Liberty and justice for all United States persons abroad

The Isaac Brock Society

36 thoughts on “Draft Fatca regulations will include reciprocity, experts say – Risk.net”

  4. There is an exception to this; I think there are quite a few countries that do subjct their residents to tax on income such as dividends, interest, etc. they earn from sources outside of their home country of residence. I know that when I lived in Peru and also in Brazil, both countries taxed me on this kind of income I had back in the US; my country of citizenshsip.

    And also if you reside in a foreign country and make a business trip to another country, you are still subject to income tax on the salary you receive from your employer even though it is for services rendered in the different country where you are temporarily working while abroad on business, even though you might also be taxed by that foreign country on that same income.

    I am pretty sure it has changed now, but at the time I lived in Brazil, persons who entered the country on a business visa had to declare and pay Brazilian income tax on the salary they were paid back in their home country on the what they had “earned” when on a buisness trip while on business in Brazil. In Brazil business visitors had to pay that tax before that tax before they could leave Brazil to go back home.

    And Venezuela had, and I presume still has, a similar tax law. It was even more complicated in Venezuela because you could not make the tax declaration and payment at the airport, but had to do it at the tax office downtown and present the tax receipt to emigration at the airport in order to be allowed to leave the country. I used to travel frequenty to Venezuela but always entered as a tourist. I saw plenty of foreign businessmen who, not knowing any better, had gone there with a business visa only to learn that they were denied exit until the tax had been paid. That meant that their return was delayed for another day, or for an entire wieekend if it they tried to depart on a Friday.

    Does Canada tax overseas earnings from interest and dividends received on investments outside of Canada? The US does not tax foreign business visitors unless they are in the country on business in excss of a specific number of days, Beyond that limit they are subject to US income tax on the money they have earned while termprarily in the US on business.

  5. Canada taxes overseas earnings of canadian residents. However, there is a foreign tax credit for any taxes paid to the foreign country. E.g. I have shares in US corp ABC which pays me dividends of $1000. 15% is withheld by ABC and sent to the US treasury. On my Canadian tax return, i get a credit for the $150. paid in order to avoid double taxation. It is interesting that canada also asks about foreign assets on Rev Canada form T1135. “foreign Income Verification Statement” But T1135 is very simple and not at all intrusive- just a grid of checkboxes for assets more than 100,000. Nothing compared to FUBARs or FATCATs

  6. @Roger

    After one is “tax resident” in Canada for more than five years they have to pax tax on foreign source interest and dividends(This doesn’t I believe apply to someone already living in Canada when they are eighteen) Within five years they are excluded from tax as long as the funds are not brought into Canada(Note: it only takes three years of residence in many cases to become a Canadian citizen. I believe the differences in US and Canadian taxes rules are well known to many of the super wealthy that’s why the richest man in Hong Kong Li Ka-Shing and his two sons are dual Chinese Canadian citizens not dual Chinese US citizens).

    One when ceases Canadian tax residence status they are charged Canadian witholding tax of 25% percent on benefits such as CPP/OAS(Canadian equivilent to US Social Security) and other sources of Canadian source income(Interest was recently excluded quite recently as part of a broader change of exempting interest payable to non-residents from witholding). There was an interesing case of several Air Canada pilots living in Bahamas on non resident tax status attempting to get the witholding tax pro-rated only to the time they spent flying in Canadian territorial airpspace.

    In the case of Li Ka-Shing I found amusing the company given by prominent center left Canadian politicians such as Premier Dalton McGuinty(Effectively the American equilvilent to governor of Ontario) to someone by American standards would be a “tax cheat” due to his non-resident tax status in the article I linked to below.

    http://www.thestar.com/news/article/1072218–hong-kong-billionaire-s-25-million-benefits-st-mike-s

  7. Plenty of countries don’t tax overseas earnings of residents. Especially “tax havens” whom the US claims to be targeting with FATCA. E.g. if a Hong Konger owns a vacation house in Malaysia and rents it out while he’s not there, Hong Kong does not tax that income. Even in Japan, which is hardly a tax haven, Japanese corporations are no longer taxed on their income from foreign branches. So reciprocity means very little to them.

