Roger Conklin wrote: Petros, I forwarded your comments to a friend of mine who is much more conversant in the items you highlighted in your last post. I am taking the liberty of pasting his response to me. He seems to think it is more complicated. His comments are as follows: [My responses follow in blue]
There is actually no fundamental right to expatriate either explicit or implied in the Bill of Rights. It simply would never have occurred to our Founding Fathers that our country, founded as the beacon of freedom and liberty, would ever have sunk to such a low place. The Declaration of Independence states that if government gets to this point it is our right and duty to abolish a tyrannical regime. Not likely is it? It is a right under the UN Declaration of Human Rights, however, and in so far as treaty law trumps Constitutional law, this is what makes it so. Again, though, it isn’t un-Constitutional until or unless either Congress makes it so, or the Supreme Court judges it so. Since we simply have no power in Congress, forget that avenue. The courts have always been our best bet, but that requires someone being willing to step up and be the test case and spend the money to challenge – AND, of course, the Supremes have to be willing to accept the challenge.
The fundamental right to expatriate rests upon the Declaration of Independence setting the foundation for an entire country of people who expatriated from Britain. This fundamental right is protected in the Bill of Rights by the Ninth Amendment, and it is confirmed in Federal Law by Congress in Expatriation Act of 1868 and Freedom of Emigration in East-West Trade, USC Title 19 § 2432. Even the State Department recognizes the right to expatriate, as does the Universal Declaration of Human Rights of the United Nations: “(1) Everyone has the right to a nationality. (2) No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality.” May I remind readers that the United States is a founding and permanent member of the Security Council of the United Nations and voted for the Declaration in 1948?
Remember there are a great many people who believe that the South should have been allowed to secede from the USA in 1860. But nothing in the Constitution gives them that right either. On the contrary, the signing of the Constitution by the representatives of ALL states admitted to the Union has been deemed a one-way contract.
To be sure, since Lincoln prevented the southern states from expatriating The Civil War was a great blow to the right to expatriateand the 10th amendment. Nevertheless, Congress affirmed the right to expatriate in the Expatriation Act of 1868, after the Civil War, citing the Declaration of Independence.
In practical terms, if someone has a second nationality, he/she doesn’t really need a formal renouncement of US citizenship; they simply ignore the US government’s right, and chooses to have their rights protected under the other nationality. That person, of course, can never set foot on US soil again, but that’s the point.
Stating that the person may never step foot in the United States again is too categorical. It really depends on the nature of the claims that the United States makes against the person. If a person consider him or herself a citizen of Canada or another country, in all likelihood, he or she will be able to travel freely to the United States. I don’t see, for example, even I were deemed to be a covered expatriate, why I should fear going to the United States at all, except of course, that I am a vocal ringleader at the Isaac Brock Society. Still I have been convicted of breaking no laws, except perhaps the laws against free speech and freedom of the press. If need pressed, I think that I would go, taking my CLN and my Canadian passport. I might also have my lawyer sister check to see if there is a Federal warrant for my arrest.
Again, it was because none of our Founding Fathers could have ever imagined why our union, governed by the Constitution and the subsequent Bill of Rights, wouldn’t have provided adequate safeguards and guarantees for the individual – and states – that they would ever want anything else.
The extra-territoriality of the imposition of taxes on expat Americans HAS been determined by several Supreme decisions. Hence the Solicitor General’s position should something ever come up would undoubtedly be that it has the right – and indeed duty – to treat all Americans the same with respect to taxation no matter where they live. It could be argued that the IRS is not, in fact, treating expats in the same manner but more harshly, and therefore has exceeded its authority. They would say, they are only following legislation passed by Congress.
Well, that just fine. The Supreme Court has no jurisdiction where I live in Canada. How can their decisions then be “constitutional” for someone like me, who has no representation in Congress. Expats are considered resident in Washington DC. This is a fiction. Surely, the IRS is, as you say, treating expats more harshly than residents of the United States, by treating the expats domestic bank accounts (in their country of residence) as though they were foreign accounts in which they are trying to launder money or hide income. This is a violation of natural right, recognized as such in the English Speaking worlds for several centuries and Congress wishes to violate it through FBAR. A man’s house is his castle.
The 16th Amendment authorizing income tax is decidedly open: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
Such a sweeping statement, “without apportionment”, nevertheless does not permit taxation without representation as we expats experience, not being counted in the census. This is about each state paying taxes without concern of their respective populations, since in earlier tax law, every state only paid a tax proportional to their respective populations.
