With all the focus on American emigrants’ issues here at the Isaac Brock Society, it’s worth remembering that Doug Shulman’ whale-hunting efforts are also ruining the lives of immigrant minnows who keep some assets in their home countries. A major South Korean business newspaper reported earlier this month that some Korean Americans with accounts at South Korean banks are closing those accounts for fear of ridiculous IRS fines. I’ve been busy so I’m just getting around to translating this now.
| “벌금폭탄 피하자” 교민예금 이탈 가속 | “Dodging the penalty bomb”, withdrawal of diaspora deposits picks up speed |
| http://news.mk.co.kr/newsRead.php?year=2012&no=561021 | |
| 美, 내년부터 해외자산정보 미신고분에 벌금…시중은행 한곳서 100억 이상 빠져…금융권 비상 | Starting next year, the U.S. will issue fines for not reporting overseas assets; more than ₩10 billion drained from one retail bank; finance sector on alert |
| 기사입력 2012.09.03 17:31:49 최종수정 2012.09.04 07:29:25 |
Publication: 3 September 2012, 17:31:49 Most recent update: 4 September 2012, 7:29:25 |
| 내년부터 국내 시중은행들이 미국 정부에 예금정보내역을 제공하게 되면서 국내 은행에 들어있던 미국 교민 예치금이 이탈하고 있어 금융계에 비상이 걸렸다. | Starting next year, [South Korean] retail banks will have to start providing breakdowns of deposit information to the U.S. government, and so at banks across South Korea, Koreans living in the United States have been withdrawing their deposits, putting the finance industry on alert. |
It is worth emphasising: it remains formally legal for U.S. citizens and residents to hold assets in whatever country they wish, aside from those under U.S. sanctions. And there is nothing suspicious about doing so. As U.S. legislators fail to realise, it is no longer 1923, and not everyone migrates to the U.S. on a rickety boat with their life’s savings in their pockets — many people from overseas, whether they call themselves “immigrants” or “expatriates” or “guest workers”, keep assets in their countries of origin, either due to the difficulty of withdrawing those assets and transferring them overseas, or because they plan to return there after retirement, or for any other number of reasons.
Of course, with Congress and the IRS putting more and more paperwork burdens in the way, law-abiding green card holders and naturalised citizens — especially those whose native language is not English — will have a harder and harder time understanding what needs to be done to exercise their right to choose where they save, and in the end may be intimidated into remitting all their capital to the United States. Even if they cross every “t” and dot every “i”, the IRS may send them threatening letters anyway falsely claiming there’s something wrong with their paperwork, just to see if they pay up.
| 미 연방 국세청이 그동안 신고하지 않았던 해외자산에 벌금을 물리기로 결정하면서 국내에 투자했던 교민들이 아예 예금을 빼는 등 움직임이 있는 것이다. | The U.S.’ Internal Revenue Service has recently resolved to impose fines on unreported overseas assets, and so Koreans abroad who have invested in South Korea have suddenly been making moves to withdraw their deposits. |
| 3일 금융권에 따르면 A은행의 `비거주자 자유원예금` 잔액은 지난 6월 말 1143억원에서 7월 말에는 1046억원으로 한 달 새 100억원 가까이 감소했다. B은행 예금잔액도 지난 6월 말 1220억원에서 1205억원으로 줄었다. | According to [a statement by] a finance industry source on 3 September, “A” Bank’s “Non-Resident Freely [Remittable] Won Deposits” balance fell from ₩114.3 billion to ₩104.6 billion in June, a decrease of almost ₩10 billion in just one month. “B” Bank’s deposits decreased from ₩122 billion to ₩120.5 billion in June. |
It’s not clear how many account-holders are affected, but if they’re worried about being exposed by FATCA, that would mean an account balance of US$50,000, or about ₩55 million. In other words, between the two banks the amount of funds withdrawn might correspond to about 200 accounts. The scale of this phenomenon may seem rather small, but the fact that life-altering FBAR and FATCA fines scare even one person away from exercising his legal right to keep money in his country of origin is a cause for shame. Would a fair and just society threaten its immigrants like this?
