ignatieff was a Harvard Professor when he was recruited by the Federal Liberals to return to Canada and lead the Liberals from the “waste land” to the “promised land”. Mr. Ignatieff was kind of a “public intellectual” who quickly learned that the “hard knocks” of political life were harder than the comforts of his academic appointments. In any case, Mr. Ignatieff recognized American Empire and wrote a fascinating article about it (which appeared in the New York Times in 2003 just prior to the Bush invasion of Iraq.) It’s a fascinating article. Well worth the read. It includes:

America’s empire is not like empires of times past, built on colonies, conquest and the white man’s burden. We are no longer in the era of the United Fruit Company, when American corporations needed the Marines to secure their investments overseas. The 21st century imperium is a new invention in the annals of political science, an empire lite, a global hegemony whose grace notes are free markets, human rights and democracy, enforced by the most awesome military power the world has ever known. It is the imperialism of a people who remember that their country secured its independence by revolt against an empire, and who like to think of themselves as the friend of freedom everywhere. It is an empire without consciousness of itself as such, constantly shocked that its good intentions arouse resentment abroad. But that does not make it any less of an empire, with a conviction that it alone, in Herman Melville’s words, bears ”the ark of the liberties of the world.’

In other words, the United States is a country that believes that all of its policies, actions and ambitions are cloaked in righteousness simply because it is the United States.

Part G: Empire and taxation: If you were to ask your friends the following question:

Q. Do you think that the United States would impose more punitive taxation and compliance requirements on: (1) U.S. citizens living in the United States or (2) certain Canadian citizens living in Canada?

A. The probable answer would be: Don’t be absurd. Of course the United States imposes more punitive taxation on U.S. citizens living in the United States than on Canadian citizens living in Canada.

Wrong! Wrong! Wrong!

To put it simply: The Internal Revenue Code of the United States imposes taxes, sanctions and penalties on certain Canadian residents that are not imposed on Homeland Americans at all. The point its is that “non-residents” are subjected to a harsher set of U.S. tax rules than are U.S. residents.

One answer to the question includes

I know the answer to this question. I filed one year using TurboTax (and a host of paper filings since TurboTax falls way short of being sophisticated enough for a foreign return) and it had a helpful function at the end where you could compare your US tax liability against others in a similar income band. My US tax liability was 2.5x the average bill in the same income band. That’s not 2.5% but 2.5x. My “fair share” was more than twice as much for the same level of income as the homelander “fair share”.

Thankfully, the out of pocket cost was limited by the taxes I had already paid in the UK. But, it shows the cost of not living a life optimised for the rules of the US tax system can be enormous. If you live in the US, there are tax no brainers. If you live in the UK, there are tax no brainers. But if you’re subject to both systems at the same time, you can’t benefit from the tax no brainers since, by and large, the other country takes what the other giveth.

As I’ve said before, the US tax system includes on the basis of citizenship but excludes on the basis of physical location since participation in the tax no brainers is limited by things like US source earned income which you can, generally, only get when you live in the US.

 

U.S. taxation of residents of other Canada and other countries: It’s really “territorial taxation” in reverse

As Charles Bruce (ACA Legal Counsel) describes it:

Ironically, this is a prime example of “upside down” territoriality. Under a territorial approach, such as, residency-based taxation, the taxpayer is expressly not taxed on foreign income. Here, the taxpayer – say, an American abroad – for sure will be fully taxed on foreign income, whereas his or her cousin in the States who earns domestic business income will enjoy the 20% deduction.

Part H: 12 examples (in addition to the “transition tax”) which U.S. residents can “laugh about” and Canadian citizens can/should “rage about”:

1. Templeton Mutual Fund bought in the U.S. by a U.S. resident is NOT subject to PFIC confiscation. The same mutual fund (with exactly the same securities) bought in Canada by a Canadian resident is subject to PFIC confiscation. Furthermore, the Canadian resident is required to report his ownership in his Canadian mutual fund on Form 8621 – check it out here.

2. A U.S. resident who invests in a ROTH IRA has automatic “tax deferral” and is not subject to U.S. taxation. A Canadian resident who invests in an equivalent TFSA does not have “tax deferral” and is subject to U.S taxation on the income on TFSA even though he is not subject to taxation on the income in Canada.

3. A U.S. resident who invests in an ABLE plan (Achieving a Better Life Experience Act) has automatic tax deferral. A Canadian resident who invests in an RDSP (equivalent “special needs plan”) is subject to U.S. taxation on that income. Furthermore, the Canadian resident is required to report his ownership of his RDSP on Form 3520 – check it out here.