    And anyway the U.S. can’t provide meaningful reciprocity for FATCA, because they simply have no way of getting information about the nationality of beneficial owners of corporations within the timeframe required. Many states’ corporate registrars don’t even know who the beneficial owners of corporations are; only the company formation agents have this information, and there is no legal framework to compel them to release it absent evidence of criminal wrongdoing. (This just shows how hypocritical the U.S. is about corporate tax & secrecy issues. In Hong Kong, which the U.S. always criticises as a “tax haven”, we have laws which allow any member of the public to show up at a private company’s office and demand to see their registrar of shareholders.)

  8. @Eric

    One of the interesting issues with Hong Kong and Singapore is the US has no tax treaty with either unlike most of the rest of world(A Hong Kong Canada treaty is currently under negotiation but as I understand both sides want it done. Canada has for many years had a treaty with Singapore) In fact the US doesn’t have tax treaties with a lot countries in South America for one like Brazil and Colombia.

  9. My question is if FATCA reporting will be done backward, say if I have accounts for years before 2009. Are banks going to dig out all the old records ?

    TD bank only keeps records up to 7 years. So it seems that is how far backward it can go.

  10. Brazil and the US, if I remember correctly, have a”tax information exchange” treaty, but not a Tax treaty which would reduce some double taxation of certain kinds of non-earnd income. All US tax treaties include a clause in which the other country recognizes the right of the US to tax its citizens resident in the other country.

    Not just Japan, but many if not most countries do not subject the foreign earnings of their foreign sbsidiaries to taxation, whether remitted or not. The US is one of the few that subjects foreign earinings to a 35% tax when they are remitted back to the US, but they are not taxed as long as they are kept or reinvested abroad. Bills have been introduced to “eliminate this tax evasion” by subjecting such foreign earnings to US tax whether remitted back home or not. So far they are in limbo.

  11. @Roger — ah yes, the wonderful “Saving Clause”. Is that one of the reasons why Brazil and other South American countries don’t sign tax treaties with the US? There’s a list of all the US DTAs here — Brazil is indeed absent: http://www.irs.gov/businesses/international/article/0,,id=96739,00.html

    I don’t know whether this is indeed the main blocker on a US-HK treaty, but much of the financial community here has a very cold attitude towards the US government. About two years ago one legislator (an accountant by profession) even made a not-so-veiled suggestion that we should expel IRS criminal investigators: http://www.info.gov.hk/gia/general/201004/14/P201004130213.htm

    A reasonable case could be made that it’s a violation of Hong Kong’s Basic Law (our mini-constitution) to sign any treaty recognising the right of a foreign country to tax the Hong Kong-source income of Hong Kong residents. This was the legislative intent behind Basic Law Article 106 & 108: China promised the UK not to levy taxes in Hong Kong, but they also included several articles making it explicit that the UK could not take money from Hong Kong either. (China was especially afraid that the UK would try to come up with some scheme to keep taking land rental fees).

  12. After a 4 year exemption period, new residents to New Zealand have to pay tax on their offshore / foreign earnings too. The difference is they don’t require FBARs or have gotcha penalties if you fail some how. Additionally, when it is time for you to start paying those taxes, the IRD sends you a nice letter informing you of your obligation. It is called full disclosure. Novel concept. Now, so informed, the new immigrant can decide what to do. Stay and pay, or give up your residency, leave and go home.

  13. According to this article in Globe and Mail, U.S. is “poised to soften offshore tax crackdown.”

    http://www.theglobeandmail.com/report-on-business/us-poised-to-soften-offshore-tax-crackdown/article2314687/comments/

    In reading this, “soften” may only take some administrative pressure off financial institutions–but not much pressure off U.S. persons.

    In addition, IRS seems (finally!) to concede privacy laws in some countries could be a problem for financial institutions. According to Emily McMahon, acting assistant Treasury secretary for tax policy, they are now exploring the option of financial institutions reporting to their home countries’ government, which could transmit information to the IRS.

    That is just as bad–maybe even worse. As Canadians, we are not required to tell CRA where we were born. Neither we nor our financial institutions are required to tell CRA the amount of our assets. We only report on the income from those assets–on which we are taxed according to Canadian tax policy.

    Governments around the world need to quickly, firmly and strongly say “NO!”

    The further this goes, the worse the IRS seems to get. I would call them the Keystone Cops, except I was born in the Keystone State (Pennsylvania) and that would be total insult to anyone there!