People like Andrew Leonard would like to paint these immigrants as fatcat Tea Party tax evaders for daring to have such an amount outside of the Greatest Country On Earth™. But in fact US$50,000 is not a large amount of savings for a mid-to-late career professional or retiree to have; it is well below the median amount of financial assets held by Americans in the 45 to 74 age bracket. This decrease in deposits may be evidence that FATCA is succeeding at the goal of imposing capital controls by stealth — by terrifying ordinary people who prefer to hold their assets in other countries, such as those where they speak the language and understand the market better.
| 비거주자 자유원예금은 해외 거주자의 원화예금 중 해외로 지급하는 것이 가능한 계정으로, 해외 교민들이 국내에 예금을 할 때 주로 사용하고 있다. | Non-Residents’ Freely [Remittable] Won Deposits are a type of won-denominated account offered to people residing overseas from which payments can be remitted overseas, and are mostly used by Koreans abroad to deposit funds in South Korea. |
| 이 같은 예금이탈은 국내 은행들이 내년부터 미 연방 국세청에 예금정보를 제공하게 되면서 시작됐다. 미국 법상으로 미국 영주권자나 시민권자들은 미국이 아닌 다른 나라 계좌에 보유한 자산을 신고해 세금을 납부해야 한다. | This withdrawal of deposits is because starting from next year, South Korean banks must begin providing deposit information to the U.S.’ Internal Revenue Service. Under U.S. law, U.S. permanent residents and citizens who maintain assets in countries other than the U.S. must report those assets and pay tax on them. |
| 하지만 현재까지는 미국 측이 계좌정보를 확인하지 못해 유명무실한 법규에 지나지 않았다. 이에 상당수 재미교포들은 국내 은행계좌에 상당한 자산을 예치해 운용해왔다. 재미교포 김 모씨는 “미국에서는 예금금리가 거의 없지만 한국 시중은행에 예치하면 연 4~5% 금리를 받을 수 있어 재미교포들이 `쏠쏠한` 자산운용 방법으로 활용해왔다”고 말했다. | However, up to now the U.S. side has been unable to confirm any information about [such] accounts, meaning the regulations are nothing more than empty words. Due to this, a considerable number of Korean Americans have been keeping a considerable amount of assets in deposits at domestic banks. Mr. Kim, a Korean American, stated that “in the U.S., you can’t earn any deposit interest, but in South Korea for a deposit at a retail bank you can get as much as four to five percent interest, and so Korean Americans have been enthusiastically using it as a way to invest their assets”. |
It’s sad to see a South Korean newspaper adopting the American style of casting aspersions on anyone who dares to keep an account outside of their country of residence. In fact, the anonymous Mr. Kim’s quote says nothing at all about a causal connection between the U.S. inability to find out about South Korean accounts and the number of Korean Americans keeping accounts there. If Korean Americans really wanted to “hide money” they would have kept their accounts somewhere that does not cooperate so closely with the United States — or perhaps they would have just “roundtripped” their capital and opened U.S. accounts while pretending to be foreign depositors, in order to take advantage of the U.S.’ sweetheart 0% tax rates for foreigners (but not for U.S. Persons) designed precisely to drain capital out of other countries.
Instead it seems fairly clear that the depositors’ main motivation was finding a higher return on their savings than the pathetic rates on offer in the U.S. — not to mention more mundane concerns like having easy access to “walking-around money” during their visits back to their country of birth. (On my very first trip to Seoul all those years ago, the Korea Exchange Bank cash machine at Incheon Airport got confused by my non-Korean ATM card and ate it, leaving me with no cash. Think the “protection of the U.S. embassy” or the words “civis Americanus sum” helped me out of that one? Yeah right.)
