UPDATE: September 7, 2013:
Interestingly, Mr. Harvey’s paper has been removed so the original link that Victoria provided no longer gets you to his proposal. You also must now register for the site, which I did. Luckily, Em has come to the rescue as she saved it before it was removed.
May I draw your attention to this interesting article by J. Richard Harvey called:
World Wide Taxation of U.S. Citizens Living Abroad – Impact of FATCA and Two Proposals.
In a nutshell Mr. Harvey has seen that there are “issues” with the perfect world of citizenship-based taxation. He admits that many Americans and Green Card holders abroad are adversely impacted by the marriage of CBT and FATCA. However, he is not willing to let us off the hook and he has a few criticisms of ACA’s Residence-based taxation proposal.
He has two proposals of his own that are worth examining – not because I think they are good solutions but because I think they represent a kind of counter-offer. “You folks want X? Will you settle for Y?”
Here they are:
He is also suggesting some relief for certain categories of Americans abroad. This doesn’t go far enough in my opinion. I would like to see a definition of “significant percentage of their lives” spent abroad. What does that mean exactly? His opinion is that only in a few very sympathetic cases (accidental Americans) all others (people who have lived abroad for 20 years, for example) should NOT be entitled to any relief at all.
What is encouraging about the paper is that he acknowledges the problems (a kind of progress). However, he is still in the mind-set of punishing those “rich tax evaders” and does not take into account the high price the US will pay if it continues along this path of trying to enforce CBT. And though he admits that there is a high percentage of middle-income expats that are being harmed because of government actions to demotivate the 1% from expatriating, he still feels these measures are justified. Mitigation, he says, is the key but I don’t think he goes far enough and I think he completely misses a very important motivation for middle-class expatriates – getting out from under all that paperwork and the associated costs for cross-border experts.
Today’s Wall Street Journal contains an article on how Brazil’s president Dilma Rousseff read the riot act to President Obama about he information released to the press that NSA has been monitoring her telephone calls, including the most confidential calls between herself and members of her cabinet. She has called back home the Brazilian team that had traveled to Washington to make arrangements for her planned visit there and a state dinner with President Obama. That visit dinner will likely be cancelled unless Obama comes up with an answer that she considers satisfactory. From this article, she was furious. With this action by NSA the US is driving Brazil into the arms of Maduro and other Latin American heads of state who have become dedicated enemies of the US.
This article is available to 7 days on-line to non-WSJ subscribers at http://online.wsj.com/article_email/SB10001424127887323623304579058820092654540-lMyQjAxMTAzMDAwNzEwNDcyWj.html?mod=wsj_valettop_email. Or just Google wsj.com and search for “Obama seeks to appease Brazil, Mexico.”
I have also posted a response to this article which hopefully may stir up a hornet’s next on how US tax laws in general and FATCA in particular also violate Brazil’s sovereignty by gathering confidential bank account information and levying and collecting US taxes within Brazil’s sovereign borders. Brazil has always been a country which takes very seriously any action by foreign powers that could be seen as a violation of its own sovereigny
Here is the comment I posted on today’s Wall Street Journal article “Obama Seeks to Appease Brazil, Mexico:
Not only has the US violated the sovereignty of that nation by recording and internally disseminating details of its president’s confidential communications, but it also violates its sovereignty by levying and collecting US taxes from within its borders. Neither Brazil nor any other nation would be able to get away with obligating US institutions to report the financial assets of their 35 million citizens residing in the US; let alone tax them on their US-source income. Congress would never permit such a violation of US sovereignty.
This is just one more slap-in-the-face violation of Brazil’s sovereignty, which has become just a matter-of-fact SOP for the United States. The FATCA legislation enacted in 2010 obligates every bank in Brazil, at its own expense, to ferret out and provide detailed reports to the IRS on their accounts held by “US persons,” which includes not only US citizens resident in Brazil but also all with dual Brazilian citizenship, born in Brazil to even one US-citizen parent, even though they speak no English have never had a US passport or never been in the US. It includes Brazilians who became naturalized US citizens and then returned to Brazil, as well as green card holders who have returned to Brazil without having formally cancelled their green cards with Homeland Security. Why? The US is the only “civilized” country that taxes its “persons” and citizens who live abroad on their already-taxed-abroad world-wide income. FATCA is to insure that every one of these persons is filing US tax returns, no matter were they live, and is paying the IRS every tax penny they owe on their foreign income.
