Hands Down this is the Worst Academic Piece About FATCA ever Written

 

 

Profesor Paul Caron, on his TaxProfBlog posted the following article:
CONSIDERING “CITIZENSHIP TAXATION”:
IN DEFENSE OF FATCA
20 Fla. Tax Rev. 335 (2017):
by Young Ran (Christine) Kim

 

If any description could possibly be demonstrated over & over in this piece it would be the term “offensive.”  I confess to a hard-edged bias against academia, likely for the same reasons as most people; i.e., the rather noticeable and consistent lack of everyday common sense. Even in my own field (piano performance, where a doctorate is called a DMA not a Phd) there is a prevalence of people who may be perfectly schooled in the accuracy of Baroque ornaments, precise methods of articulation in Classic-period pieces or any number of other tedious accomplishments yet their actual playing (which is the whole point of a performance degree vs an academic one) is so devoid of vitality and inspiration it is enough to make one weep. I don’t know if the same exists in all disciplines but one thing that does apply here is a complete (and I mean complete) lack of awareness on the part of the author, of the harshness of how these theories play out on the lives of REAL people. What would make much more sense would be to address these problems head-on rather than justify “concepts” through a lot of theoretical jargon.

 

The following comment says it well:

 

The people affected by “citizenship-based taxation” are U.S. citizens and Green Card holders who live outside the USA and are “tax residents” (and often citizens) of other nations. The paper discusses (sort of) “citizenship-based taxation” as an abstract concept without considering the brutal effects that it has on the people subjected to it. The acknowledgement of the difficulties with pensions, retirement planning, foreign spouses, mutual funds, CFC rules, etc. (the reality of citizenship taxation) is most notable in its absence. And no, FBAR and Form 8938 (as obnoxious as they may be) are reporting requirements and not the specific tax rules (PFIC, etc.) that affect Americans abroad. I suspect that this paper will be subjected to the criticism that it so richly deserves.

Posted by: John Richardson | May 26, 2017 1:14:02 PM

While this criticism can be equally leveled at the members of Congress who passed FATCA, the Treasury Department personnel who wrote the regulations and last but not least, the heartlessness of many tax compliance practitioners, there is something especially repugnant about those pontificating from their ivory towers, proclaiming that FATCA, citizenship-based taxation, global transparency and all the rest of it, are worth the grief being caused.

Ms Kim indicates her paper finds its origins in Ruth Mason’s recent article, Citizenship Taxation, [89 S. Cal. L. Rev. 169 (2016),

A major difference between the two is that Ms Mason basically sees citizenship taxation in a negative light while Ms. Kim attempts to find it as a natural basis to support FATCA.

She addresses three main arguments; the fairness argument, the efficiency argument and the administrative argument.
 

I.) THE FAIRNESS ARGUMENT

 

Individual taxpayers’ obligations to file Foreign Bank Account Reports (FBAR) or report under the Foreign Account Tax Compliance Act (FATCA) are not seriously onerous. The fact that citizenship taxation along with FBAR and FATCA enhances global transparency further supports the case for citizenship taxation……..because the rules have been improved through various exceptions and substantially high reporting threshold amounts.

Ms. Kim asserts that the obligation to file FBARS is not “seriously onerous.” The very real threat of a non-willful penalty of $10,000 per account per year (or worse for “willful) is certainly enough to strike the fear of God in even the most reticent individual. The idea that this reality is not considered when evaluating FBAR is beyond reasonable. Articles about FATCA often cover only the reporting done by the FFI’s. However, the other component is the requirement to file 8938’s which duplicate information from the FBAR and can incur serious penalties. The average person is not able to complete an 8938 and will have to pay to have a professional do it. Nowhere in this article does the author address the issue of compliance costs for individuals which can easily be $2500 a year for someone owing no tax and involve 50 or more pages of returns. Not onerous? Furthermore, there are simply NO FIGURES yet, to make any claim that FATCA “enhances global transparency.” Professor William Byrnes describes
the oft-quoted figure of $10 billion. This amount has absolutely NOTHING to do with FATCA; it is largely comprised of penalties and interest collected through the OVDI programs (and does not even represent actual tax recovered). While the FATCA thresholds are higher, please, the threshold for FBAR remains at $10,000, the same figure when the Act was created in 1970 – 47 YEARS AGO!
 

FOCUSING ON THE ABILITY TO PAY PRINCIPLE

First, consent theory argues that taxing nonresident citizens is justified because retaining citizenship represents consent to such taxation.

 
One cannot consent to something one doesn’t even know about. Is the author completely unaware of the history underlying the persecution of expats once Treasury/Justice went after the Swiss banks in 2008? There are still likely more Americans abroad who remain unaware of the obligation to file taxes and worse yet, the oppressive information returns with penalties simply for not filing a piece of paper (i.e. no tax due). For those who do know and who retain citizenship, keeping it is much a matter of confusion and fear and could hardly be described as “consenting to taxation.”

 

Second, benefit theory attempts to justify citizenship taxation as an obligation of nonresident citizens in return for the benefits they receive from the government.

This argument is so ridiculous at this point it is hard to believe it remains part of the discussion. Cook v Tait is nearly 100 years old and does not address the large changes globalization has produced. There is the endless  nonsense of hearing how “The Marines will come to rescue you,” after which you receive a full bill. How many living in first-world countries have any need for “rescue?” And last but not least we “owe” the U.S. for consular services (for which we pay, dearly in the case of renouncing – $2350 or $50 USD to notarize a single page). All tiresome and nowhere near justifiable for being taxed “the same” as Homelanders.

 

Third, social obligation theory

the underlying assumption of this theory is that people have an obligation to pay taxes to support the members of the society to which they belong in accordance with their ability to pay taxes, which should be measured by their worldwide income.

I remember my reaction to Prof Michael Kirsch’s comments (at the ACA Program in Toronto, May 2014, “CBT vs RBT”)regarding polity and such. It seemed ridiculous to me to consider those of us living outside the United States as being a member of that society in any meaningful way. In my own life, now 35 years outside the U.S.(over half my life), the only times I identified as a “member ” of U.S. society was when defending against strong anti-American sentiment (the first few years away) and national tragedies such as 911. I cannot see any way that those infrequent occurrences defined me as being an American more than being a Canadian.  I would say a more meaningful and valid way to apply the social obligation theory is whether or not I support policies that promote the social welfare of those around me, whether or not I give the homeless guy I see everytime I go to the bank, a bit of money so he can buy some lunch. IOW, except in an idealistic or nostalgic way, one can really only measure his/her “social obligation” based upon what they come face-to-face with, i.e., where they live.

 

Due to the different factors affecting the ability to pay, such as difference in the standard of living or amenities between places, “it would be fairer to calculate a person’s ability to pay by reference to the place where she lives rather than to the place where she holds her citizenship.”

“actually tax them alike,” which would require the repeal of the foreign-earned income exclusion and the allowance of unlimited foreign tax credits, including foreign consumption taxes, as well as the implicit taxes and subsidies to compensate the differences.