Furthermore, there’s no indication that the depositors avoided paying the taxes owed on the interest payments in question (by including them on their Form 1040 Schedule B) — the only indication of any “wrongdoing” is that they failed to report their account balances by filing useless FBARs or Form 8938s. And exactly how much tax is owed on a US$50,000 account that earns a 4% interest rate? In the 28% bracket, US$560 per year. Even if depositors failed to report the interest they earned, we’re not exactly talking about Timmy Geithner-level tax evasion here — certainly nothing that warrants threats of FBAR fines of tens or hundreds of thousands of dollars.
| 그러나 내년부터 은행들이 미국에 정보를 제공하게 되면서 상황은 복잡해졌다. 미 연방 국세청은 그동안 신고하지 않은 자산이 적발되면 원금의 3배를 벌금으로 물도록 했고, 현재는 자진신고기간을 두고 있다. 자진신고로 벌금을 감액받는다고 해도 벌금이 원금의 27.5%에 달한다. | However, starting from next year banks will have to provide information to the U.S. government, and so the situation becomes more complicated. Recently, the Internal Revenue Service has been imposing fines of three times the account balance when unreported assets come to light, and is now running a voluntary disclosure programme. Even though the fine for a voluntary disclosure is reduced, it’s still as much as 27.5% of the principal. |
| 시중은행 관계자는 “국가 간 협정을 맺게 되면 금융회사들은 미국 시민권자나 영주권자와 관련된 정보를 제공해줘야 한다. 제공하지 않으면 불이익을 당하게 된다”며 “현재 정부도 이 같은 정보제공이 국내법과 충돌할 수 있는 문제 등에 대해 검토하고 있다”고 말했다. 또 다른 금융권 관계자는 “법률적인 검토를 하고 있지만 국내법과 상충되는 부분이 그리 크지 않아 내년부터 시행될 것으로 보인다”고 했다. | A source at a retail bank stated, “if an inter-governmental agreement is reached, financial institutions will have to provide information relating to U.S. citizens and permanent residents. If they do not provide the information, they will face penalties” and that “right now, they are still investigating problems such as the potential conflict with South Korean law even if the government [itself] provided this kind of information”. However, another finance industry source stated, “even though they’re still conducting legal review, the portions which conflict with domestic law are not so big, and so it’s likely to be implemented starting next year”. |
As mentioned last time, there are pending amendments to South Korea’s “Real-Name Financial Transaction System” (금융실명제) regulations and other laws in order to allow banks to transmit identifying information from their transactions data to the United States. I’ve been trying to find the exact laws and orders in question, but I haven’t been having any luck. I have my doubts that the legislature is giving this issue much scrutiny, with other domestic issues on their plate and a presidential election coming up at the end of the year.
| 이에 따라 교민 예금은 대대적인 이동을 시작했다. 아예 예금을 빼서 현금화하는 방안을 택한 것이다. | Due to this, the diaspora has begun a large-scale movement of their funds. They’re withdrawing their deposits and converting them into cash. |
| 특히 저축은행이나 제2금융권과 관계없이 미국 영주권자나 시민권자라면 정보를 제공하게 돼 있어 교민들의 불만도 높아지고 있다. 한 재미교포 사업가는 “한국 내 은행이나 저축은행에 있는 미국인 예금의 90% 이상은 시민권이나 영주권을 보유한 한인들”이라며 “약 1만~2만명의 한인교포들이 대상이 될 것으로 보여 예금을 인출하는 한인들이 늘고 있다”고 말했다. | It doesn’t matter whether [your account is with] a savings bank or a non-bank financial institution, if you’re a U.S. citizen or permanent resident your information will be provided [to the U.S. government], and so the diaspora’s dissatisfaction is growing. One Korean American businessperson stated, “In South Korea, more than 90% of the deposits held by Americans in banks and savings banks are from Koreans who have U.S. permanent residency or citizenship” and “seeing that roughly ten or twenty thousand overseas Koreans have become targets, the number of Koreans who are withdrawing their deposits is rising”. |
I really have to wonder whether or not the statement at the beginning of the second paragraph is true. I’d hope Maeil Business Newspaper would know better than me — after all, they are Korea’s leading business newspaper, the local equivalent of the Financial Times or The Wall Street Journal. If there is any inside story to know, they’re certainly well-connected enough to find it out — their CEO used to be acting prime minister of South Korea, though he belongs a party that’s now in the opposition, not the ruling New Frontier Party.
But anyway, if all account information is going to be provided to the U.S. regardless of what type of institution the account is held with, either the South Korean government is negotiating a very bad inter-governmental agreement, or South Korean credit unions and the like are not planning to try to take advantage of the “local FFI” exception or other similar exceptions to avoid having to engage in FATCA reporting — either they’re not aware of them, or they don’t think they can qualify due to their proportion of non-residents’ accounts.