There are points on which to argue certain aspects: [I have no responses to the following statements at this time]
1. The 5th amendment protects a person from self-incrimination and provides for due process. It can be argues that many of the documents demanded by the IRS constitute self-incrimination, and that the system does not provide due process except at unfair costs and hardships on any who challenges.
2. The 8th amendment: ” Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.” It can be argued that paying any fine whatsoever to the IRS simply for lack of correctly filling out the forms when no taxes are due is indeed “excessive” AND “cruel and unusual punishments” particularly since expats have no effective due process available, no representation, and indeed, are judged guilty by the IRS without due process.
3. The 10th amendment: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.” Since expats are effectively outside of the governance of a state, and since nothing whatsoever in the Constitution makes extraterritoriality a Federal power, one could argue that ALL issues of extraterritoriality are outside of the purview of the Federal government, and therefore, it should be left to “the people” themselves how to behave. It would be an enormous legal somersault to argue, but there are connections here. Since the Constitution grants the President to enter into treaties with foreign entities which must be approved by the Senate, it ipso facto creates an acknowledgement of territorial limitation of the powers of Congress and Constitution. Indeed, ALL subsequent acts acknowledge a respect for territorial limitations of the state except taxation and citizenship.
4. The 13th amendment: “Neither slavery nor involuntary servitude except as punishment for a crime whereby the party shall have been duly convicted shall exist within the United States or any place subject to their jurisdiction.” [my emphasis]. This has two pieces of interest: (a) It could be argued that the process for expatriation is “involuntary servitude”; and (b) again the IRS fines being imposed is guilty without being convicted; and the phrase “any place subject to their jurisdiction” would actually in this case definitely include expatriates.
But, as I said, all of this is great in theory, but unless or until someone is willing to undergo the expense to prove these issues, and the Supreme Court agrees to hear it, the Federal government is free to harass anyone they want! Knowing one’s “rights” or assumed rights isn’t the same as being able to implement and enforce them.
This is very interesting. Thanks for posting it.
I would like an intelligent response to the following question:
What would give the U.S. government the right to punish any conduct takes place outside the United States in another sovereign country? This question precludes any discussion of U.S. military bases, etc.
Let’s for a moment assume the constitutionality of taxing U.S. citizens abroad. Let’s just assume it. That is a completely different issue from criminalizing the act of not filing an FBAR or some these other information returns when the obligation was imposed on a person outside the United States. The U.S. law does not extend beyond its borders. What would happen if the U.S. tried to criminalize Canadian residents for not filing an FBAR? Everybody would laugh. Why, they are residents of Canada. Why then could justify requirind an American citizen living in Canada to file an FBAR? The only possible answer is that the U.S. somehow has a property interest in that person. I own you, therefore you must do what I say.
I would appreciate some help with this. How can the U.S. criminalize any condut that takes place outside its borders? How can an FBAR penalthy on somebody outside the U.S. not be an extraterritorial application of U.S. law?
Help, I just don’t get it.
Interesting excerpt from a very long article:
“A related due process challenge is based on notice. It is akin to the concerns over secret laws and
vague statutes, the exception to the maxim that ignorance of the law is no defense.34 Here, indicia
of knowledge, of reason to know, of an obligation to know, or of reasonable ignorance of the
law’s requirements – some of which are reflected in international standards – seem to be the most
relevant factors. Citizens, for instance, might be expected to know the laws of their own nation;
seafarers to know the law of the sea and consequently the laws of the nation under which they
sail; everyone should be aware of the laws of the land in which they find themselves and of the
wrongs condemned by the laws of all nations.35 On the other hand, the application of American
criminal statute to an alien in a foreign country under whose laws the conduct is lawful would
seem to evidence a lack of notice sufficient to raise due process concerns.36 ”
One issue in interpreting the legality of the extra-territorial application of criminal law is the extent to which it would impact the host country. For example, if the U.S. comes and steals money from Canadian citizens, this would hurt the government of Canada.
Anyway, this is a long article, I will try it later.
I was the author of the above analysis. Petros, i like your comments and love your passion. The issue here is to what extent the IRS can impose regulatory interpretation on expat American citizens. There is no doubt in my mind that much of what they are doing is in fact un-Constitutional, particularly levying fines where no taxes are due. Anyone who has paid them, I think, should seek a good law firm – preferably one in DC dealing in Constitutional law – that will organize a class action suit against the government. If this isn’t a classic case of excessive fines, what is? It would also be argued that this would be against the amendment guaranteeing citizens against illegal search and seizures, the seizures being the issue here.