 

While all expats readily understand the reality that they are NOT “taxed the same” as Homelanders, the idea of being able to adjust all these factors to the number of foreign countries with all the differences in structure etc., absolutely discourages any realistic notion that this could ever be accomplished. Current retirement-oriented plans such as the Australian Super; the lack of recognition of tax-deferred vehicles registered by governments being treated the same as their US equivalents; requiring capital gains tax on the sale of principle residences which are tax-free in the countries where they are located ; and above all else, the obscene “savings clause,” all speak to the built-in bias the US has for anything “foreign” and its pronounced tendency to punish people for making use of non-US instruments. Add the effect of the Patriot Act, which makes it impossible to even open a US account with a foreign address and a non-resident American understandably lacks the will to try and weave one’s way through all these complicated, impossible-to-delineate requirements and procedures. The fact that the IRS does not clarify ambivalent sections such as §877A as well as the fact that no two compliance professionals can be counted on to give the same opinion is proof positive that disparate tax systems simply cannot be adjusted “fairly.”
 

when its critics condemned the new obligations to file FBARs and FATCA as an excessive compliance burden for nonresident citizens created by the Bank Secrecy Act.

There are no “new” obligations to file FBARs; they have been required (and unenforced) since 1970 and are part of Title 31. FATCA was NOT created by the Bank Secrecy Act. It comprises part of the H.I.R.E. Act (2010) and is part of 26 U.S.C. § 1471–1474, § 6038D.

II.) THE EFFICIENCY ARGUMENT

citizenship taxation may distort both Americans’ and non-Americans’ citizenship decisions, is not convincing

American citizenship renunciation rate is not particularly serious compared to other countries

residence-based taxation confronts an additional hurdle on top of enforcement difficulties: determining the residence of the individuals. Determining residence by considering all facts and circumstances creates problems beyond enforcement difficulties. The facts-and-circumstances test itself contains inherent problems when compared to a bright-line test

….and to what extent renunciation is treated as immoral and/or illegal, and so on.

The idea that citizenship taxation does not affect the decisions of Americans abroad concerning their citizenship is patently absurd. Without question, citizenship taxation IS THE MAIN REASON anyone renounces. Not because of tax per sé (don’t even think of trying to scare with the Reed Amendment) but rather, due to all the complications of trying to match two different tax systems. Add the non-financial issues such as the stress on marriages (to “aliens”), passing U.S. citizenship on one’s children, etc. etc. It has become a nightmare not worth living and something to escape if one can.

Ms. Kim devotes a long section to establishing the idea that the renunciation rate of U.S. citizens is “not particularly serious.” Again, we have someone indicating that unless the numbers are large, whether compared to that of other countries, the proportion of renunciations to the numbers of those abroad or to the number of entering immigrants, there is nothing being lost here. If that is the case, then the U.S. has virtually nothing to lose by simply letting these people go without all the forms, swearing under penalty of perjury and so on. One might occasionally consider that Americans abroad were once the best ambassadors the country could have. Now those tables are turned and some are more anti-American than any “alien” could ever be. Nothing like betrayal to warm the heart.

Regarding determination of residency, it is interesting that all 191 other countries of the world are able to surmount this difficult obstacle, which will be even more pronounced once CRS is operative. The “bright line test” which I presume means using citizenship rather than residency to base reporting on, is not truly useful given the fact that only the U.S. (Eritrea does not count) does this. When a U.S. citizen is living abroad with dual citizenship, with no determinant indicia, ask any bank how easy it is to establish whether or not one is a U.S. citizen. If it were clear, one would not see so many institutions refusing to serve Americans.

The Expatriation Act of 1868 gives all Americans the right to give up their citizenship if they so desire. It is not an issue of illegality. When a country treats its own citizens in the manner we have experienced from 2009 onwards (particularly the Accidental Americans who are not American in any normal understanding of the term), who is there to even suggest renunciation is immoral?

III.) THE ADMINISTRATIVE ARGUMENT

ENFORCEMENT DIFFICULTIES

Citizenship taxation has been criticized as difficult to enforce on nonresident citizens abroad….Determining residence by considering all facts and circumstances creates problems beyond enforcement difficulties

Next to failing to point out the outrageous 30% withholding “sanction” inflicted on every other country of the world, this has to be the weakest argument in this paper. The fact that the U.S. cannot effectively collect anything outside of the country is the number one reason people feel safe in remaining “under the radar.” After the initial scare of 2009/2011 seeing that the people hurt the worst were those who tried to do the right thing, people started considering the reality that being identified (“caught”) may amount to virtually nothing for a number of reasons. First of all, the majority of expats who are not compliant are NOT wealthy tax cheats with foreign accounts in order to deprive the U.S. of tax revenue. They are first of all, compliant where they live, which speaks volumes. Secondly, they have these “foreign” accounts in order to live their lives. This is in no way comparable to Homelanders who are guilty of tax evasion when they stash money in tax havens (and let’s not forget Delaware, Nevada, South Dakota and Wyoming, shall we?). The Revenue Rule still stands; even the 5 countries with Mutual Collection Agreements (Canada, Denmark, Sweden, France and the Netherlands)WILL NOT collect on those who were citizens of their countries at the time the tax was incurred. Canada WILL NOT collect FBAR penalties. With regard to fear about crossing the border, if one is not in the U.S. system, there is nothing for the IRS to report to DHS or CBP etc. All these things may change over time but as it stands now, the most IRS can do to most people, is send them a letter asking them to pay. EXACTLY WHAT IS THE POINT OF HOLDING ON TO CBT IF THERE IS NO WAY TO COLLECT?

Is the Compliance Burden Actually Onerous?

the IRS has provided the OVDI that a U.S. taxpayer can utilize to avoid criminal sanctions for the failure to report the existence of, and income earned on, a foreign account on tax returns as well as for the non-filing of the FBAR. In exchange for avoiding criminal sanctions, taxpayers will generally be subject to a 27.5% penalty on the highest aggregate value of their undisclosed offshore assets.86 In addition, for non-willful violators, IRS provides Streamlined Filing Compliance Procedures (SFCP), a program that was expanded in 2014 to cover a broader spectrum of U.S. taxpayers residing abroad and to provide penalty relief. Therefore, nonresident citizens who no longer have a strong economic and social connection with the United States or happenstance Americans are no longer likely to be subject to the severe FBAR penalties.

To suggest that OVDI and Streamlined “make everything alright” is to avoid the real issue altogether which is that citizenship taxation is simply wrong. No other country on earth “claims” its citizens for life. (Eritrea does not count). No other country on earth taxes its citizens after they abandon residence. No other country on earth applies an Exit Tax on assets that were acquired prior to obtaining residence in that country. There are reasons why no other countries do any of the things associated with citizenship taxation. It’s high time the United States stop this appalling abuse of human rights.

THIS ARTICLE FURTHER AIMS TO DEFEND the administrability of citizenship taxation in conjunction with the Foreign Bank Account Reports (FBARs) and the Foreign Account Tax Compliance Act (FATCA).

FBAR-absolutely not the way it is being conceived of now. FBAR, created in 1970 was aimed at uncovering money being laundered in smuggling, the drug trade and terrorism. It also was not originally conceived of being applied to those outside the U.S. Once the DOJ/Treasury departments went after the Swiss banks, they realized they could stretch the intent of FBAR to apply to non-resident Americans and the penalty regime thickened.