Finally, I’m not sure if the statement about “ten or twenty thousand overseas Koreans have become targets” means the number who have gone into the OVDI (which would be a truly shocking proportion of the total of thirty-three thousand participants), or whether that’s an estimate of the number who have withdrawn their funds from South Korean banks recently.
| 국내 금융회사가 미국에 예금정보를 제공하는 것은 이르면 내년 7월부터 이뤄질 전망이다. | South Korean financial institutions are expected to begin providing deposit information to the U.S. in July of next year. |
| 은행연합회 관계자는 “은행들도 신규계좌를 개설할 때 미국인인지 아닌지 판단할 수 있는 시스템을 내년 6월까지 구축해야 한다”며 “기존에 운영 중인 자금세탁시스템이나 실명법 시스템 등이 있어 시스템 구축에 큰 어려움은 없을 것”이라고 내다봤다. | A source at the Korea Federation of Banks stated “banks have to develop systems by June of next year to determine whether or not [people establishing] new accounts are Americans or not”, but that “if they have existing money-laundering systems or ‘real-name law’ systems already in operation, there shouldn’t be any great difficulties in developing that system”. |
| [최승진 기자] | [Reporter Choi Seung-jin] |
Presumably he means anti-money-laundering systems rather than money-laundering systems. It’s surprising to see a bank officer estimating that FATCA compliance costs should be relatively low. My guess is that this attitude is unique to South Korea — banks there already have measures in place for supplying data to the U.S. on demand, like the Simultaneous Criminal Investigation Program that was set up two years ago.
The repatriation of captial is what the U.S. wants to have happen. They don’t want Americans to participate in a free market. The financial slogan of America when it comes to financial assets is, “buy American”. This is going to be one way of addressing America’s reliance on Chinese investment in U.S. Treasuries.
I wouldn’t be surprised if that happened in many countries. This is the logical action for minnows with relatively small accounts. Why risk life altering fines when you can either gift the money, or transfer it back to the US and close the account that is now a liability?
The main reason I kept mine was for praticalities. Believe it or not, American credit card are not always accepted everywhere abroad, and it was just easier to use a local one. It was getting embarrasing to ask my parents or my sister to pay for stuff when the merchant wouldn’t accept my card. And as an added benefit, you avoid outrageous bank conversion fees. But those fees are now a drop in the bucket compared to the possible fines and hasle that can happen if you’re investigated because your name has been transfered.
FBAR and FATCA is still not very known in the immigrant community. No mention by immigration lawyers and immigration services. No word from our consulates/embassies either.
If the authorities get the words out, with the penalties associated and such, we’ll see diaspora accounts closing in a much larger scale. As I mentioned, I polled many of my immigrant friends in my multinational company. NONE of them knew what a FBAR is. NONE – ZERO.
I also agree with someone else who said that she’s not going to mention that madness to friends anymore. I have been advised by many people to just shut up. Ignorance might be better for those who don’t know – for many reasons maybe including legal ones, but the main important one might be not to mess up their mental health like it has impacted mine, and let them be happy and enjoy their life in the US, instead of constantly worrying.
@ Eric…
Thanks for this post. I always appreciate your efforts to take the foreign press and do the translations. A skill I wished I had. Very interesting read. Thanks for taking the time.
@Christrophe…
Regarding your comment
My wife is in your camp, but I remain in the “Warn” mode anyway. Silence just delays the inevitable discovery and more significant pain for these friends later. I think we benefit in the long run, if the pending impacts of misguided U.S FATCA and FBAR policy are more widely known now. Just waiting for the media to tell us doesn’t work.
So, I just can not remain silent, much to my wife’s chagrin. The FATCANATICS are very determined. How can we just shut up in the face of what they are imposing on the world? I would rather cause a friend little mental stress now, so they can take action, rather then leave the discovery to them later when the IRS letter arrives in the mail. I am not going to beat it over their head, or keep harping if they care not to listen. I am not making a political campaign out of my warnings. However, If you see a freight train coming and absent any other warning signals, don’t you have a moral responsibility to encourage the impervious child to get off the tracks? Maybe not. But, my tendency is not to turn away.