But again, this isn’t an issue of Constitutionality; it’s playing bully against expat citizens because we don’t have any representation of protection. And nothing in the Constitution actually prohibits the government from bullying its citizens.
Failure to follow regulatory procedures in expatriation could lead either the IRS or State Department to issue an order to hold you at the border for non-compliance. Good luck trying to convince the border patrol in arguing your case! Of course, you can always get back into the USA through Mexico….
The “without apportionment” phrase in the 16th amendment was because it was on this Constitutional phrase that the Supremes voided previous income taxes – hence the change in language.
Finally, nothing in the Declaration of Independence says anything about expatriation. It states that if governments gets tyrannical “it is the right, IT IS THE DUTY, of the people to abolish that government….” All in favor of abolishing our government raise your hands – and good luck with that!
The bottom line remains that there are numerous clauses of the Constitution and Bill of Rights that are being violated by the IRS. They are also in violation of Presidential Executive Orders which require all major regulatory changes over $100 million to have a cost-benefit analysis done first. The IRS simply declared that their changes aren’t “major” and therefore are not required. The latest time they did this is when they literally forced the State Department to deny expatriation without providing tax returns, and anyone who wants to renew their passport, too!
I’m frankly stunned why all the banks in the world are putting up with this chicanery and not spending their money on challenging the rights of the IRS to sequester any funds at all without due process. Confiscation is illegal – that is what is at the heart of 4th Amendment: “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”
Indeed, it can be strongly argued that what the IRS is doing with respect to withholding payment unless banks comply with their regulatory threats is illegal. Art. I, sec. 8 states that “Congress has the power to … regulate commerce with foreign nations.” Art II, sec. 2 states that the President has the power to enter into treaties with the advice and consent of the Senate…”. And Art. VI states that “all treaties made, or which shall be made… shall be the supreme law of the land.” Even though the IRS slipped its bills into omnibus bills in the middle of the night, and those bills passed, it can be argued that this is definitely regulating commerce with foreign nations and subject to treaty. Hence this required oversight of the House Foreign Affairs and Senate Foreign Relations committees to determine, and are NOT in any sense regulatory in nature at all.
But we still get back to the practical issue which is NONE of this matters if we are unable to move either the Congress or the Supreme Court of our claims. So the only real practical suggestion remains: We should find a DC law firm willing to argue this on a class action basis. Foreign banks should be willing to also push their governments to tell the USA they will not put up with this nonsense!
The trouble is that the Senate and Congress, with the full support of the American people, utterly despise international law, even when the only function of the law is to impose more restrictions on the ways in which the government can violate your rights. It’s due to both “American exceptionalism” and braindead rhetoric about not wanting to give power to “unelected judges subverting the popular will” (revealing the fact that many Americans don’t understand the distinction between the two concepts of “liberty” and “democracy”).
Here in Hong Kong I can go to the High Court and launch a judicial review case to get a law (other than an immigration law applicable to a non-permanent resident) overturned on the grounds that it violates the International Covenant on Civil and Political Rights or other treaties to which Hong Kong is a signature. This is an ordinary feature of the judicial landscape in most of Europe as well. But in the US this is not possible, because when the Senate “ratifies” many human rights treaties, they attach a “reservation” saying it cannot be used as a private cause of action in any court — which in practical terms is just like not ratifying it at all.
@ Patric Thanks so much for your valuable contributions here. I agree that there is good reason for the banks to stand up; in earlier discussion, it was suggested that Canada’s banks could defend themselves on the basis of NAFTA, which as you say, is “supreme law”.
I just want to clarify that the Expatriation Act of 1868 does indeed connect the Declaration of Independence with right of individuals to expatriate:
Thus, the 1868 act, intended to defend naturalized Americans against these new citizens’ former countries’ claims against them: Now today, the United States will abridge its own former citizens’ right to expatriate. To expect one behavior from other countries but do something utterly different oneself is the height of hypocrisy and arrogance. I expect the United States to obey this law, and treat me with the respect and deference due to all Canadians. Unfortunately there does not seem to be steep fines to levy against US bureaucrats who violate this 1868 law: perhaps I could suggest the seizure of 300% of the contents of their bank accounts?
This is a similar issue to what happens with tax treaties. Congress can essentially put into sections of the Internal Revenue Code that contradict tax treaty commitments then force someone who wants to take advantage of a treaty commitment to go through a complex claiming and filing process.