The criticism… has continued even after the U.S. government committed to enter into Intergovernmental Agreements (IGAs) in an attempt to address those concerns

A huge oversight on the part of the author. FATCA was without question an extraterritorial imposition on other countries. Only the United States would be as uncivil as to suggest imposing a 30% withholding charge on their allies and trading partners. The U.S. appeared not to understand that other countries could not comply even if they wanted to as privacy laws prevented the level of reporting required by FATCA. Banks would be sued were they to comply. To suggest that the US committing to the IGAs was a gracious act is revolting. Under the guise of being rooted in tax treaties, the IGAs simply bypassed what should have been required; that Congress ratify such agreements and implement legislation to do so. There is nothing in FATCA that warrants the creation of the IGAs. The U.S. downloaded ALL of the costs of compliance to the other countries. There is no mention of any penalties for the U.S. failing to comply. The U.S. made only the vaguest promises of reciprocity. It is simply unbelievable that the immorality of taking capital out of other nations is considered acceptable by the United States.

IV>) FATCA:MERITS AND CONCERNS

The OECD’s AEOI and the U.S. FATCA are two important developments, but FATCA plays a more important role.
First, FATCA provided critical momentum
Second, FATCA facilitates multilateral implementation of AEOI by creating an extensive network with more than 100 countries in the world, at the center of which is the United States.

This is unsubstantiated nonsense. First of all, it is bizarre to say FATCA “plays a more important role” Who gains from FATCA other than the United States? So far, nobody. The United States is at the Center of AEOI/CRS? The US has not even signed on to CRS. There are huge differences that matter greatly. The OECD AEOI/CRS agreements are determined by the countries involved; the terms of residency are established by those exchanging the information. FATCA is vastly different in that the United States alone determines who is/is not a “US Person” “US Citizen” irrespective of the status of such a person to the other country. And so far, the U.S. is not “paying its fair share” by requiring its banks to implement the same systems and legislation required (imposed) by FATCA. The IGAs do not constitute “acceptance” by other countries. To think otherwise is ridiculous. One could not possibly view such stipulations as reasonable.

criticism that…. FATCA exposes taxpayers’ private information to potential abusive use by foreign tax authorities.

This is a matter of real concern to Americans abroad living in some of the more troubled areas of the world-or those living Colombia in South America and particularly in some of the Middle East countries. Ironically enough, the U.S. has had some of the worst breaches of security and leakage of private information; certainly this is disturbing and worrisome.

Ms. Kim’s discussion of the Bopp FATCA lawsuit I will leave to someone else.

Second, opponents of FATCA and EOI argue that an EOI system removes a country’s unilateral control over its own tax policy, resulting in the forfeiture of sovereign autonomy. Although such argument has withered since the U.S. government entered into IGAs with other countries, it was strongly asserted by Canadian opponents of FATCA when the IGA Implementation Act included in Bill-31 was debated in Canadian Parliament.

How outrageous to suggest a foreign country does not have the right to have unilateral control over its own tax policy. The proof is in the pudding. The U.S. would never allow the equivalent. The IGA’s are the proof.
I have watched the video of the Canadian FINA hearings on FATCA many, many times. It is not possible to convey the absolute disgust we have for the majority Conservative government which minimized completely, the capitulation that occurred with the implementation of the IGA. It was nothing more than protecting the banks, without any regard to the effect it would have on Canadian citizens resident in Canada.

However, a government’s control over its tax policy is more severely harmed when a country segregates itself from the global community and loses the ability to enforce effectively its own tax laws against its taxpayers with interests in foreign jurisdictions

More unsubstantiated nonsense. This is an opinion completely unsupported up by any facts.

A Case for American Exceptionalism

conclusion, if FATCA makes the world better off by enhancing global transparency on tax information, then this may serve as another support for citizenship taxation, as well as an example of constructive exceptionalism.

While all of us raised in America understand unconsciously what exceptionalism is, it truly takes living outside the country to appreciate how incredibly arrogant and offensive it is. It is questionable whether FATCA “makes the world better off….” that a questionable tenet should “serve as a support for the imposition of citizenship taxation.” It is nothing short of reprehensible that the author should suggest what the U.S. has done is “constructive” or in any way justifies the gross aberration of power demonstrated by the creation of FATCA.

The Little Red #FATCA Book – Review, Identify & Report on U.S. Persons How #FATCA affects the non-US World

reposted from the citizenshipsolutions blog

As many of you know, the long-awaited #FATCA hearing will take place three weeks from today. This is exciting and followed by the news that Congressman Mark Meadows will reintroduce his repeal FATCA legislation. Closely matching is the effort of Nigel Green & Jim Jatras. The recent letter, endorsed by major think tanks, etc is here . We still await the hoped-for tax reform. The fate of those who have not yet chosen whether to become compliant and/or renounce hangs in the balance. Regardless of the outcome(s), our direction will become much clearer in the next little while.

There are so many aspects to #FATCA and how it affects the lives of expats, I suspect it is impossible to be aware of them all. One of the best things we can do, as “ambassadors” is to make sure we are thoroughly conversant with all aspects of it as we discuss it with our family and friends, on online articles and blogs.

j fatca forumJohn Richardson has long been writing about this and has re-organized his “Little Red FATCA Book.” It is likely the most complete account anywhere. I will be reposting it on all the appropriate websites, blogs and Facebook Groups/Pages. Please, share this as widely as possible. Convincing Homelanders, as impossible as it seems, will go farther than perhaps anything else, in garnering support from Congress to rectify this horrid situation. Please, don’t give up, go out and comment everywhere and make sure you know your facts!
********
The “Little Red FATCA Book” is a collection of posts that I created over an 18 month period. I have decided to collect the individual posts and organize them in one place. I have grouped the individual posts into three broad chapters which I will call Chapter A, Chapter B and Chapter C. This is a “work in progress”. Some of the posts are incomplete.

FATCA which is essentially the enforcement mechanism of U.S. “Place of Birth Taxation” is a controversial topic. Feel free to post your thoughts and comments.

John Richardson

MORE AT citizenshipsolutions blog

Burning Down Barns is not Wrong Because it is illegal; it is illegal Because it is Wrong

 

Burning Down Barns is not Wrong Because it is illegal; it is illegal Because it is Wrong

 


 

Every #Americanabroad (along with his/her “alien” family) understands all too well the reality of the betrayal perpetrated by the U.S. government in the fight against “tax evasion.” To have it then furthered by the country of residence changing the law in order to allow it is a further betrayal. One does not feel betrayal unless one has been wronged.
 
The government would have one think that it is walking the moral high road, taking upon itself the noble fight of searching out those who rob everyone else because they are not “paying their fair share.” Isn’t it just and right to do so? On the surface it would apppear it is but the problem becomes twofold. First, it has to be devised well-enough to actually produce the results it seeks to achieve and second, while doing so, certain rules of fairness about how the attempt is applied are required. Every kid on a playground learns this and readily understands when the rules are broken.
 

It is easy enough to see that the FATCA hunt has huge “design problems.” First off, the U.S. indicia are all items that suggest one lives in the Homeland. There is nothing to “weed out” those who aren’t American but don’t have CLN’s (and that doesn’t mean you are an American). Banks turning in people below the thresholds is truly wasteful as those people are so unlikely to owe tax. The crowning glory however, is that there is no simple way for the IRS to get money from people outside the country unless they willingly send it. I cannot think of any aspect of FATCA that would suggest it is well devised.
 
kids fightingTwo groups of kids are on the playground. The more agressive kids’ part of the playground is on their side of a line dividing the space. The other kids have their space on the other side of the line. One of the bullies comes up to the edge and says somebody on the other side really is one of them and tries to forcefully pull them over. There is no reason other than the bully wants something that isn’t his. What would happen? The other side would probably try to prevent the exchange, even if they are smaller and unlikely to win the fight. But everybody knows who started it and which side of the line the kid really belongs on. Then an adult shows up and all kinds of nonsense starts being spewed to try and muddle the issue because admitting wrong is not going to happen.
 