  15. @ij, I read the FATCA legislation and as far as I could see it requires reporting annually. No retroactive reporting, to my knowledge.

  17. I am from Brazil. Dual citizen. I am not a lawyer but I have been to a Tax Brazilian Lawyer recently. It seems that Brazil follows what all other Countries follow (except the USA). They use the resiidence criteria. That is, if I reside in Brazil I pay Brazilian Taxes and if as a resident I have investments in another country I pay Brazilian Taxes only to the extent that they are higher that the taxes I pay in the other Country. Brazil has no Tax or Social Security Treaty with the USA and this complicates life for dual citizens (Brazil/USA) who are self employed working in Brazil. They have to pay Social Security Self Employment Taxes in both Countries, I am trying to work through this maze. Love this discussion. And learn.

  18. @Petros,

    Thanks, I am in OVDI already even though my all offshore accounts are closed except RRSP. So it seems a good choice for some US immigrants to have their accounts closed not to worry about FATCA.

  20. If you are living in Canada and have USA accounts I believe this is the best away to go. But in my case, living and working in Brazil my bank accounts and investments are here in Brazilian Real. Because I am also an American Living in Brazil… I will have to report them in the FBARS. Troubles,

  21. @Calgary411

    Mark Carney actually did a video interview today where he mentioned extraterritorility several times. I’ll open a post on that thread. I noticed shortly afterwords US Senator Bob Corker put out a statement saying that basically that Canada and other countries had a very legitimate complaint about Volcker but not to expect any action until after the election due to the “power” of a certain Senator Levin. I am personally getting a bit tired of a certain Senator Levin myself and I think with the proximity of his home state to Canada I think it is time Canada starting putting the screws to his consituents in Michigan in a way that would not be as realistic with most other states.(His brother and sister and both big time Michigan politicians too).

  22. @Tim You might have these, but if not you might have an interest for your post:

    A certain Senator Levin on January 12th: http://levin.senate.gov/newsroom/press/release/levin-merkley-urge-sec-to-adopt-rule-against-conflicts-of-interest-in-asset-backed-securities

    Globe and Mail on Carney’s comments
    http://www.theglobeandmail.com/report-on-business/us-financial-reforms-pose-risks-to-canada-carney-warns/article2314788/

    Canadian Consul General Ray Norton to Address Aspects of Canada-Michigan Relationship,
    CONSULATE GENERAL OF CANADA, DETROIT. … Norton@international.gc.ca. : http://global.broad.msu.edu/news/articles.aspx?id=241

  23. Tim: Here’s a quote from Mark Carney from this morning:

    “You … need market makers, you need people who are willing to take some risk, including risk during difficult times,” Mr. Carney explained.

    “It is not clear here that, as currently structured, the Volcker rule accomplishes that. It appears to have some extraterritoriality to it, so that it reaches not just to market making or proprietary trading in the United States, but into other jurisdictions, including Canada, in a way that potentially could make our markets less resilient, rather than more resilient.”

    This is from the Globe article which Calgary411 posted.

  24. What’s funny but in some ways sad the more I research is even in a state like Michigan that is hugely interconnected with Canada and Ontario in particular I am not sure they really give a shit so to speak. The only remarks I have seen Carl Levin positive or negative make specifically to Canada is crictising municipal solid waste(i.e. garbage) shipments from Ontario to underutlized Michigan landfills. In NY State for example I can see why Canadian/border interests are given short shrift as NY State politics is essentially dominated by the NYC metro area.(In a different era I am told though former Ontario premiers Bill Davis and John Robarts once had close relations NY Governor Nelson Rockefeller). But in Michigan Canada is essentially on the front doorstep to the state’s largest city.

  25. @Tim

    And I assume that this “inter-connectivety” has produced the need of numerous Canadian families to use US hospitals on the border when giving birth, resulting in thousands of true accidental Americans – People whose parents were never even resident in the US, not even on a student visa. Just there to give birth and leave. And of course there is no exception granting these accidental citizens a waiver from their IRS reporting obligations. Even without the problems that their taxation policy generates, the US citizenship rules are seriously out of date with the way that the modern world works. Here is a great article on Campobello, a small border town in Canada:

    http://www.canada.com/story_print.html?id=5500882&sponsor=

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