Just so I am clear, I am not on the streets with a sign and bull horn like the evangelist at the Pike Street market trying to save the fish mongers. But…for those I know personally (and some even casually), they get the warning! They can do with it what they wish. I am not going to beat them over they head or berate them if they ignore my words. That is their choice. I certainly would have appreciated the warning way back when.
CCW
@Just Me, re; …..”I remain in the “Warn” mode anyway. Silence just delays the inevitable discovery and more significant pain for these friends later. I think we benefit in the long run, if the pending impacts of misguided U.S FATCA and FBAR policy are more widely known now. Just waiting for the media to tell us doesn’t work. So, I just can not remain silent”…
I agree with the Warn approach – with a caution not to jump into the pitfalls, and not to make decisions in panic. Being the bearer of bad news just might give the hearer a fighting chance to choose their path, or rearrange their affairs, or not sell their house, etc. rather than the flailing in blind panic that results from finding out exactly what the US has been up to – unbeknownst to the >1 million the US claims as taxable persons in Canada, or the millions elsewhere int he world. And no-one has ever heard of 3520s or the FBAR. And if our government in Canada had issued warnings to citizens and residents here, we would have had some advance notice of the problem instead of relying on the media and been better able to protect ourselves. It certainly would have helped my family.
One person I spoke to said that they were sorry I told them. I was trying to warn them. But trying to comply only led deeper into the morass. And, I agree that they may have been in a better position today if I hadn’t. Others made different choices, and no-one knows how that will turn out. Timing has been very important, and financial resources, and information. But, ignorance has also meant at least a temporary period of bliss, and perhaps will end up better than those who tried in good faith to ‘comply’. FATCA may or may not end some of that with a crash, who knows? Or maybe a change of regime and enough bad press – combined with vocal opposition from within the US re domestic banks, and from our federal government, Minister Flaherty and other politicians in Canada, and the attention of the IRS Taxpayer Advocate may eventually ameliorate things to some small degree. Or not. We have no crystal ball.
Being the “she” in question, I can only say that I agree with both approaches. Like Christophe, I work for an international company and I meet potentially non-compliant US Persons at the rate of 2-3 a week. From past experience, I know it takes a lot of time to explain things to them and most will be in shock and as I never have any good news for them, it becomes uncomfortable. On the other hand, as Just Me says, I would have appreciated this information if someone had tried to explain it. The way I am choosing to proceed is to publicly identify myself as an OVDI victim at meetings of American associations (that I never was a member of before I became a victim) and offer to tell my story with the hope that people will overcome their fear and take the time to determine the best approach for their situation. As tax is on the agenda of most of these meetings, I have ample opportunities to inform others. I have become a lifetime member of ACA. I continue to do work in the background that I will not elaborate upon at this point. This is the way that I can combine both approaches and keep my sanity. Most of my close friends are happier with me these days. For a while, I was banned from using the “t-word” in their presence.
@badger..
You are right. I try not to be the ‘prophet of doom’, but it is always the dilemma of a reluctant activist who thinks they see a developing storm. How far do you go in your activism? Almost by definition, if you warn, you are advocating action, and it is hard to avoid going overboard with the warnings.
Another person’s ignorance or bliss is not my responsibility, although I recognize a good argument can be made that neither is it my responsibility to alert them to what I see as an impending problem for them. I could be wrong! We need to be modest on our predictive ability. Like I said, I am not an evangelist for end times action to save a random soul on the street from FATCA hell. Maybe just posting at IBS is enough, and I should shut up.
Not easy choice on what to do, and I am less than certain, but I still choose Warn anyway in spite of my wife’s admonitions to the contrary. All I have to go on, is my own experience. I would have appreciated it had someone I knew or respected had warned me about FBARs and offshore accounts. It might have not made any difference, but it could have saved me a lot of LCUs and emotional distress later.
@Badger
Yes, had the Canadian government stepped up and done what the US government seemingly doesn’t seem interested in doing, I most certainly would have not set myself up for a tax liability on the capital gain on the sale of my principal residence (if this wasn’t proof of unsophisticated tax planning, I don’t know what is!)
You may be interested to know that in my 2013 budget submission to the Canadian government I suggested that Canadian taxpayers funds be allocated in a duty to warn Canadians with US personhood of their tax and filing obligations, if they cannot otherwise compel the US to do so.