There is no way that an Accidental American belongs on the “American” side of the line no matter how much the U.S. whines and bellows it is so.
There is no way that anyone who chose to leave for education, marriage or employment and is living in another country in tune with the laws there, can be seen to “belong” to the U.S.
 
What are they going to do? A sort of reverse of what may happen soon in the U.S.? Where they kick out “illegal” adults and purposely separate them from their (American) children? Have everybody shipped back? They probably ARE mean enough but the fact is, that costs money. Lots of it.
 
The 14th Amendment, the 16th Amendment, Cook v Tait and all of it, belongs to those people who are on the U.S. side of the line. All the “laws” and arguments about polity and old case law just muddles the real issue. The fact of life is:
 
Everybody else has a right to be on their side of the line.
 
So everytime a condor hits you with that “It’s U.S. law” or “Until it’s changed it has to be obeyed” don’t allow them to drag you into arguing. It’s just plain dumb and so are they for thinking they can fool (or shame) you with such stupid arguments.
 
*****

Brock founder Peter Dunn/Petros says it quite eloquently. Re-blogged from the Isaac Brock Society March 31, 2015

We are living a crisis of morality in which leaders have difficulty distinguishing between what is right and wrong. Today, political leaders facing a legal obstacle to their agenda believe that all they have to do is change the law. So if the government stealing from people is illegal, all that one needs to do is change the law and call it “civil forfeiture“, and suddenly it becomes morally acceptable.

I recall reading a few years back a National Post article that brought up the question of lawmaking and morality came up.  Fortunately, Mark Steyn, cites the money quote from George Jonas:

Back in the Trudeaupian golden age, you may recall, the great man’s barnstorming transformation of Canada was momentarily halted by a storm about barns. It emerged that some overzealous officers of the Royal Canadian Mounted Police had burned down barns belonging to Quebec separatists. The press was briefly exercised over this, but M. Trudeau gave one of his famous shrugs and airily remarked that, if people were so upset by the Mounties burning down barns illegally, perhaps he’d make the burning of barns by the Mounties legal. As the great George Jonas commented:

“It seemed not to occur to him that it isn’t wrong to burn down barns because it’s illegal, but it’s illegal to burn down barns because it’s wrong. Like other statist politicians, Mr. Trudeau seemed to think his ability to set out for his country what is legal and illegal also entitled him to set out for his citizens what is right and wrong. He either didn’t see, or resented, that right and wrong are only reflected by the laws, not determined by them.

The Honourable Stephen Harper, Prime Minister of Canada, is a moral embarrassment. Before he forced the FATCA IGA into law, it was illegal for the government of Canada, based on national origin discrimination, to give the financial information of Canadian citizens to a foreign government. But it is still wrong to do so, and it doesn’t matter how many laws Harper forces through Parliament, it will remain wrong.

The ACA RBT Proposal is a “carve out” within CBT

 


 
This post is based upon a comment made at the Isaac Brock Society concerning American Citizens Abroad’s new (Febrary 2017) proposal on replacing citizenship-based taxation with residency-based taxation.

See the bottom of the post for information on how you can join the discussion.
 
carve out
 
USCitizenAbroad says:

The ACA proposal is painful to read. But, it is an opportunity to dialogue with ACA and others who are engaged in the process of tax reform and its application to Americans abroad. I wonder if a separate site/Facebook group or something could be dedicated to the specific issue of “Tax Reform and Americans Abroad”. But, anyway …

The specifics of the proposal are a diversion from what I believe is the real issue. The real issue is the assumptions that ACA (and to be fair) the vast majority of Americans abroad bring to the table.

ACA proceeds from the operating assumption that American citizens are nothing but slaves to the U.S. Government and the IRS. ACA has absolutely bowed down to the United States of America and acknowledged the absolute servitude of Americans to Congress and the IRS. ACA has done this NOTWITHSTANDING THE FACT that most Americans abroad do not (and apparently will not) file U.S. taxes, FBAR and the other components that have stripped Americans of their liberties. (Donald Trump would probably say that those who do not file are “smart”. Why? Because the rules of U.S. style CBT are so punitive that in most cases it is safer to not file at all. Well, assuming you can even understand what is asked of you.)

Because ACA begins by accepting the principle of slavery, they then begin by asking for a “carve out” for certain slaves. These are slaves who have been particularly good and compliant slaves. The principle of “carve out for exceptional slaves” was last seen in the FATCA same country exemption proposal.

Understand the following two points:

1. FATCA SCE was a proposal that was absolutely in support of FATCA, but asked for an exemption for ONLY those Americans abroad who could demonstrate compliance with their tax slavery.

2. The current proposal (RBT not) ABSOLUTELY ACCEPTS CBT AS THE OPERATING PRINCIPLE, but asks for an exemption for those who have been particularly compliant with CBT. Because of the emphasis on “compliance, compliance, compliance” there is NO relief for Accidental Americans (and similarly situated people). The proposal makes NO mention of dual citizens and to what extent dual citizenship should play a role. As the Titanic is going down, ACA is proposes to save “tax compliant” (the good slaves) Americans from going down.

To be clear (as the “Change you can believe in” guy used to say):

This is NOT a proposal for residence-based taxation. This is a proposal for “taxation-based citizenship” with an exemption for certain groups of people. Therefore, under NO CIRCUMSTANCES should this be referred to as an RBT proposal. This is a proposal to worship at the altar of taxation-based citizenship, but exempt the “high priests” from the burdens.

That said, as a practical matter, if you can fit yourself into the one of “taxation-based citizenship” exemptions, it does provide benefits. But, as @Eric notes, this proposal will institutionalize “taxation-based citizenship”.

More, on the specifics later.

FURTHER INFORMATION ON THE ACA PROPOSAL AND DISCUSSION:

The document is here
 
Discussions are happening at Brock and
at the ACA Facebook page
https://www.facebook.com/americancitizensabroad/posts/10154429235779072
 
ACA is soliciting everyone’s questions and comments and ADCT encourages ALL expatriates, their families and friends (especially if living in the Homeland) to read the proposal and to provide feedback

info@americansabroad.org and/or

here

A Little More About Treasury’s Disallowment of SCE


Great article
by Helen Burggraf regarding Treasury’s denial of ACA’s SCE program.

Just a couple of thoughts………

US officials reportedly felt that the potential risk of expat Americans using their “same-country” bank accounts to avoid their US tax obligations was ultimately too great to be able to grant them such an exemption – in spite of the inconvenience this would result in, as it already has, for many of the estimated 8.7 million American expats across the globe.

The stupidity of this comment by Treasury officials is beyond belief. Americans abroad do not use “foreign” bank accounts as a way to avoid their U.S. tax obligations. They also are not “foreign” but their local bank down the street whereby they can cash their cheques, pay bills and so on. Obviously, accounts used in this manner are not at all the same as wealthy people living in the U.S. using foreign banks to avoid taxation. This has been stated so many times over the last five years and yet it is STILL not understood. The government continues to use this as a way to keep up several misconceptions as a way to justify FATCA:

Americans who live in the U.S use foreign banks to avoid taxation are wealthy
creates the idea that

Americans who use foreign banks to avoid taxation are wealthy
this does not equal

Americans who live outside the US are wealthy and use foreign banks to avoid taxation.

K.I.S.S., doh, it’s not rocket science to see the difference here!