4. A U.S. resident who invests in a S. 529 “education plan” has automatic tax deferral. A Canadian resident who invests in an RESP (equivalent “education plan”) does not have “tax deferral” and is subject to U.S. taxation on that income. Furthermore, the Canadian resident is required to report his ownership in his RESP on Form 3520 – check it out here.

5. A U.S. resident who receives distributions from a 401K plan is not subject to the 3.8% Obamacare surtax. A Canadian resident who takes a distribution from an (equivalent) Canadian RRSP is subject to the 3.8% Obamacare surtax. Furthermore, the Canadian resident is required to report his Obamacare surtax on Form 8960 – check it out here.

6. A U.S. resident is not required to report his local U.S. bank accounts to U.S. Financial Crimes. A Canadian resident is required to report his Canadian bank accounts to U.S. Financial Crimes. This is a very special category of “form crime” -see information about Mr. FBAR.

7. A U.S. resident is not required to report his U.S. financial assets annually to the IRS on Form 8938. A Canadian resident may be required to report his Canadian financial assets annually to the IRS on Form 8938. Form 8938 is an extremely intrusive, time consuming form. Check it out here.

8. A U.S. resident is NOT required to treat his activities in the USA as foreign and subject to penalties and reporting. Certain Canadian residents are required to treat their business activities in Canada as foreign and subject to penalties and reporting. Check out Form 5471 and From Form 8865.

9. A U.S. resident married to a U.S. citizen spouse is allowed to make unlimited gifts to his spouse. A Canadian resident married to a Canadian citizen spouse is NOT allowed to make unlimited gifts to his spouse. Furthermore, the Canadian resident is required to report certain gifts to his spouse on Form 709 – check it out here.

10. A U.S. resident who renounces U.S. citizenship will not have his U.S. pension plan subject to confiscation because of the Section 877A Exit Tax. A Canadian resident who renounces U.S. citizenship would have his Canadian pension plan subject to confiscation because of the S. 877A Exit Tax. It’s because it the pension is NOT a “U.S. pension”, but is a “Canadian pension”.

11. The TCJA includes a provision that allows U.S. residents to deduct property taxes on their U.S. principal residences, but specifically does NOT allow a Canadian living in Canadian to deduct property taxes on his Canadian principal residence.

12. The TCJA provided allows a deduction of up to 20% of passthrough income for specified service business owners with income under $157,500 (twice that for married filing jointly) for certain income effectively connected with the conduct of the trade or business within the US. A U.S. resident operating a U.S. business is entitled to the deduction. A Canadian resident carrying on a small unincorporated business in Canada is NOT entitled to the 20% reduction.

An “unintended consequence” or “willful”?

The vast majority of U.S. residents and Congressmen neither understand this nor know that this is taking place. That said, some members of the Treasury clearly do understand that:

Part I: It’s the “Tax Americana” – a “form” (pun intended) of “tax colonization”

In any case – the “Tax Americana” must first be understood and then end:

The time has come for the United States to stop imposing “worldwide taxation” of people who are “tax residents” of other countries and do NOT live in the United States”.

The time has come for other countries to recognize the “Tax Americana” and realize how the “Tax Americana” is eroding the sovereignty of other nations!

The next post in this series will explore the question of:

What could the Canadian Government do (without U.S. agreement) to stop the U.S. from taxing Canadian residents (who are also U.S. citizens)?

John Richardson

The first eight posts in my “transition tax” series 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”

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

Part 6: Responding to the Sec. 965 “transition tax”: A “reprieve” until June 15, 2018

Part 7: Responding to the Sec. 965 “transition tax”: Why the transition tax creates a fictional tax event that allows the U.S. to collect tax where it never could have before

Part 8: Responding to the Sec. 965 “transition tax”: This small business thought it was saving to invest in business expansion – Wrong, they were saving to be robbed by America!

Part 9-1: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana”


 
 
 
 
 
 
 
 
cross-posted from citizenshipsolutions by John Richardson

Part 9: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana”

This is the ninth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying 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.

(Links to the first eight posts in this series can be found at the end of this post)

Introduction – The purpose of this post is …

to demonstrate that the “transition tax” is an example (particularly egregious) of the principle that (1) not only does the United States impose “worldwide taxation” on the “tax residents” of other countries, but (2) it imposes a separate tax regime on certain “tax residents” of other countries that is different and far more punitive than the regime imposed on Homeland Americans. Yes, you read correctly! Continue reading Part 9-1: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana”

Part 8: Responding to the Sec. 965 “transition tax”: This small business thought it was saving to invest in business expansion – Wrong, they were saving to be robbed by America!

by John Richardson

This is the eighth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying 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.