The IRS publication for foreign financial institution IRS certification consists of 544 pages. Reports must be in English with foreign currency values converted to US dollars. Failure of Brazilian banks (and all other foreign banks in the some 200 other countries) to become certified by the IRS as compliant with this US extraterritorial law subjects them to draconian penalties on financial transactions with the US. Foreign tax credits and the limited Foreign Earned Income Exclusion may mitigate this double-taxation by the US However some income, such bank interest and Brazilian Social Security retirement benefits, which are not taxed by Brazil, are subject to US taxes. Self-employed US persons in Brazil are subject to full double Social Security taxation by both countries. There are severe IRS penalties for US persons resident abroad who fail to file letter-perfect US tax returns and even more severe penalties for even inconsequential errors on any of the 667 pages of additional tax forms that only US citizens living abroad are required to file. These persons are obligated to exchange their local currency income for US dollars from Brazil’s limited Central Bank US dollar reserves to pay the IRS what they owe on their Brazilian-source income.
Brazil’s President Dilma Rousseff, in response to this illegal act, has canceled a trip to Washington by her aids preparing for her upcoming visit which will likely be canceled.
“
Thanks for this update, bubblebustin. Very interesting. I hope that Mr. Harvey will correspond further with Victoria on this.
I have sent this email to Linda McQuaig and Professor Neil Brooks:
Great letter, Calgary411
I too hope that Victoria will have further dialogue with Mr Harvey, but what are the indications now that his article is inaccessible to most of those who’d be effected by his proposals?
Sure wish I had saved that pdf file!
Roger, thanks once again for your excellent work on this aspect that you have such a grasp on. Good for Brazil’s President for cancelling a trip to Washington for her aides in preparing for her upcoming visit, which I hope she will cancel and that fact will hit the media and they ask WHY! Thanks for tuning us into this — many here will follow it with interest.
I wish I had saved it too. I did write to him and I do agree that while his view is only that of a home lander without the benefit of understanding our issues fully, he seems to be trying to take some action. The fact that he assumes the U.S. is right in their FATCA regime is troubling. I think so because it would have been easier, less costly and far better for the U.S. to first target those living inside the U.S.A. and actually “off shoring” From the get go, the assumption that you are “off shoring” if you have a local bank account where you live as a U.S. citizen abroad was wrong and you cannot improve on something if you make all the rules with a wrong headed assumption to begin with.
It would still be easy for the U.S. to change part of the FATCA requirement to say that you can file a final notice after five years or so to the U.S. in order to legitimize the fact that you have no U.S. holdings, do not earn there, do not live there and are not going to return there any time soon. After filing said notice you would not be assumed to be an “off shoring criminal” and no longer need to report to them on yourself and your foreign family living abroad. Should you get U.S. holdings or return you would be taxed again on those holdings or on U.S. income.
That way they can separate those HONESTLY living abroad for legitimate reasons from criminals. This would save everyone money and allow them to catch the real criminals who can now be lost in a deluge of reporting. It would also not force people to have to renounce in order to bank where they live as honest citizens. Either this or the U.S. needs to just come right out and disallow dual. That would take the onus off those of us having to renounce as “bad people” We could send them notice of our foreign citizenship and then they could just take away our U.S. citizenship upon notice. That’s the affect of what FATCA is doing now anyway.
I saved the pdf. Could I e-mail it to someone?
Bravo!!!! Em to the rescue! I’ll send you an email so you have my email address.
I didn’t save it either. I should know better being an IT person and all. But I do have a summary somewhere because I took notes when I read it. I will try to find it.
I think we all got the gist though. Based on the comments would anyone mind if I wrote up a short summary of our objections/improvements/alternative solutions and what we liked and what we didn’t?
Victoria, as soon as I get what Em saved (bravo!), I’ll incorporate it into your post if that is OK.
A summary from you, as always, would be helpful and fantastic. Thanks!
@Victoria, worth checking your browser’s download cache. I didn’t ‘save’ the PDF but Chrome did, so I too still have a copy.