The key difference, is residence. We all know 99% of all countries on this planet, base taxation upon residence.

” The regulations say nothing about the problem of lock-out. They fix only on the un-quantified and un-weighted risk that what must be a relatively small population of US taxpayers residing in a foreign country and banking at their local bank might evade US tax.
The regulations do not say whether, and, if so, to what extent, Treasury Department took into consideration the widely-admitted fact that FATCA continues to put the community of 8 million Americans overseas at risk of lock-out from access to financial accounts needed for the management of basic living expenses, [including] paying bills, paying rent [and] receiving paychecks.

The Treasury Department has very little statistical information on the diaspora. That is why they have to resort to the fishing expedition that #FATCA is. There have been so many reports, letter-writing campaigns and so on, trying to communicate the problems. So the story has been told. Yet we see no meaningful feedback from the government, indicating what percentage of money they have supposedly collected comes from Homelanders, non-resident citizens, etc. In fact, it is rather amazing that Treasury has not actually said anything different that what they have always implied: Americans living abroad are tax cheats and criminals.

While many of us do not endorse SCE, I think we all respect the efforts of any expat organization that tries to rectify this situation.
And while the future actions of the newly-elected Administration and Congress may offer some hope, we should stay focussed on the fact that many years of concerted effort have failed to solve the situation. Litigation remains a hugely valuable option and may be our best hope.

Now’s the Time – Here’s What They Promised – Let’s Hold Them to It

UPDATE SUNDAY NOVEMBER 13, 2016

REINCE PRIEBUS CHOSEN TO BE PE TRUMP’S CHIEF OF STAFF

EXCERPTS:

WASHINGTON — President-elect Donald J. Trump on Sunday chose Reince Priebus, the chairman of the Republican National Committee and a loyal campaign adviser, to be his White House chief of staff, turning to a Washington insider whose friendship with the House speaker, Paul D. Ryan, could help secure early legislative victories.

But as chief of staff, Mr. Priebus will be the one who has several hundred White House staff members reporting to him. He will be the primary gatekeeper for Mr. Trump and the person most responsible for steering the president’s agenda through Congress. That role will be especially critical for Mr. Trump, who has never served in government and has few connections to important political figures.

As Mr. Trump denounced the Republican primary process as rigged and, on occasion, threatened to quit the party and run on his own, Mr. Priebus remained neutral. And when Mr. Trump secured the nomination, Mr. Priebus stood by his side.

Mr. Priebus worked with Mr. Trump on the nuts and bolts of presidential politics, trying to smooth his rough edges and staying in close contact as a bare-bones campaign prepared to go up against the Clinton machine.


PRESS RELEASE
VIA MR. PRIEBUS JULY 2015

RNC PR NO FATCA

**********

I found myself wondering just what it is expats will want to focus on now, that the Republicans have the Presidency, and control of the House and the Senate. As Stephen Kish pointed out, this could change in two years (well, really just a bit more than a year as once the campaiging for the interim elections in 2018 start, we will likely have lost our chance to get this done quickly. What we do in the next year is critical to dumping FATCA and CBT.

I started thinking about what they promised and have gone through the Platform. I am going to list the main things I found that relate to our issues; if anyone finds more, please post. I also have two documents that focus specifically on FATCA and RBT as well as the link to Republicans Overseas Resolutions posted long ago on their FB site. It would be helpful if others want to isolate points and phrases to focus on in communications to the Republicans.

People may. may not want to coordinate efforts but I assume there will be letters written, emails sent and so on. You may remember that Congressman Mark Meadows (R NC) introduced H.R. 5935 seeking to have an oversight hearing on FATCA repeal. Once we know the date of the hearings and who will sit on the committee, we would start there I presume. And then follow the movement of what occurs……Calls for witnesses were posted on the Isaac Brock Society indicating interested parties should contact Keith Redmond by email at FATCA_Testimonials@outlook.com

*****

THE REPUBLICAN PLATFORM
excerpts from sections related to our issues

RESTORING THE AMERICAN DREAM

Fair and Simple Taxes for Growth p 1

The current tax code is rightly the object of both anger and mockery. Its length is exceeded only by its complexity. We must start anew. That will be an enormous undertaking and, if it is to succeed, it must command the attention and approval of the American people………….. We will welcome all to this enterprise — to discuss, debate, challenge, and amend — so that together we can restore economic growth for the American people and, even more important, renew their faith in the future

NB:This is their promise to listen.
 
Our Tax Principles p 2
To ensure that past abuses will not be repeated, we assert these fundamental principles. We oppose retroactive taxation. We condemn attempts by activist judges at any level of government to seize the power of the purse from the people’s elected representatives by ordering higher taxes. We oppose tax policies that deliberately divide Americans or promote class warfare.

NB:This would deal with the bizarre idea that 877A is retroactive.
 
To guard against hypertaxation of the American people in any restructuring of the federal tax system, any value added tax or national sales tax must be tied to the simultaneous repeal of the Sixteenth Amendment, which established the federal income tax.

NB:This would eliminate the whole need for filing in terms of taxes as value added or national sales tax will not affect Americans abroad in any significant way.
 
A Competitive America p 2
American businesses now face the world’s highest corporate tax rates. That’s like putting lead shoes on your cross-country team. It reduces companies’ ability to compete overseas, encourages them to move abroad, lessens their investment, cripples job creation here at home, lowers American wages, and fosters the avoidance of tax liability — without actually increasing tax revenues. A more damaging policy is hard to imagine.

NB:Please see an excellent paper by Roger Conklin which outlines how CBT directly affects Trade.(via The Revenue Act of 1962 & The Tax Reform Act of 1976; the U.S. has never recorded a trade surplus since 1975).

 

We endorse the recommendation of the National Commission on Fiscal Responsibility and Reform, as well as the current Administration’s Export Council, to switch to a territorial system of taxation so that profits earned and taxed abroad may be repatriated for job-creating investment here at home. We believe American companies should be headquartered in America. We should reduce barriers to accomplishing that goal. A Winning Trade Policy International trade is crucial for all sectors of America’s economy. Massive trade deficits are not. We envision a worldwide multilateral agreement among nations committed to the principles of open markets, what has been called a “Reagan Economic Zone,” in which free trade will truly be fair trade for all concerned.

NB:Trade is important to Trump. He needs to know how CBT affects it. If they offer territorial taxation to corporations,they can offer RBT to Americans abroad.
 
A REBIRTH OF CONSTITUTIONAL GOVERNMENT

The Fourth Amendment: Liberty and Privacy p 13

The Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank and Asset Reporting Requirements result in government’s warrantless seizure of personal financial information without reasonable suspicion or probable cause. Americans overseas should enjoy the same rights as Americans residing in the United States, whose private financial information is not subject to disclosure to the government except as to interest earned. The requirement for all banks around the world to provide detailed information to the IRS about American account holders outside the United States has resulted in banks refusing service to them. Thus, FATCA not only allows “unreasonable search and seizures” but also threatens the ability of overseas Americans to lead normal lives. We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas.

NB: This needs no comment. Other than it might be pointed out that many of the accounts reported on FBAR and 8938, are registered government plans. Some even include government grants which are taxed. The idea that these can be used for money laundering or terrorism is simply absurd.
 