Continue reading Part 8: Responding to the Sec. 965 “transition tax”: This small business thought it was saving to invest in business expansion – Wrong, they were saving to be robbed by America!

How is the IRS levying taxes to renounce US citizenship different from the Berlin Wall?

cross posted from Quora

by John Richardson
Lawyer (1982-present)

President Kennedy at the “Berlin Wall”

On June 26, 1963 President Kennedy gave his historic “Ich bin ein Berliner” speech. After World War II, the administration of the City of Berlin was divided among the allied powers (Soviet Union, USA, Britain and France). In 1961, the Soviets created a wall in order to prevent their people from leaving the Soviet Sector. (The City of Berlin was actually inside East Germany). Among other things, President Kennedy’s speech included the line: “We have never had to put a wall up to keep our people in – to prevent them from leaving us.”

Congressman Ron Paul speaks about “walls”

As Ron Paul once said: “The wall could be used to keep people in!”

Does the United States have any prohibitions on leaving the United States?

As a matter of fact yes.

In order for a U.S. citizen to legally leave the United States, the citizen must have been issued a U.S. passport. This is a legal requirement. U.S. citizens are NOT permitted to leave the United States on a non-U.S. passport. There is an interesting history to the United States using refusals to issue passports, as way to keep people inside the United States. See for example this discussion from “Today In Civil Liberties History”:

“Some of the more famous passport denial cases involved the famed African-American singer and left-wing political activist Paul Robeson, whose passport was cancelled on August 4, 1950; the noted artist Rockwell Kent, who was denied a passport extension on August 7, 1950; and the distinguished scientist Linus Pauling, who was denied a passport on May 11, 1952.”

The United States does have a history of attempting to prevent U.S. citizens from leaving the United States. But, the United States (unlike those who tried to climb the Berlin Wall) has not (to the best of my knowledge) shot for attempting to leave.

See also:

U.S. Passport as Instrument of Control

An excellent “scholarly” review of the Passport requirement is here:

The history of the requirement that U.S. citizens only use U.S. passports to enter the U.S.

Is there an analogy between the building of the Berlin Wall and the “Exit Taxes” imposed under Sec. 877A of the Internal Revenue Code today?

First, what are these “Exit Taxes” anyway?

“Exit Taxes” are taxes that are imposed on people who sever “tax residency” with a country. For a comparison of Canada’s Exit/Departure tax and the U.S. Exit Taxes see:

Canada’s “residence-based” departure tax vs. the US “citizenship-based” Expatriation Tax – Focus on Canada’s Tax

The U.S. “Exit Tax” is particularly draconian. It has no equivalent anywhere in the world. In part this is because the U.S. imposes “Exit Taxes” on renouncing citizenship (in addition to the $2350 administrative fee). Other countries impose Exit/Departure taxes when one physically moves from the country. (This illuminates one of the differences between U.S. “citizenship-based taxation” and “residence-based taxation” as applied by other countries. On this point see:

http://www.citizenshipsolutions….

U.S. citizens who live in the United States are fed a steady diet of “The United States is the “Land of the Free”. Although absolute freedom is NOT possible (JFK said “Freedom has many difficulties”), even in a comparative sense, Americans have fewer freedoms than the citizens of many other countries. I have provided a Quora answer to this question before.

John Richardson’s answer to Which country’s citizens enjoy more freedoms than Americans?

How do the Internal Revenue Code S. 877A Exit Taxes Work?

Renouncing US citizenship? How the S. 877A “Exit Tax” may apply to your Canadian assets – 25 Parts

U.S. “Exit Taxes” are imposed by Internal Revenue Code Sec. 877A. They are imposed by the Internal Revenue Code on certain people “covered expatriates” who relinquish U.S. citizenship. A “covered expatriate” is a person who relinquishes U.S. citizenship and triggers one or more of these three events: (1) has certain levels of income (determined by the U.S. tax payable), (2) a net worth of 2 million USD or more or (3) who cannot certify U.S. tax compliance for the five years prior to his/her relinquishment.

Part 4 – “You are a “covered expatriate” – How the “Exit Tax” is actually calculated”

For examples that demonstrate how incredibly punitive the U.S. “Exit Taxes” are (and specifically how they operate to confiscate non-U.S. pension plans) see:

Part 5 – “The “Exit Tax” in action – Five actual scenarios with 5 actual completed U.S. tax returns.”

The Section 877A Exit Tax impacts primarily Americans who already live outside the United States and are “tax residents” of other countries

The U.S. “Exit Tax” is triggered by relinquishing U.S. citizenship.

Renunciation is one form of relinquishment – It’s not the form of relinquishment, but the time of relinquishment

Most people relinquish U.S. citizenship when they already live outside the United States.