@Just Me, Lisa. It is hard for me to not say anything to the new foreigners we hire. At least I think new people should start right and not put themselves in the situation I am in. I wanted to go talk to the HR department about the issue. But the person I report to explicitly told me not to.
I think it would be just fair to them to be told of their obligation by their company, since immigration lawyers are not doing their job and not telling them. I guess what he didn’t want is HR sending a mass mailing to all immigrants about the issue, and putting them (at least those who’ve been here for a long time) in a situation where they know they’re not compliant and now what: they can be paralized by the fear of the fines, jail and deportation and now be willfull of not doing anything? not even filing correctly forward, because of the risk of first time filing. I guess I can understand that position, but I still think new hires from abroad should be told. But I am not going against my manager’s word and putting my job on the line for it.
@all- I don’t think that we can blame the Canadian government for any of this. I honestly think that they are as taken aback by this whole issue as we are. Also it isn’t their legal or moral responsibility to WARN us about the tax law of the U.S.
Still though I don’t believe that they had a clue that the U.S. would ever interpret its tax law in this way. I am happy that the government seems to be doing what it can to get the U.S. to change its position and I am thankful that the Canadian court system has so far chosen to not enforce any U.S. tax claims that have been levied on Canadian citizens.
In the end the only thing that will stop the Americans will be a major push back by the other nations of the world. I think that they really need to push on the point that it is their treasuries that are being depleted and that the U.S. is interfering with their sovereignty when it reaches beyond its borders and tells it citizens what they are and are not allowed to do with the treasury issuances of another country.
This may all need to go to an international court. And yes I know that the U.S. doesn’t recognize the International Court but just the publicity of the U.S. being taken there over FATCA and citizenship based taxation will mean that the Americans will be exposed.
@Christophe, I also don’t know whether I should warn people. Sometimes when people are talking about taxes I mention general things like citizenship-based taxation, the comparison with Eritrea, FATCA and FBAR, but I try not to mention the IRS war on foreign stuff and the draconian penalties. I know some people who might be subject to this mess and don’t know it, and I don’t want to cause them to live the
despair described by people in this blog.
@Christophe
When you work for “the man”, you have to play by his rules. I would not jeopardize your job either against your employer’s wishes.
The BIG failure is with the State Department that is does not do it’s job of informing new immigrants of the obligations of membership in this new club. The guys in charge of Visa issuance probably don’t even know there is an issue either!
@recalcitrantexpat, Although the US policy on international taxation is horrible, it’s not illegal. Foreign banks can still choose not to have relations with the US and FATCA will not affect them. Other countries probably do not object to citizenship-based taxation as some of them also used it in the past (Mexico, Philippines, Vietnam, Myanmar) and some still use it in limited circumstances (France, Spain, Germany, Italy, Finland). Nationality is usually the last “tie-breaker” in tax treaties to determine residence of a person.
recalcitrant, re; “Also it isn’t their legal or moral responsibility to WARN us about the tax law of the U.S.”
I do think that the Canadian federal government’s continued promotion of registered products to the residents and citizens in Canada should contain a warning that those deemed US citizens/taxable persons should check with a qualified cross-border advisor before investing savings in RESPs, TFSAs, RDSPs, and the new PRPP (particularly when participation and enrollment is being pushed as something that may be made mandatory in various workplaces, and some provinces http://groupbenefitsonline.ca/how-the-new-prpp-should-work/ which would automatically trigger an IRS reporting obligation and potential penalties and taxes for any enrollees with a US tax status – the PRPP would be treated as a ‘foreign trust’ by the IRS).
“approximately 6.7 million Canadians have already opened a TFSA.” http://www.cra-arc.gc.ca/nwsrm/rlss/2011/m08/nr110819b-eng.html The TFSA was introduced by Minister Flaherty in 2009 http://en.wikipedia.org/wiki/Tax-Free_Savings_Account#cite_note-0
Now that Minister Flaherty and the feds are fully aware that the US is continuing to punish us for using any of those popular and much promoted registered savings vehicles designed by Canada to encourage those in Canada to save, it is counterproductive to let > 1 million here invest in them only to lose not only any interest earned, but eat up the capital through US penalties, accounting fees, and taxes on the earnings. http://m.theglobeandmail.com/news/politics/ottawa-notebook/ottawa-hopes-pooled-pension-spurs-retirement-saving/article2238773/?service=mobile Minister Flaherty and the feds know that these are treated punitively by the US as ‘foreign trusts’, just as they had to have known the tortured history of RRSPs, which had the same designation and treatment, and only more recently became at least not subject to direct penalty (although still requires an annual election on form 8891 to be tax exempt).