GOVERNMENT REFORM

Reforming the Treaty System p 26

We intend to restore the treaty system specified by the Constitution: The president negotiates agreements, submits them to the Senate, with ratification requiring two-thirds of the senators present and voting. This was good enough for George Washington but is too restrictive for the current chief executive, who presumes to bind this country to bilateral and multilateral agreements of his devising. His media admirers portray his personal commitments — whether on climate change, Iranian weapons, or other matters — as done deals. They are not, and a new Republican executive will work with the Congress to re-establish constitutional order in America’s foreign relations. All international executive agreements and political arrangements entered into by the current Administration must be deemed null and void as mere expressions of the current president’s preferences. Those which are in the national interest but would traditionally have been made by treaty must be abrogated, renegotiated as treaties, and transmitted to the Senate for its advice and consent as required by the Constitution. The United States will withdraw from all agreements and arrangements failing those standards.

NB: Bye bye IGAs

Please see Professor Allison Christians excellent paper The Dubious Legal Pedigree of IGAs (and Why it Matters)

 
Internal Revenue Service p 27

We also support making the federal tax code so simple and easy to understand that the IRS becomes obsolete and can be abolished.

NB: Bye bye OVDP, Streamlined, threats of penalties etc
 
************

Here are three more direct sources of the Republican positions. I will probably do the same with these as above. But the more the merrier!

Resolution Supporting Residence Based Taxation

Resolution toRepeal the Foreign AccountTaxCompliance Act

A proposed RNC Resolution titled — Resolution to Repeal the Foreign Account Tax Compliance Act (FATCA) compiled by Republicans Overseas.

 

Solving U.S. Citizenship Problems-with special guest Andrew Grossman Montreal Monday December 5, 2016

A very special meeting for “U.S. Born People” or those who are otherwise “U.S. Persons” !(Naturalized U.S. citizens or Green Card holders)

Joining John Richardson will be Andrew Grossman

Discussing the “hot topic” of U.S. citizenship (including its liabilities in a FATCA and FBAR world)

In addition to focusing on the problems faced by those who agree they are U.S. citizens (to be a citizen or not to be a citizen …), this seminar will include consideration of …

     

  • Why the US cannot automatically restore your citizenship without your consent
  •  

  • The advantages of not making use of benefits of U.S. citizenship
  •  

  • Why the U.S. cannot force those born abroad to accept U.S. citizenship
  •  

  • Dominant Nationality & FATCA
  •  

  • About the revenue rule: How is it affected by the Canada U.S. Tax Treaty? Is the Revenue Rule on the way out?
  •  

  • Can the IRS place a lien on my assets even though I live in Canada?

The idea for this meeting grew out of Andy’s participation on a post at the Isaac Brock Society (Andy05).

“If anyone wants to follow up on issues I have raised, I will be in Montréal Dec. 1-3 & 5-6 and in Stanstead QC Dec. 3-5 and would be glad to meet for coffee and exchange views. I do not seek and scarcely ever accept clients but like to exchange views as an academic lawyer with a view to nationality law, cross-border tax and conflict of laws. French or English ok.”
Continue reading “Solving U.S. Citizenship Problems-with special guest Andrew Grossman Montreal Monday December 5, 2016”

Dual Citizens of Sweden, France, Netherlands, Denmark & Canada take note! Your Country WILL NOT Collect for the U.S.

Last week in my email was a link to an article by Michael J DeBlis (unable to determine whether it was the father or the son). It runs in my memory that prior to the launch of the Tax Connections website, the younger Michael had started a blog that was specifically about expatriate issues and many of us joined and took part. He seemed particularly sympathetic and supportive of our plight and one who I would never have labelled a “condor.” And this post is in no way meant to be demeaning.

Imagine my surprise to read this:

Consider the following example. Pierre is a dual citizen of the U.S. and Canada who presently resides in Montreal. He has fastidiously filed U.S. and Canadian tax returns for the last ten years. Following an audit of his 2012 U.S. tax return, the IRS determined that there was a $ 20,000 deficiency and mailed him a notice of deficiency. Pierre timely filed a protest but Appeals found in favor of the IRS. Having failed to file a petition with the tax court, that deficiency soon became a $ 20,000 assessment.

The IRS now seeks to collect on its claim by imposing a tax lien on real estate owned by Pierre in Canada. Essentially, what the U.S. government is attempting to do is cajole collection officials from the Canadian Revenue Agency (Agence du revenue du Canada) to do its dirty work for it: namely, to collect Pierre’s unpaid U.S. taxes by enforcing an IRS tax lien on property located within Canada.

As incredible as this might sound, reliance upon a foreign taxing authority for assistance in collecting a tax judgment against a citizen of the requesting country is entirely permissible under the terms of the U.S.-Canadian Treaty. Of course, such a request must be accompanied by documents firmly establishing that the taxes have been finally determined.[ix]

Therefore, the Canadian Revenue Agency would have no choice but to enforce the lien and to collect the unpaid taxes. But what if Pierre filed a motion in a Canadian court to have the tax lien imposed by the Canadian Revenue Agency, at the behest of the IRS, set aside? Not surprisingly, the court would refuse Pierre’s request on the grounds that the imposition of the tax lien was proper under the terms of the treaty.

The reason for my surprise was that it is a well-known fact not only in Canada, but among expats in general, that Canadians are lucky because Canada will not collect tax for the U.S. on people who were Canadian citizens at the time the tax was incurred. Nor will the CRA collect FBAR penalties as they are not a tax, falling under Title 31 of the U.S.C. Most of us had become aware of that when our-then Finance Minister, the late Jim Flaherty had stated unequivocably that Canada would not collect for the U.S. under these two circumstances. So I decided to post a comment.

Patricia Moon
2016-10-26 18:51:10
Thanks for this article, particularly for outlining the limits of what can/cannot be done with regard to the border. While the officers can be bullies, along with knowing very clearly, the limits of the Reed Amendment, this is good information to have. Canada and Denmark both have provisions that state they will not collect for that US citizens/persons that are also, their own citizens. In the case of the US-CDN Treaty: Article XXVIA 8) No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that: a) Where the taxpayer is an individual, the revenue claim relates either to a taxable period in which the taxpayer was a citizen of the requested state …………. So the CRA would not collect for the US in Pierre’s case, since he is dual and a citizen of Canada. While the boundaries for the revenue rule may be fading, it is still alive and one which the late Finance Minister, Jim Flaherty, reiterated many times while voicing his shock that the US would expect FATCA to be implemented in Canada. It is very clear that FBAR penalties, which are not part of Title 26 and therefore not covered under the Treaty, also would not be collected by the Canada Revenue Agency. The Canadian courts have refused to enforce claims of the US against Canadian citizens. I presume the Canadian government would honor XXVIA for US citizens/persons who are permanent residents of Canada who are not Canadian citizens. What I am afraid we will see, in spite of past rulings, is that the IRS will attempt to collect from Canadian bank branches in the US with corresponding branches in Canada. I have been told that this does happen by compliance people in spite of court rulings etc. However, it seems to me a bank would be liable to be sued, since presumably, PIPEDA (privacy laws) would in this case, apply to the US citizen/person even though it is overridden by the IGA when the bank sends info to the CRA. We have all seen how the compliance industry tends to enforce the “law” even when the IRS etc, has not provided guidance (which also, is not necessarily, the “law”). An example of this is putting someone who relinquished US citizenship decades ago, into the system according to 877A. Tax lawyers have tended to dismiss past citizenship laws that as far as can be seen, are not automatically changed retroactively. This is completely unacceptable. It is largely useless to Canada to have the right to collect on Canadian citizens resident in the United States due to the fact that once a Canadian is a permanent resident of another country, they are no longer liable for tax in Canada. This is also the reason that FATCA is of very little value to Canada.