Does anyone really believe that the US Congress and the administration would stand idly by without doing nothing if other nations were to enact citizenship–based taxation, patterned after the US legislation, which would result in tens of billions of dollars being extracted from the US economy to flow directly into the treasuries of the foreign countries? The US already has, by far, the largest current account deficit of any country in the world of $427 billion. for comparison, Germany’s current account balance shows a surplus of $244.5 billion.
There is just about as much of a chance of the US Congress allowing that to happen as there is for snowball surviving in hell. There are even strong objections from many quarters because there is no remittance tax when residents of the US voluntarily send cash from income on which they have already been taxed to destitute relatives abroad, because there is no additional US tax on such remittances There is no limitation on the amount Cuban exiles in the US can send to their desperate relatives in Cuba, which by itself is estimated to be nearly $1 billion per year. Nobody knows because there are not controls on the cash they carry with them when they go back, some of them several times per year, to visit relatives.
But there is one set of rules for the united States and another for each and every other country.
@Em
I was going to ask you if you got around to reading it before it disappeared, but apparently you did better than that! BTW, have you read it yet? 😉
@Roger, great response, miles above the fray.
Note: The pdf file of Mr. Harvey’s proposal (supplied by our Em who had the foresight to save it), has now been sent on to Linda McQuaig and Professor Neil Brooks.
@ bubblebustin
Yes I read it but let’s just say I was underwhelmed by Mr. Harvey’s effort at “mitigation”. I want the whole enchilada — complete repeal of FATCA. It’s bad law and it belongs in the dustbin. I’m not interested in a spoonful of sugar to make the medicine go down. I know many think this is unrealistic but I guess that’s me.
@ calgary411
It wasn’t foresight. It was procrastination. I put it aside to read later (which I did) and then just left it sitting on my desktop which was fortunate poor housekeeping. 🙂
Em, love your (like mine) procrastination and (like mine) poor housekeeping. There’s a method to our madness.
Also now available here:
http://americansabroad.org/issues/fatca/impact-fatca-americans-abroad/
http://americansabroad.org/files/1413/7848/1535/harvey_2013.pdf
I hope that if Richard Harvey does read the comments here, that he realizes that his omission of the punishing burden of the PFIC and ‘foreign trust’ reporting, glaring instances of double US taxation and confiscatory and disproportionate penalty structures are glaring.
Our Canadian mutual funds and registered savings are legal, local, legitimate methods of saving for disability, retirement and longterm care. The US will NOT be providing us with any aid, healthcare or senior care services whatsoever. It will NOT heal us, shelter us or feed us. It won’t send our children to school or clothe them. We receive NO benefit from the US – only a growing burden and a growing liability. The US is a significant threat to the wellbeing of ourselves and our non-US families.
The claim that the mere existence of the US government and our theoretical ability to hold a US passport – based on some inherited US status, or the fateful accident of a US birthplace with no other significant or economic relationship is enough to justify this all-out assault on our legal local post-tax income is the flimsiest of disingenuous pretexts for asserting a US extraterritorial claim to our non-US assets.
Not only are banks abroad refusing to serve US ‘taxable persons’, but I can personally attest that some accountants and tax preparers in Canada are starting to refuse to assist with specific US reporting forms like the 3520-A, the 3520, and the FBAR.
Those who do are charging a premium, or requiring that we sign unlimited terms of agreements in order to obtain professional services. This is not limited to US-tax lawyers. Now some Canadian accounting professionals are demanding this as a prerequisite. Others who used to do US returns and forms as recently as 2011 or 2012 now perceive the potential risks they might incur as too high, and the time they would spend – and thus bill for are too expensive for most ordinary would-be clients.
Richard Harvey; you FATCAnatics and your fellows, the IRS, US Treasury, Senators and Congress are forcing more and more of us to renounce. We literally have NO choice. There is no way to live a normal ordinary life as a US citizen abroad. We cannot afford or locate professional help with the forms. The forms are so lengthy, demanding and incomprehensible that even the professionals struggle with them. The potential penalties for even accidental errors are life altering and bankrupting. The US prevents us from normal banking, normal saving, and normal financial relationships at work, at home, and in our communities, and constrains even the non-US members of our families. We live with the everpresent IRS and Treasury sword of Damocles over our heads. We struggle with unreasonable demands and illogical deadlines. Double taxation by the US is an ever-present possibility. The new Obamacare adjunct tax on investments is not addressed in any current US tax treaty. We were exempted from the main Obamacare tax only at the last minute after significant and prolonged lobbying efforts by the ACA and other groups with expat members. The US is so careless and cavalier of our wellbeing and that of our children and spouses, that it had asserted a healthcare tax on those abroad who already support national healthcare where they live, and who would never be able to use US healthcare services from abroad.
