It’s funny that you can be a foreigner like me (originally from India, now a Canadian citizen) and do most of your business in the US and not get taxed on it. I run an internet company incorporated in Canada and almost all my customers are American. I don’t file anything with the IRS because legally I don’t have to.
But if you happen to have been born in the US or have an American parent and don’t earn income from there they still want to tax you. It’s like a penalty for having any American association. On top of that no foreigners will want to form a partnership with you due to FATCA.
The above comment appeared in the “Fox News Video: Increasing numbers of U.S. citizens Renouncing U.S. Citizenship” thread. The comment reflects the perception of “U.S. citizen toxicity” from a non-U.S. perspective.
Assuming the correctness of his position that he does not have to file with IRS, it is clear that a U.S. citizen would. In other words, let’s say you have:
Unlucky U.S. Citizen A
and
Lucky Non-U.S. Citizen B
carrying on competing but identical businesses in Canada.
The U.S. law requires U.S. Citizen A to file and pay taxes but not U.S. Citizen B.
Now, I know that this is obvious, but it triggered a thought (to the extent that I have any). It’s this:
The 14th Amendment of the U.S. constitution prohibits discrimination based on citizenship. Now, I know that we are entering a technical legal area. I may do some research on this, but I am interested in your comments. I.e. Have I gone out of my mind or is this worth exploring?
“Citizenship classifications” are caught by the “equal protection” clause of the 14th amendment of the U.S. constitution. But, “citizenship classifications”, at least on the state level, are what are called “suspect classifications“. “Suspect classifications” are presumptively problematic and shift the burden of proof to the government -a burden of justification that is difficult to meet.
To tax a U.S. citizen on income earned abroad (citizenship-based taxation) is a clear extraterritorial application of U.S. law. The U.S. seems to have no problem with the extraterritorial application of U.S. law. (I will save a discussion of the legality of that for another post.) But, assuming the extraterritorial application of the law, the law is subject to the restraints in the U.S. constitution – including the equal protection of the laws.
This should mean that if the U.S. wants to tax income earned outside the United States, and taxes only U.S. citizens, then there is discrimination based on citizenship. In other words, either both Citizens A and B should be taxed or neither should be taxed. The practical consequence would be that neither could be taxed. Although the U.S. would like to tax the world, that is not going to happen.
I may explore this further, but I would in interested in any initial thoughts you may have. The hyperlinks provide some interesting sources to begin.
Your thoughts?
First of all, I want to say that the approach towards citizenship of the current government is completely wrong. Citizenship in the US constitution relates to a fundamental right to all those who are born in the United States (except those born not under the jurisdiction of the United States–at the time the Indians/ First Nations). The 14th amendment was designed to give former African-American slaves the right to vote and full citizenship rights. It’s intention was never to take away the right of expatriation or to force Canadians (or other accidental Americans) to pay taxes. The government has turned this amendment on its head as a means of extracting revenue from Americans abroad, and then creates laws trying to force renunciants to pay a steep price for not wanting this citizenship. The US consitution is not a weapon for the Federal government to wield against people who are effectively foreigners, but a text designed to protect the People and the States from a capricious, overbearing central power.
Voldemort says, “There is no good and evil; there is only power and those too weak to seek it.” This is what I think of bureaucrats now enforcing the tyrannical rule, “You are a U.S. citizen until we tell you that you are not.”
Finally, when they finally make it impossible to renew a passport without first making peace with the IRS, then
U.S. citizenship is worth a bucket of piss. When one of our people went into the Consulate, she was told that an American citizen can never be forbidden entry into the United States. But what about a United States citizen without a passport? Already. So, I would rather be Canadian with a Canadian birthplace, than Canadian with an American birthplace. The border guards may refuse entry of the latter person.
@omghe’sstillanamerican I would encourage you to write to or speak with MP’s and/or other officials in India and advise them of the risks and consequences of tolerating the current US policies. Even if you are not (yet) affected by the present unfair, unconstitutional legislation that contravenes fundamental principles of international law and common sense, no country can afford long-term acquiescence to US policies. Every country has the right to preserve sovereignty in the name of its citizens and lawful residents.
The reason the US can’t tax foreign companies owned by foreigners out of their jurisdiction is the fear of retaliation by foreign governments doing the same to American companies that export but don’t have foreign subsidiaries. I am provided protection by the Canadian government due to their ability to retaliate.
Chinese companies owned by non-US persons are provided the same protection by the Chinese government. There’s actually a form some US customers ask you to fill out so they can have it on file to prove your foreign status in case the IRS ever comes calling.
You are right that Americans are discriminated against even by people who actually like them (i.e. foreigners who don’t want them as business partners) due to the US government’s actions.
I think this result is exactly what the US government intended, that rich Americans would be discriminated against by foreigners and be forced to return to the US.
I have a consipiracty theory that this whole FATCA mess isn’t really about getting information on average Americans living abroad. It’s about finding out what companies the rich Americans are part owners of so they can expand their ability to tax foreign companies. Remember the rule about private companies that have Americans with at least 10% ownership? That rule is about world domination. Without any American ownership the US government doesn’t have a right to ask for details on what a private foreign enterprise is doing.
The other thing I’ll add is there are a few academic papers out there I found that discussed this issue. One thing I found is some called actually called for moving to a residency based tax systems while others that supported the current made the argument not based on some type of patriotism but on the fact it is easier to “collect” than using a system based on residency(something I don’t agree with with but I’ll get to a minute). All of the papers admitted there are no real services provided to Americans abroad in fact the government actually makes money off of consular services and consular services don’t provide the services people think they do. They won’t get you out of jail or send you home for free or a bunch of other things people think they do which I actually think is part of the problem. (If you look at any of the US State Departments travel advisories they are quite blunt on this).