and

Patricia Moon
2016-10-26 23:10:13
You may be interested in a few of the court cases mentioned (indirectly) above: United States of America v. Harden (1963), 41 D.L.R. (2d) 721 Supreme Court of Canada https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/7322/index.do 68 O.R. (2d) 379; 1989 Ont. Rep. LEXIS 206 RE VAN DEMARK ET AL. AND TORONTO-DOM http://uniset.ca/other/cs6/68OR2d379.html Chua v. Minister of National Revenue, 2000 DTC 6527 (FCTD http://ca.vlex.com/vid/chua-v-minister-of-national-revenue-38618242

I received a message asking if I could confirm the information concerning Canadians at this post on the CitizenshipTaxation FB group.I became involved in the conversation and remembered that I had recently learned that Denmark also had such a clause protecting its citizens in the US-Denmark Treaty. So I wondered if it could be the same for the other three countries that have a Mutual Assistance in Collection clause in their treaties with the U.S. namely, Sweden, France and the Netherlands. It didn’t take too long to find that they do indeed have the same type of clause. I was dumbfounded. Why had we never heard this before? I was careful to look at the Protocols because some of the Treaty dates are over 20 years old; there was nothing to suggest the conclusion was incorrect. I also had a couple of professionals take a look and they agreed.

So this is A VERY BIG DEAL. If you are a dual citizen of DENMARK SWEDEN FRANCE the NETHERLANDS or CANADA and were a citizen at a time when the U.S. claims you owe U.S. tax, your country WILL NOT ASSIST THE U.S. in collecting U.S. tax. !!!!!!!!

Then I wondered about FBAR and where that might be confirmed since it is not specifically stated in the Treaty. I googled and found a link to a comment of mine that I have no memory of posting:

25 July 2012 T.I. 2011-0427221E5 – FBAR penalties

Principal Issues: Whether US FBAR penalties are included in “revenue claims” defined in Art.XXVI-A(1) of the Canada-US Treaty.

Position: No.

Reasons: FBAR penalties are not civil penalties in respect of taxes covered under Art.II of the Treaty.

https://www.taxinterpretations.com/tax-topics/treaties/article-26a#node-326646
25 July 2012 T.I. 2011-0427221E5 – FBAR penalties

XXXXXXXXXX
2011-042722
P. T.
(613) xxx-xxxx
July 25, 2012

Dear XXXXXXXXXX:

Re: Civil Penalties and Article XXVI-A

We are writing in response to your letter of November 7, 2011, in which you asked for our comments in respect of the application of Article XXVI-A of the Canada-United States Tax Convention (1980) (“Treaty”).

You have described a hypothetical situation involving an individual who is a citizen of the United States (“U.S.”) by right of birth, and a Canadian citizen by way of naturalization prior to 1995. The individual is a resident of Canada for purposes of the Income Tax Act (“Act”) and the Treaty. We are to assume that the individual has failed to file Form TD F90-22.1 Report of Foreign Bank and Financial Accounts with the U.S. Department of the Treasury as required under the U.S. Bank Secrecy Act. As such, the individual has been assessed a civil penalty (“FBAR Penalty”) in the U.S. for the failure to file Form F90-22.1.

In this regard, you have asked whether the FBAR Penalty could be considered a civil penalty that is included in a “revenue claim” as defined at paragraph 1 of Article XXVI-A of the Treaty, and if so, whether paragraph 8 of Article XXVI-A would preclude the collection of the FBAR Penalty by the Canada Revenue Agency (“CRA”) on behalf of the U.S. Government.

Our Comments

The CRA has previously indicated that Canada would assist the U.S. Government in the collection of interest and penalty in respect of U.S. taxes owing pursuant to Article XXVI-A of the Treaty. However, paragraph 8 of Article XXVI-A provides that Canada will not assist in the collection of a revenue claim from the U.S. Government in respect of an individual who is a Canadian citizen, such as the individual described in your hypothetical situation.

In addition, we are of the view that a civil penalty, such as the FBAR Penalty, which is imposed under the U.S. Bank Secrecy Act, is not a penalty in respect of U.S. taxes owing. Therefore, it is our view that an FBAR Penalty is not an amount that would be considered a “revenue claim” pursuant to the definition at paragraph 1 of Article XXVI-A.

We trust that our comments will be of assistance.

Yours truly,

Robert Demeter
Section Manager
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

Then I started wondering about FATCA. The “reassurance” we receive constantly from the Canadian government is that FATCA does not result in any new tax etc, that it is just an information exchange. Which begs the question, why is the information being collected if there won’t be any “new” taxes? In this regard:

Andrew Bonham, “FATCA and FBAR Reporting by Individuals: Enforcement Considerations
from a Canadian Perspective” (2012) 60:2 Canadian Tax Journal 305-54, at 345.

Still, as noted above, the minister has the discretion to refuse assistance in collection. Certainly from a public policy standpoint, it must be relevant that the Crown, in providing collection assistance on a FATCA revenue claim, would in many cases be acting against its own taxpayers in the enforcement of a claim founded upon information obtained in a manner that may not be constitutional under the laws of Canada. The Crown is not obliged to do anything contrary to the public policy of Canada in collecting a revenue claim under the treaty. This last point is analogous to the common-law public policy defence discussed above.

However, it is also quite possible, and perhaps probable, that FATCA is in equal part both an information-gathering tool and a revenue-generating tool. It is for this reason that FBAR will never go away. With information garnered from FATCA FFI reports, penalties can be levied under both FATCA and FBAR if an individual fails to file. However, as we have noted, the long arm of the IRS cannot reach Canada with respect to FBAR, and as further posited, it is likely that FATCA penalties would also be unenforceable in Canada. From the US perspective, the best-case scenario would see all financial institutions around the globe complying with the strictures of the disclosure requirement. Armed with the massive list that would be generated from such compliance, the IRS would merely have to check names against received disclosures and levy fines against those individuals who had not complied. Carrying this scenario further, the IRS could then, after the exhaustion of all administrative appeal periods and recourse, approach the minister of national revenue with a list of individuals owing FATCA penalties and ask that those penalties be enforced by the CRA under the terms of the Canada-US tax treaty. It is assumed that in a large number of cases, a notice from the IRS to an individual noting lack of FATCA compliance would not be responded to, and in those cases, a penalty of $50,000 would be levied, thereby raising a very significant amount of revenue.

Finally, although the revenue rule and the penal/public-law rule would currently preclude Canadian courts from assisting in collection, the ever-expanding role of judicial comity may one day see a repeal of these rules, or at least a relaxation of their strictures. Should that occur, the United States would be in a position to resort to principles of public international law as a basis for enforcement, even against dual citizens. In such a case, it may well be open to defendants to argue that the mere fact of their US citizenship should not, in and of itself, be enough to satisfy the real and substantial connection test—especially in cases where the defendant has had little or nothing to do with the United States and has certainly derived no benefit from his or her US citizenship.

A lot of interesting possibilities are discussed in the article above and it is definitely worth reading. While there are no guarantees that these Treaties will not change in the future, the advantage of this information now is:

  • if you are in an unsure situation at the moment, this is something that is as much a part of your situation as your “U.S. Person-ness” and can be a great help in deciding what your risk level is
  • if you are not compliant & not yet a citizen of the 2nd country, you might consider applying for citizenship now
  • you can help get this information out to other members of your expat community

Lastly, here are the actual wordings in the treaties involved; I am only including the Article/paragraphs that pertain to this idea.