@ renounce There may be some cases where it is appropriate that US persons outside the Untited States must obey US law: For example, US military, diplomatic or Secret Service, while in another country are still functioning under the laws of the United States as employees and representatives. However, a free person should have a greater degree of personal discreation over the matter. E.g., it is no crime for a US person to open a bank account in Canada and not report it to the IRS.
It is my understanding that there have been Supreme Court decisions (looked tonight but can’t find them) that have said that even though the 1868 act was to protect new Americans from the old Country, it should apply equally to US citizens who expatriated from the United States. Given that expatriation occurs at the time of the expatriating act, not the time of notification how can the IRS legally tax someone who is no longer a citizen and not living in the US. When the act was written in 1868, was it the intent for the US to protect ALL of its new citizens, or only those who went through some form of expatriating process with the old country. All that was required was that the person got on a boat, traveled across the sea and became American. They did not owe the old country any forms, fees or explanations. This should also work both ways.
It is also my belief that the wording in the 1868 act intended that expatriation be a right. The act did not set any limits on expatriation. I also do not think the 1952 law intended to limit in any way the right to expatriate. The law was not about limits at all, it was the opposite, it was about Congress taking away citizenship. I think for many people the fact that they left the US decades ago, or never even lived there, is proof enough of the intent to relinquish.
Thanks to all of you and especially Roger, Petros and Patric for the unconstitutionality analysis in this thread. In order to supplement this, I would just like to pingback a response I made to Petros last summer at Hodgen.com, which has been reclogged on Righteous Investor and here at IBS:
According to Article I, Section 2, Paragraph 3 of the US Constitution « Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined by adding to the whole Number of free Persons, including those bound to Service for a Term of Years, and excluding Indians not taxed, three fifths of all other Persons. The actual Enumeration [Census] shall be made within three Years after the first Meeting of the Congress of the United States, and within every subsequent Term of ten Years, in such Manner as they shall by Law direct.”
Americans abroad are not counted in the Census, thus are not proportionally represented in Congress as the Constitution provided. Many are unable to vote due to the complexities of registration or inability to prove a home precinct in the US. This means that the legislative process that resulted in extraterritorial tax laws was inherently flawed and thus the legislation affecting those in the disenfranchised category null and void, at least and especially as such legislation may be to their detriment.
Some might argue that the 16th Amendment “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” would void my argument of the last paragraph. I disagree, believing that the intent of the language of the 16th Amendment is to allow the federal government to maintain a progressive tax system, allowing the taxation of entities according to their level of income; regardless of how populous each State might be, in order to distribute funds to finance projects in whatever state required.
The 16th Amendment supersedes only the “…direct taxes shall be apportioned among the several states” part of Article 1, Section 2, and the part of Article 1 Section 9 that states “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or enumeration herein before directed to be taken.” The 16th Amendment does not use the word “Representative”, “Representation”,”Representatives”, or “Congress”. It does not seek to strip the citizenry of proportional representation as provided by Article 1, Section 2!
Furthermore, according to the 1st Amendment “Congress shall make no law … abridging the freedom of speech…. or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.” This means that those laws which Congress has established to direct the conduction of a Census that does not include Citizens resident abroad are unconstitutional because they abridge the right to petition the government for a redress of grievances (by abridging the access of Americans abroad to their constitutionally-mandated proportional representation). As Congress’ laws for the conduction of the Census are unconstitutional, there has been no valid Census, again meaning that Congress is not properly apportioned as the Constitution requires.
Therefore Congress loses legitimate authority, the legislative process is inherently flawed, and the IRS, FBAR, expatriate taxation, and even FATCA thus have no valid legislative mandate to exist, at least, and especially as to those whose representation is abridged.
The IRS threatens people with prison terms for making what they deem “frivolous arguments”. Any basis in federal law for such a prosecution is invalid as it would violate the “Congress shall make no law… abridging the freedom of speech” requirement of the 1st Amendment.
The following list of rights violated by US tax policy is not exhaustive, and does not go into as much analysis as for the 5th 8th, 10th 13th amendment discussions above in this thread, but I linked US constitutional rights with those in the Swiss constitution.
The following list of the democratic principles and articles of the Swiss and US Constitutions that are violated by US tax policy is not exhaustive:
1. Art 2 CFS “The Swiss Confederation protects the rights and liberty of the people” (How can Switzerland maintain a tax convention that guarantees that certain persons will be double-taxed because of their origin? This is discrimination!