Therefore, I would say that:

The Berlin Wall was to prevent people for leaving Easy Germany!

The U.S. Exit Taxes are designed to punish those who have ALREADY left.

Furthermore, the Berlin Wall was to prevent EVERYBODY from leaving. The U.S. “Exit Taxes” are to punish only SOME (“covered expatriates”) who leave the United States.

Therefore, although both the Wall and the Exit Taxes are/were bad things, the are not the same.

A more relevant comparison “might” be between the German “reichsfluchtssteur” and the U.S. Exit Taxes. Both of these taxes are (at their core) ways to prevent capital from leaving the country. It is described in the above Wikipedia link as:

“The Reich Flight Tax ( German: Reichsfluchtsteuer) was a capital control law implemented in order to stem capital flight from the Weimar Republic. The law was created through decree on 8 December 1931 by Reich President Paul von Hindenburg. The Reich Flight Tax was assessed upon departure from the individual’s German domicile, provided that the individual had assets exceeding 200,000 RM or had a yearly income over 20,000 RM. The tax rate was set at 25 percent. In 1931, the Reichsmark was fixed at an exchange rate of 4.2 RM per USD; 200,000 RM was equivalent to $47,600 USD (equivalent to $766,000 in 2017).”

Although not triggered by tax non-compliance, note that (like the U.S. Exit Tax) it was triggered by both income and asset levels. The “Reichsfluchsteuer” was apparently a 25% tax. The “U.S. Exit Tax” (when applied to pensions) could very easily exceed 25%. Furthermore, the “U.S. Exit Tax” is largely a tax on non-U.S. pensions and other U.S. assets (making it the only known Exit Tax that effectively imposes confiscatory “taxation” on foreign pensions” and other foreign assets).

That said, (in fairness) it is possible to physically move from (or otherwise leave – provided you have a U.S. passport) the United States and NOT be subjected to the U.S. “Exit Tax” (it applies on relinquishment of citizenship). Therefore, the U.S. Exit Tax although harsher when applied, applies to fewer people AND is NOT a physical barrier to leaving the United States (although it is a clear barrier to creating a life in another country).

Possible conclusion:

How is the IRS levying taxes to renounce US citizenship different from the Berlin Wall?

U.S. Exit Taxes are more like the German Reichsfluchtsteuer than like the Berlin Wall (but financially more punitive than the Reichsfluchtsteur).

The Berlin Wall was designed to punish people who tried to leave East Berlin.

The U.S. “Exit Taxes” are used to punish those who have already left the United States.

Both, are designed to punish those who attempt to sever relationships (physical or political) with their respective “Homelands”.

But, considering the future …

It is interesting that the United States is now considering building it’s own wall. Those who don’t learn the lessons of history are doomed to repeat history.

Canadian #FATCA IGA Litigation Update: Court has fixed Monday January 28, 2019 as trial date

 

Canadian FATCA IGA Litigation

cross-posted from Isaac Brock Society

   by Stephen Kish

Now appears more likely that we will get to trial in January 2019 in our Canadian FATCA IGA enabling legislation lawsuit in Federal Court.

The Case Management Judge has just advised:

“The hearing of this summary trial motion shall take place before this Court at the Federal Court, 701 West Georgia Street, Vancouver, British Columbia, on Monday, the 28th day of January, 2019, at 9:30 in the forenoon for a maximum duration of five (5) days. The number of hearing days may be reduced depending on the number of preliminary motions.”

Other:

“The following timetable shall apply to the motion for summary trial: (a) The Defendant [Mr. Trudeau’s attorneys] shall serve her evidence (with the exception of one expert report) by April 16, 2018. (b) The Defendant shall serve her remaining expert report by April 30, 2018. (c) Notice of any objections to expert reports shall be served by June 15, 2018. (d) A case management conference shall be held, by teleconference, on July 12, 2018 at 1:00 pm (Eastern) to address any motion to strike affidavits. (e) All cross-examinations shall be completed by July 31, 2018. (f) The Plaintiffs [Gwen and Kazia] shall serve and file their complete motion record by September 28, 2018. (g) The Defendant shall serve and file her complete responding motion record by November 16, 2018. (h) The Plaintiffs shall serve and file their reply submissions by December 7, 2018.

Part 7: Responding to the Sec. 965 “transition tax”: Why the transition tax creates a fictional tax event that allows the U.S. to collect tax where it never could have before

 

cross posted from citizenshipsolutions

    by John Richardson
 

Introduction

This is the seventh in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying 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.

Continue reading Part 7: Responding to the Sec. 965 “transition tax”: Why the transition tax creates a fictional tax event that allows the U.S. to collect tax where it never could have before