In terms of difficulties of compliance of a residency based tax system. I would say in the Canadian system if you are at all questionable that you might have an issue when you are leaving the country you can engage a Canadian tax lawyer and the CRA before you actually leave. Over the years the CRA has a pretty good idea what they rules are for determining tax residency(pretty similar for determing what province someone lives for tax purposes) I am not sure what the problem is here.
For Roger. I would be curious if ACA has any data on how many Americans abroad were charged with crimes and were victims of crime and what if any assistance they were provided by the US Government or anyone else back in the US. For some reason I suspect in the majority of cases it is very little.
Jefferson I’m a Canadian citizen living in Canada (originally from India but no longer an Indian citizen). I’m sure the Canadian governments is fully aware of the potential consequences of allowing the US to harrass Americans in Canada. It’s not just about eroding their tax base by taxing American individuals but more about eventually taxing private companies that have part ownership by an American (remember the form you have to fill out if an American owns at least 10%).
@omg What conspiracy? Is it not the stated intention of the IRS in the implementation of FATCA to assign wilful FBAR fines from US persons abroad with undeclared accounts?
See this post: http://isaacbrocksociety.com/2012/01/23/fatca-the-need-to-know-basis-is-not-satisfied/
and this comment:
http://isaacbrocksociety.com/2012/01/23/fatca-the-need-to-know-basis-is-not-satisfied/#comment-2353
[Update: Oh, I see what you mean. An additional conspiracy on top of the already nefarious ostensible purpose–I got it]
Yes Petros, after they bankrupt all the Grandmas and Grandpas they’re going to go after the really big fish … PRIVATE CORPORATIONS … through the 10% ownership rule. This will provide them a window into how all these foreign corporations make money and come up with ways to exploit that too.
Obama may have shut down one war but he started another one … this war is against every country in the world with expatriate Americans as the first targets.
The fact that they included Canada in their fight against tax havens is proof that they aren’t really after tax havens. They’re looking for money anywhere they can find it … even in super high tax countries like Canada.
These days it’s easier to invest in Canada than the US. Obama doesn’t want to compete fairly, he wants to rule using any means possible. The territorial tax system would level the playing field and that’s why he’s so against it.
I wonder how a facebook site for all of us could generate awareness of our cause? Just a thought…..
Issak Brock on facebook. 🙂
Here are links to two papers published in the US critical of citzenship based taxation.
“A Coherent Policy Proposal for U.S. Residence-Based Taxation of Individuals” Cynthia Blum and Paula N. Singer
“The Case against Taxing Citizens” Reuven S. Avi-Yonah
@ Tim: thanks for those excellent references. I’ve embedded the hyper-links into the article titles.
@Inanightmare This is a group blog with multiple authors and participants. I welcome anyone who wants to promote this website to do so. Facebook, Twitter, and Forums. All is good. Heck, email your entire contacts list about this website. It’s all good. Cheers
omg, that’s no conspiracy. I’ve been saying that since my first day here. It’s very apparent because the FATCA will cost more than the revenue it makes, it makes overseas Americans lives hell, what else? Some say it will hurt US exports. I not trying to predict; I’m only talking about what is known so far…
@omg, at least in my situation, I’m in my 30s. I want to grow and make a lot of money, but I don’t want to do that if I’m forced to fork over money to a government that I feel I have no connection to anymore. And I’m just scared to see what’s going to happen in 2013 when the FATCA goes into effect.
Technically speaking, US Citizens abroad are a minority group. Kings, overlords, and politicians love attacking minority groups for money. That’s been happening for a looong time.
@Tim, those papers have some REALLY GOOD proposals. I’m afraid that it makes too much “sense” 🙂 for US politicians to use.
At least for me, the US could come out tomorrow and say that they are going to residence-based taxation, but I’ll renounce anyway, because I feel that they’ve still crossed the line with interfereing in peoples’ lives abroad. I don’t want to be a part of there anymore. Just my 2c.
When I first started my Internet company in 1998, I knew I had to target the US market but I wondered if it was worth it to target the whole world because the logistics back then were a bit daunting. Then I read something that said if I targeted the world I could in the longer term expect to grow the business by another 200%.
If the Americans don’t stop attacking their citizens overseas, the US government will be the ultimate loser due to decreased exports. They should be making it easier for Americans to function outside the US not harder.
Foreigners still love American products and as these developing countries get stronger they will want to consume more American made goods. I can testify to that because I sell American made products all over the world and price is not a barrier if what you sell adds value.
Has anybody ever started an initiative concerning our problems?
Or maybe even start an initiative with proposals like those stated in the PDF file that Tim mentioned earlier by C. Blum and P. Singer
Sorry forgot to add the like before 🙂
The WhiteHaouse calls them petitions.
https://wwws.whitehouse.gov/petitions#!/petitions
@omg, per Time Magazine, Brazilian tourists spend the most per capita in America.
http://www.time.com/time/world/article/0,8599,2075717,00.html
If your doesn’t detect IP addresses and switch to Brazilian Portuguese, maybe it’s a good idea to add it. The only thing that is a drag here are the *import* taxes.
Given that sometimes the price after import taxes is still cheaper than one would pay here, they gladly buy things from abroad.
@geeeez I’d be surprised if Brazilians come close to spending as much as Canadians–not per capita but total volume. Thus, the crackdown on Canadian-US is monumental failure of policy. I used to spend thousands in tourist dollars in the States almost every year, it was my top destination for travel (Hawaii, Florida, Texas, Alaska). No more.