2. Art 13 CFS (Protection of privacy), with its cousin, 4th Amendment US CONST. The automatic exchange of information with the IRS without a warrant is an abomination. FATCA and FBAR reporting requirements violate the right to privacy and the 4th amendment.
3. 13th Amendement US CONST. (forbids slavery and involontary servitude). Double taxation is an insidious form of involuntary servitude.
4. Art 34 CFS “Political rights are guaranteed “. (see Art 1 Section 2 US CONST, mentioned above in this text) [14th, 15th Amendments US CONST.: voting rights, “equal protection of laws”]. Despite certain recent ameliorations, many Americans abroad find their right to vote limited or refused.
5. Art 37 CFS subparagraph 2 “nobody can be privileged or disadvantaged on account of his communal origin” [14eme, 15eme Amendments US CONST. (citizenship, right to vote). Although I understand that Article 37 CFS was intended to protect people who have origin in Canton A from discrimination in Canton B on the basis of their origin, I would wish to interpret this article in a scalable fashion.
6. Art 8 CFS “All humans are equal before the law.” See also Article 261b Swiss Penal Code (anti-discrimination) Double taxation and reporting requirements imposed upon a subset of the population violate this principle.
7. Art 9 CFS (Protection against arbitrary treatment and protection of good faith).
8. RS 291 Art 23 (Swiss Federal Law on International Private Legal Matters). This law states that when one is a Swiss dual national, he shall be considered by the authorities as Swiss, or if someone has several other nationalities, he will be considered to have the nationality with which he has the strongest ties.
9. Art 16 CFS Liberty of Opinion and Information
10. Art. 33 CFS Right of Petition, subparagraph 1. “Every person has the right, without suffering any prejudice, to address petitions to the authorities.” [1st Amendement US CONST. Right to petition the authorities to redress grievances]. The IRS does not respect this, threatening with criminal prosecution people who proffer so-called “bogus arguments” that IRS has no authority to tax. This practice violates the right to freedom of speech.
11. 5th Amendment US CONST. (against self-incrimination): clearly not respected by the IRS. FATCA/FBAR force people to reveal potentially self-incriminating details. (see #2 and #16).
12. 6th Amendment US CONST. (The right to be tried by impartial jury in the state and district where the crime would have been committed.) How dare the IRS threaten bone fide residents of Switzerland with criminal prosecution for acts or omissions committed outside of the jurisdiction of the United States and under Swiss jurisdiction?
13. 8th Amendment US CONST. Forbids cruel and unusual punishment or excessive fines. The horrendous penalties under FATCA/FBAR are unconstitutional.
14. 7thAmendement US CONST. Right to a jury trial in civil cases where more than 20 dollars is at dispute. I do not believe that the US Tax Court respects this.
15. 9th Amendment US CONST States that the rights listed in the Bill of Rights amendments should not be interpreted to disparage other existing rights not mentioned there. This opens up the argument that the rights guaranteed by the Swiss Constitution and the Universal Declaration of Human Rights cannot be infringed by US tax legislation.
16. Art 26 CFS Protection of property [4th Amendment US CONST.]
17. Art 27 CFS Economic Liberty
18. Art 25 CFS (Protection against expulsion and extradition.) Switzerland shall not extradite people to the US that are threatened with an unconstitutional punishment of excessive fines. (see #13).
19. Art 271 CPS (Swiss Penal Code) “Illegal acts executed for a foreign state”. This law punishes by incarceration any official act committed on behalf of a foreign state in Switzerland that has not been officially condoned by the competent Swiss authorities.
20. Art 261bis CPS (Swiss Penal Code) “Racial discrimination”. This law punishes by incarceration the refusal of a service that is generally available to the public to a group of persons based upon their race or ethnicity. American nationality is a sort of ethnicity (even if it contains many sub-ethnicities) and hence the refusal of a bank account to a person based upon a bank’s unwillingness to negotiate the FATCA swamp would be criminal.
21. Universal Declaration of Human Rights (see below). There are a number of articles in this declaration that are compatible with the Bill of Rights, and with the first several-dozen articles of the Swiss Federal Constitution.
Reblogged this on Stop Unconstitutional Double Taxation.