SWEDEN
• Income Tax Treaty – 1994
• Protocol – 2005

ARTICLE 27

Administrative Assistance

1. The Contracting States undertake to lend assistance and support to each other in the collection of the taxes to which this Convention applies, together with interest, costs, and additions to such taxes.

4. The assistance provided for in this Article shall not be accorded with respect to the citizens, companies, or other entities of the State to which the application is made, except as is necessary to insure that the exemption or reduced rate of tax granted under this Convention to such citizens, companies, or other entities shall not be enjoyed by persons not entitled to such benefits.

FRANCE

• Income Tax Treaty – 1994
• Protocol – 2004, 2009

19 ARTICLE XII
Paragraph 5 of Article 28 (Assistance in Collection)
of the Convention shall be deleted and replaced by the following:

“The assistance provided for in this Article shall not be accorded with respect to citizens, companies, or other entities of the Contracting State to which application is made.”

ARTICLE 28
Assistance in Collection

1. The Contracting States undertake to lend assistance and support to each other in the collection of the taxes to which this Convention applies (together with interest, costs, and additions to the taxes and fines not being of a penal character) in cases where the taxes are definitively due according to the laws of the State making the application.

5. The assistance provided for in this Article shall not be accorded with respect to citizens, companies, or other entities of the Contracting State to which application is made except in cases where the exemption from or reduction of tax or the payment of tax credits provided for in
paragraph 4 of Article 10 (Dividends) granted under the Convention to such citizens, companies, or other entities has, according to mutual agreement between the competent authorities of the Contracting States, been enjoyed by persons not entitled to such benefits.

Article XII of the Protocol replaces paragraph 5 of Article 28 (Assistance in Collection) of the Convention. The change revises paragraph 5 so as to remove the now obsolete reference to the provision of paragraph 4 of Article 10 (Dividends) of the existing Convention prior to amendment by the Protocol related to the “avoir fiscal.”

NETHERLANDS

ARTICLE 31
Assistance And Support in Collection

1. The States undertake to lend assistance and support to each other in the collection of the taxes which are the subject of the present Convention, together with interest, costs, and additions to the taxes and fines not being of a penal character.

4. The assistance provided for in this Article shall not be accorded with respect to the citizen, corporations, or other entities of the State to which application is made, except in cases where the exemption or reduced rate of tax granted under the Convention to such citizens, corporations or other entities has, according to mutual agreement between the competent authorities of the States, been enjoyed by persons not entitled to such benefits.

DENMARK

INCOME TAX TREATY 2000

ARTICLE 27
Administrative Assistance

1. The Contracting States undertake to lend assistance to each other in the collection of taxes referred to in Article 2 (Taxes Covered), together with interest, costs, additions to such taxes, and civil penalties, referred to in this Article as a “revenue claim.”

8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State, and b) where the taxpayer is an entity that is a company, estate or trust, the revenue claim relates to a taxable period in which the taxpayer derived its status as such an entity from the laws in force in the requested State.

CANADA

Article XXVI A
Assistance in Collection

1. The Contracting States undertake to lend assistance to each other in the collection of taxes referred to in paragraph 9, together with interest, costs, additions to such taxes and civil penalties, referred to in this Article as a “revenue claim”.
8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that
(a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State, and………

Article 22
1. Subparagraph 8(a) of Article XXVI A (Assistance in Collection) of the Convention shall be deleted and replaced by the following:

(a) Where the taxpayer is an individual, the revenue claim relates either to a taxable period in which the taxpayer was a citizen of the requested State or, if the taxpayer became a citizen of the requested State at any time before November 9, 1995 and is such a citizen at the time the applicant State applies for collection of the claim, to a taxable period that ended before November 9, 1995; and

2. Paragraph 9 of Article XXVI A (Assistance in Collection) of the Convention shall be deleted and replaced by the following:

9. Notwithstanding the provisions of Article II (Taxes Covered), the provisions of this Article shall apply to all categories of taxes collected, and to contributions to social security and employment insurance premiums levied, by or on behalf of the Government of a Contracting State.

How the “assistance in collection” provisions in the Canada US Tax Treaty facilitates “US citizenship based taxation”

cross-posted from Citizenshipsolutions

The above tweet references the comment I left on an article titled: ”

Why is the IRS Collecting Taxes for Denmark?

which appeared at the “Procedurally Speaking” blog.

The article is about the “assistance in collection” provision which is found in 5 U.S. Tax Treaties (which include: Canada, Denmark, Sweden, France and the Netherlands). I am particularly interested in this because of a recent post at the Isaac Brock Society.

This post discusses the “assistance in collection” provision found in Article XXVI A of the Canada U.S. Tax Treaty. The full test of this article is:

Continue reading “How the “assistance in collection” provisions in the Canada US Tax Treaty facilitates “US citizenship based taxation””

Do Canadian (or Australian etc.) Tax Attorneys Advising Canadian Clients on United States IRS Compliance Typically Comply With The “Professional Code of Conduct” of Their Law Societies?

cross-posted from Isaac Brock Society

In a recent post I mentioned the situation of a “Caroline” who seeks advice from a Canadian tax attorney (let’s say in B.C.) regarding a question of (IRS) tax compliance with a country foreign to Canada.

How should the Canadian tax attorney advise this frightened Canadian citizen– specifically, regarding the disclosure of relevant options she (or any Canadian) should consider before entering, or not entering, into tax compliance with United States Internal Revenue Service?

What information should (must) the attorney disclose to the Canadian to comply with professional standards and ethical obligations of an attorney?

USCitizenAbroad suggests that the Canadian tax attorney needs to disclose two relevant facts:

“It seems to me that the first thing that a Canadian lawyer (I note that the rules of B.C. Professional Conduct are included in this post) might be to say:

1. You are living in Canada. There is NO Canadian law (no matter who you are) that requires you to comply with U.S. tax laws. Canada may [find] it amusing. But Canadian law does not require compliance.

2. The Canada U.S. Tax Treaty means that Canada will not assist the IRS in collection on Canadian citizens”

I could well be wrong but suspect that few if any Canadian (or Australian) tax attorneys (irrespective of whether they are US persons or “enrolled agents”) ever provide this disclosure to their clients — who are just seeking good service.

The question I have is whether, by not making this disclosure, are these Canadian tax attorneys in violation of their law society’s (the governing body) Professional Code of Conduct? For example. the British Columbia Professional Code seems to be pretty clear on disclosure of facts and options:

“A [Canadian] lawyer should obtain sufficient knowledge of the relevant facts and give adequate consideration to the applicable law [This must include Canadian law — correct?] before advising a client, and give an open and undisguised opinion of the merits and probable results of the client’s cause…”

It would also seem that any Canadian tax attorney who is an “enrolled agent” with the IRS must disclose that significant conflict of interest (additional loyalty) to the client. Yes? See:

“A lawyer should disclose to the client all the circumstances of the lawyer’s relations to the parties and interest in or connection with the controversy, if any, that might influence whether the client selects or continues to retain the lawyer. A lawyer must not act where there is a conflict of interests between the lawyer and a client or between clients.”

Do these issues of “reasonable disclosure” need to be brought up with the law societies? Could someone from one of the Canadian provincial law societies please respond and address these questions?