And even apart from all that, we refuse to continue to be put in the same category with money launderers, drug lords, and US resident tax evaders. We refuse to be held to a standard that the IRS and the US government did not apply to Timothy Geithner, former Treasury Secretary, and actual tax cheat. Who owed the IRS tens of thousands for multiple years of taxes unpaid, and who was given zero penalty. He did not come forward voluntarily. He was audited by the IRS. He did not account for or pay all that was owed until nominated for the post of Treasury Secretary.
Obama’s brother-in-law was a Canadian who moved to the US. His prior bank accounts in Canada were legal and local for him when he was a Canadian resident. Does that mean that suddenly, after he moved to the US – that those accounts, if they still existed were now transformed into suspicious potential hidden proceeds of crime? Of course not. Just as ours are not. But I doubt that he’d face an FBAR fine or a 3520-A penalty on his Canadian accounts and assets.
Apparently there is one law for those with influence and access to power, and another for ordinary individuals abroad.
Where is the cost benefit analysis for FATCA?
Where is the robust statistical data to prove that we are actually ‘hiding’ money and acutally owe the US?
Why should ALL Canadian citizens and residents pay taxes for the Canadian government to implement a FATCA reporting system and rework the CRA to do so? Why should ALL Canadian account holders pay additional fees to cover the FATCA related costs that Canadian banks and financial institutions – and “FFIs” will incur?
Why should we remain US citizens?
Why should the US have the ability to delay and deny us our International Human right to expatriate?
Why should millions of ordinary people living outside the US suffer so that the US can locate a handful of wealthy US residents with actual hidden accounts?
Justify that if you can.
Badger,
You have succinctly given the very questions that Mr. Harvey should answer if he wants to present what is fair about all the severe consequences of collateral damage of FATCA for US Persons Abroad — particularly “accidentals.” The same should be asked of Canadians, Linda McQuaig and Professor Brooks. Our Canadian government then may fully understand and fully protect its US Person citizens and residents. I so wish someone whose work would be respected take your questions and built a thorough research (or even opinion) paper around them. Thank you once again.
Good night!
CBC now reports that Canada involved in spying on Brazil as well: Canada spying in Brazil: more to come, Greenwald promises
In the interview to air at 6:30 p.m. Monday on CBC Radio, Greenwald said he “absolutely” has “a lot more” to report on spying by Canada.
@Calgary411
Thank you for standing tall and telling it just like it is.
Harvey’s comment about relieving the double tax burden for Americans living abroad by increasing the Foreign Earned Tax Exclusion, is a non-solution for anything. Why, because perpetually there are bills pending in Congress to totally abolish any foreign earned exclusion., It was abolished once before back in the early ’80s, but then brought back again.
Such elimination of the FEIE could easily be tacked on to some desirable but some totally unrelated bill just minutes before it is voted on and be enacted, with no discussion, debate, hearings or anything else. That is precisely how FATCA was enacted when it was attached unobtrusively to the HIRE Act, which was overwhelmingly approved by Congress.
Not a single session of Congress passes but what some Senator or Congressman, in an effort to plug tax loopholes, notes the amount of tax “expenditure” wasted on the FEIE, and without even understanding what it is or why it exists, introduces legislation to abolish it and thus save all of those “wasted” tax dollars.
Depending on the FEIE for relief from double taxation is like pulling yourself up with a rope tied to a limb that is already almost totally sawed off.
Thank you Roger for continuing to remind us that; “Depending on the FEIE for relief from double taxation is like pulling yourself up with a rope tied to a limb that is already almost totally sawed off.”
THIS HAS EVERYTHING TO DO WITH OTHER COUNTRIES’ PRIVACY LAWS AND SOVEREIGNTY!
If Canada’s present government is found to have ignored these rights of Brazil (and seemingly those in this country), do they have any value in the Canadian Charter of Rights and Freedoms for its citizens and permanent residents who happen to be ‘US Persons’?