@ Petros. Language of 1868 is clear. You DO have the right to expatriate. It says nothing about the government forcing you to pay your taxes PRIOR to repatriation, however. As a devils advocate, I’d argue that the Supremes would see this as a prisoner must complete his term of incarceration before being permitted expatriation. Of course, this brings up the point that we are considered guilty and must prove our innocence first. We’re right back at the point of the cost of proving your point – bureaucrats, including Shulman, I’m sure know what he’s doing is un-Constitutional in many respects; he simply is betting that no one will challenge it and therefore he’ll get what he wants. So far, he has made out like a bandit. He has succeeded based on “threats” of disruption, not the law or the disruption itself. The Swiss have fallen for it – for some unknown reason that baffles the mind – and now all of the financial institutions in the world are, too. If the banks looked at how disruptive this interpretation is, and if they acquiesce they provide the IRS (and hence any other US government agency) supremacy to impose their will extraterritorially without resorting to treaties, and realized this is far more disruptive in the long run, perhaps they’d marshal their resources and challenge the IRS threat. I simply don’t understand why they aren’t – and why their governments aren’t either?
@ Jefferson. Art. I, sec. 2, para. 3 was voided by the language of the 16th amendment. Hence the language “without apportionment among the several states…”. That’s why the first income tax law in 1898 was voided by the Supreme Court. Ironically – though they certainly didn’t know it at the time – this phrase actually opened the argument for imposing taxation on Americans wherever they lived.
Almost all bi-lateral tax treaties the US concludes acknowledges the US’ right to impose its citizen-based taxation on US citizens within the territory of that country. If no tax treaty exists, the USA assumes the power and waits for the country to challenge it, but none do.
The Swiss have shown by their actions under UBS that their constitution applies only to Swiss nationals and not foreign “guests”. They have thrown expat Americans under the bus assuming that would solve the problem with the IRS. As we saw subsequently with Wegelin, all it did was let the fox into the chicken coop! Worse – they set the precedent for the rest of the world. If the Swiss will cave, who won’t? And, of course, now the French, German, and British tax authorities are following the IRS lead demanding details from Swiss banks on their own tax cheats, too.
As I said, none of this is about what is right, legal, or Constitutional – it is all about what bureaucrats can get away with because the cost, complexity, and time involved to prove our point is prohibitive, so they win by default.
Unless you haven’t heard, Sen. Boxer is putting into a bill that expats can be denied passports and passage on international flights by establishing a “no-fly” list with TSA for those who are in arrears with their taxes. Imagine what a regulatory nightmare that will create! This is what “progressives” think is “fair” in America these days.
Just when you thought it was getting safe to go back in the water….
@ Petros and Jefferson. You made me curious about the issue of how Treaty law trumps the Constitution, and particularly NAFTA. As we all know, most of expat Americans actually live in Mexico and Canada. Therefore, NAFTA might hold a key.
I spent most of the morning reading the NAFTA treaty, and indeed there are a number of key Articles that are fairly unequivocal, particularly Part V, Chapter 14 dealing with Financial Institutions. Art. 1404 states: “No Party may adopt any measure restricting any type of cross-border trade in financial services by cross-border financial service providers of another Party, …, except to the extent set out in Section B of the Party’s Schedule to Annex III [which listed Fed restrictions].” An argument could be made that sequestering 30% of a financial institution’s dealing with the USA if a bank doesn’t provide info to the IRS is precisely against NAFTA.
As to the broader issue on taxation, however, Art. 2013 on Taxation, unfortunately, is fairly unequivocal:
1. Except as set out in this article, nothing in this agreement shall apply to taxation measures.
2. Nothing in this agreement shall affect the rights and obligations of any Party under any tax convention.
The threat of the IRS of withholding 30% of a bank’s funds is clearly NOT a tax issue; imposing citizen-based taxation on expats, however, is!
The point with the IRS threat, however, is quite significant: NAFTA invokes both national treatment clauses and most-favored nation clauses, meaning all other treaties with these have to be honored as well. Banks would do well to challenge the IRS’ threat on the basis of Chapter 14 of NAFTA as an illegal act.
In addition to Ch. 14, Chapter 9, Art. 904. 4 states: “No Party may prepare, adopt, maintain or apply any standards-related measur with a view to or with the effoct of creating an unnecessary obstande to trade between the Parties. An unnecessary obstacle of trade shall not be deemed to be created where: (a) the demonstrable purpose of the measure is to achieve a legitimate objective; and, (b) the measure does not operate to exclude goods of another Party that meed tht legitimate objective.” The IRS threat is most definitely in contravention to this Article, and runs counter to the national treatment and MFN clauses where no Party can unilaterally impose any measure that does such a thing.
@Patric Does treaty law trump the Bill of Rights? Why? Does the government have the right to sign a treaty whose execution would violate the protections in the Bill of Rights?