They know the limitations of the Canada/US tax treaty – and as they are our representatives – working on our behalf when dealing with the US on these issues, they must take into account the insistence of the US on trying to tax dual citizens and residents on Canadian generated assets, held on Canadian soil. Canada has a responsibility to those born, and naturalized as its citizens – and the onus should not be on individuals to deal with the US on treaty matters.
@Christophe,
Who is to take responsibility for transparency (and I agree you can’t put your job on the line for it)? Here is from an earlier comment I made:
@Shadow Raider- I do believe that the U.S. policy of citizenship based taxation can be proven to be illegal and contrary to principles of free trade and human rights. I think tht it certainly contradicts free trade when it comes to financial assets. And it goes against the basic right of freedom of movement since one of the principles upon which the U.S. bases its right to exercise citizenship based taxation is that U.S. persons have permanent residency in the U.S. whether they want it or not. Any law that puts a person in a place where he/she is clearly not or has never been is an illegal law. It amounts to nothing less than forcible confinement and forcible confinement is wrong fot not only crooks too commit but also for governments. It is nothing more than legislated perpetual allegiance.
I do think that the governments of the world can declare citizenship based taxation to in principle be wrong because it is an out right assault on their treasury and sovereignty. Citizenship based taxation is illegal by implication because of all the laws that it is in direct and indirect violation of.
The most decisive of all being our freedom to move. A person who is moved away from a jurisdiction cannot be said to still be subject to its laws. If you have moved away but are still subject to a country’s laws and penalties then you haven’t really moved. This is the game that the U.S. is playing and they need to be called on it. Did Saddam have a right to murder HIS Kurdish citizens? Did Stalin have a right to imprison anyone he deemed to be an enemy to the Communist government? America’ answer would be no.
But based on the logic that your position would use that would mean the U.S. has no business speaking about the human rights record of any country. If the U.S. wants to play at the game then it has to be prepared to be criticized by the same rules that it promotes.
@recalcitrantexpat, You have a valid point, and maybe that’s why the other countries also abolished citizenship-based taxation or apply it only to very limited cases.
I just had an idea with which congressmen might agree. The US already admits that it cannot offer consular protection to dual citizens in the country of their other nationality, so why not consider them as nonresident aliens for tax purposes? This would not require the person to actually renounce US citizenship, just to reside in another country and acquire that nationality. In practice it would be like making citizenship-based taxation temporary (naturalization usually takes a few years), and this is what some countries already do with residence (you must reside in another country for some years to be considered nonresident for tax purposes in Australia, Ireland, and in some cases France, Spain and Finland.) This way the US could still use citizenship in taxation, so it sounds like a compromise. Would this solve most of the problems?
@Shadow Raider- Thanks for the input. The proposal that you set out is a step forward but since it would only be effectual once you became a citizen of your country of residence it still means that you are forced to live in a country where you are not until such time as you become a citizen. In the meantime it also still has the problem of penalizing your legitimate use of another country’s treasury and of the U.S. being able to place artificial barriers on one’s income and investment options. As far as I am concerned justice demands that all none residents be treated the same without any regard being paid to their citizenship status in the other country.
I guess what my basic gripe still is that even with your proposed compromise the U.S.’s taxation prison is built upon a lie which is, that, when a U.S. person lives and works abroad the U.S. is suffering some kind of harm to its treasury. We all know that this is not the case. The U.S. through these rules is not protecting itself from any financial harm because there is no longer any connection between the U.S. citizen and the U.S. Treasury. The U.S. person who is resident in another country has about as much to do with the U.S. treasury as does his native born neighbor and that is zilch.
I am aware that there are some countries that require their citizens to file of tax returns after then have left the country but those filings are for a limited time only and they are only imposed on high net worth individuals. And because these countries practise territorial taxation the income that has to be reported is limited in scope. This makes for there being a big difference for such a system being operative under current U.S. tax law.
@recalcitrantexpat, Sure, I agree. I’m just trying to have a plan B in case Congress refuses to accept ACA’s proposal.
ShadowRaider; thank you for strategizing, and for thinking of a possible plan B. In a not too distant past, perhaps there would have been more support from expats for what you are proposing as an effort to offer a Plan B as a compromise; but, the continued extremely punitive behavior of the US, full of destructive caprices and whims regarding the FEIE, and schemes like the HIRE act, to fund popular and pet domestic initiatives through revenues raised from penalties imposed on those abroad made us realize that we cannot trust the US. We cannot trust the US, Congress, Senate and IRS to behave fairly and justly. Plan B might look as if it would ameliorate the situation, or the limit the time that expats would be subject to double taxation and financial reporting, but it is not credible that the US wouldn’t make the conditions so onerous or exclusive as to make them unworkable for the average person. Similar to the new ‘streamlined’ compliance guidance – contingent on providing only Yes or No answers to questions which are not merely factual and whose significance is hard to entirely fathom as laypeople, yet is supposed to be designed for use by those with ‘simple’ returns and ‘low risk’ – without specialized legal and tax counsel. No-one knows but the IRS what those terms and conditions mean. No-one knows what a Yes or No answer really means tot the IRS.
Thus, your plan B as operationalized by the IRS would likely be just as labyrinthine and opaque – and exclude as many participants as possible – in order to continue to subject as many as possible to tax and reporting jeopardy, and revenue collection through penalties.
We don’t trust the US and the IRS to be fair. They continue in the same vein – demanding compliance while making it very difficult or impossible to achieve. This makes them untrustworthy, and casts serious, or terminal doubt on their motives and methods. The only remedy is to abolish citizenship based extraterritorial taxation and financial reporting entirely. Anything less will fall prey to the IRS impulse to punish, and to make the mechanics of compliance so complex as to be nearly incomprehensible.
*Shadow Raider, I’m good with being classified as being a “nonresident alien” US citizen. I don’t need to vote or have any US benefits while living abroad. The last thing that I want is for Stateside Americans to spend a dime on me or for me to tell them how they should run their country. It would be fine, in my view, to be treated as an alien until returning to the States where full citizenship would be restored.
@SwissPinoy- you don’t need to take the noble step of disavowing your U.S. Constitutional rights while living abroad, since you have none. The only right you may have is the right to vote but even that is questionable.
Should you even get to exercise your vote you will find that it is an act that is devoid of any relevance to your daily life and the life of any family you may have. This is because U.S. government power doesn’t exist outside of its jurisdictional boundary.
Shadow Raider is correct when she points out that non-resident U.S. persons, whether they be dual citizens or not, are basically aliens as far as U.S. power is concerned. If you get in trouble the U.S. government can beg and threaten on your behalf but it cannot command or render a verdict that is contrary to that of the Government of the country where you are at. In the end it is just your tough luck.
I don’t know when exactly this was written or if it’s ever been posted on Brock. It’s an essay by Dan Mitchell for the Schweizer Monat, a Swiss monthly for politics, economics and culture.
The Janus Face of US Tax Policy, references the Roman god of gates and doorways that is depicted with two faces looking in opposite directions.
“For all intents and purposes, the U.S. government picked up a gun in a fit of misplaced fiscal rage, aimed it at its own head and declared, Nobody move or the idiot gets it!”
http://www.schweizermonat.ch/artikel/the-janus-face-of-us-tax-policy
@bubblebusin,
I don’t recall seeing this one. How did you come across it? The date on the pages shows “Ausgabe: Nr. 1000 » Oktober 2012” so it “might” be as recent as today. Good read.
@Calgary411
I thought it was pretty good too. Dan Mitchell is with the Cato Institute who obviously have a very good grasp of the FATCA situation. The copyright at the bottom says 2011. I just googled “FATCA capital flight”.
*So if I close my 60K bank account immediatly and convert it to cash under the mattress in my home country. the bank wont report it to the IRS as suspicious closed account or recalcitrant account??