This was proposed by Just Me and seconded by a few others so I thought we could take a shot at it together.
The basic idea is to create a one page (maybe two) tract that could be used as a template – something that could be adapted to the local circumstances. It could be sent to journalists, passed out during demonstrations or just emailed to people we know who are still very confused about what FATCA is, what it means, and why they should care.
Here are the latest updates as of September 17, 21:51 Paris time.
What is FATCA?
The Foreign Account Tax Compliance Act (FATCA) is an extra-territorial U.S. law that demands that all financial institutions in the world report to the United States’ Internal Revenue Service (IRS) the confidential account information of millions of people it classifies as “U.S. persons”.
What is a U.S. Person?
A U.S. Person can be a U.S. citizen, a Green Card Holder, or the citizen of another country who has a connection to the United States.
Here’s how you may have a US connection:
* born in the USA
* born outside the USA with one or two American parent(s)
* lived in the USA for a number of years
* visited too long in the USA in any given year
* married to a US person
* share signing authority on an account with a
US person
Chances are very good that you, or someone you know, is a U.S. Person. That means FATCA affects you personally. Millions of people worldwide who do not consider themselves to be U.S. citizens are still considered U.S. Persons by the U.S. government even if they have never lived or worked in the U.S., are citizens of another country, and have never held a U.S. passport or Green Card.
But I’m not a tax evader or a U.S. citizen or Green Card Holder!
Under FATCA you are presumed to be guilty until proven innocent.
If your local bank suspects you are a U.S. Person, they will require that you prove you aren’t.
If you clearly are a U.S. Person, and your country has signed an agreement with the United States (called an “IGA”), then your local bank will send your account information to your local government who will then turn it over to the United States.
Under these agreements, this will happen even if your country has strict laws protecting personal privacy. So far the following countries have either signed these agreements or have agreed to do so: UK, France, Germany…..
What will the United States do with that information?
Under American law U.S. Persons are also U.S. taxpayers. Those who live outside the United States are required to file tax returns, bank account reports and pay American taxes. This is true even if the U.S. Person earns no income and has no assets in the United States.
You might consider yourself a responsible tax-paying citizen of another country but the United States sees it differently. If they think you are a U.S. Person then they feel they have the right to add you to the American tax base.
There are others ways they could use that information. If enough countries are bullied into complying then the United States government will have a master list in their databases of all the people (and their assets) in the world who have any connection however innocent to the United States of America. That sounds a lot like the recent NSA scandals where the United States spied on citizens of other countries.
FATCA is spying by other means.
But I thought FATCA and all those reporting rules only applied to the rich?
Not true. FATCA impacts ALL U.S. Persons: rich, middle, or low income .
The filing threshold for one form, the FBAR (Foreign Bank Account Report), is only 10,000 USD. This threshold is the total of all that person’s accounts (checking, savings, and retirement) combined – not the value of any one account. This means that even very low-income U.S. Persons must file and face stiff penalties – up to 500,000 USD and 5 years in jail – if they fail to do so. The American IRS can impose these fines even if the U.S. Person is too poor to file a tax return and doesn’t owe any tax.
I’m not a U.S. Person and I don’t have any connection to the United States. What does FATCA have to do with me?
FATCA impacts ALL citizens in ALL countries in three ways:
1. All financial institutions worldwide are affected by FATCA. The billions they will spend in compliance costs will be passed along to customers in all countries through higher FEES.
2. Local governments and local taxpayers will bear the cost of the staff and information systems required to implement FATCA in that country.
3. Existing privacy and anti-discrimination laws will have to be downgraded in every country in order to facilitate FATCA. This means that citizens everywhere can expect less protection of their privacy from their local government.
Part IV (What they can do about it)
Some ideas for this section:
Here I would point them to Isaac Brock first as a resource. As them to join us or pass the link around to people they know who are affected by FATCA.
Then we can list the other sites we think they would find useful: Maple Sandbox, ACA, AARO and so on.
@pacifica777 Thanks a million for doing that…. and Em has a GREAT idea if there is a way to do it….
In the past, we had that scrolling banner which was topic related, and that would be a great way to display it. Also, that ACA video with prominent positioning would help newbies quickly see the message… If I wanted to find it, I would really have to dig to stumble about it. It was too good NOT to display. Maybe under Abbey’s video?
Here it is by the way, for those that have not seen it…
I’ve had an e-mail from my financial planner wanting to get together to discuss things. I’m a bit suspicious since the last time I was in there (possibly 2011), I was asked where I was born. Perhpas I am a bit paranoid after reading IBS for the past couple of weeks but I am concerned that I will be asked again about being a US person.
Would there be a point in making a FATCA fact sheet for financial institutions? For example, reminding them that citizenship or place of origin cannot be asked of Canadian citizens? I think that something has to be done to give financial instituions notice that they can’t just try to habituate us to to FATCA by sneaking in these questions now. I would like them to know that doing so is going to result in some legal activity regarding charter rights.
I saved the following comment by Wondering because it seems to be good practical advice …
So a front line defense is: refuse any request to disclose birthplace or citizenship other than Canadian. If asked for ID, present drivers license, health card (where allowed) or Canadian citizenship photo card. If a bank queries place or birth or citizenship other than Canadian, tell them you consider the request unlawful. An enhanced drivers license is proof of Canadian citizenship that does not display place of birth. If a bank asks if you are a US person, possible counters are:
– “I am a Canadian person, I am a Canadian citizen (or permanent resident if not citizen) residing in Canada. I am confused by your question. Are you asking me what my national or ethnic origin is?”
– “Are you also going to ask me if I’m a Chinese person (or Irish person, or Italian person, etc)? And if not, why do you think its OK to ask about my national origin?”
DM56 – A big 5 Canadian bank recently asked my Canadian-only-ever relative the US-person-question, with an IRS form enclosed. I pragmatically did the “No way” paperwork for them. Case closed. FFIs can ask and do ask and will ask. Resistant individuals can (1) refuse to answer (2) get classified in a recalcitrant category (3) get treated accordingly (4) then lawyer up (5) then see if they ever live to see the end of Jarndyce vs Jarndyce. A farewell salute to every footsoldier who is packsacking up to slog forward in that bloody battalion. You have committed to enlist, no matter what the consequences. Right? Or are you just venting?
@usxcanada I am not sure to which bloody battalion you refer but no, I’m not just venting. I need to know what to do / how to respond. I am a dual citizen from birth ( so no exit taxes for me) who has NO life/connections to the US, never had any US income (an accidental USP, as some put it), no intentions to become IRS “compliant” and I’m trying to decide what to do:
1. renounce, get my CLN, not bother completing form 8854 or whatever it is, and provide the CLN when banks, other financial institutes ask
2. don’t renounce and fight the battle that Canadians should not be asked about their citizenship
@Em,
I like wondering’s approach also…good to review and keep straight in your head when/if faced with that line of questioning at one’s financial institution.
@DM56,
Its not an easy decision to make for sure. I’m in a similar boat, dual from birth, left as a baby, never knew I had to file, no US source income, etc. My plan to date is to keep the statusquo until/unless the FATCA train gets to close. Have you considered small local credit unions? My understanding is that those with less than 175 mill assets are excluded from FATCA reporting.
@WhiteKat – I have considered these things but am resentful that I have to. I am Canadian and I don’t think I should be treated any differently than any other Canadian. This is not a matter of being an ostrich and I recognize that persons with ties to the US may, in fact, be very proud Americans and may want to try to sort this out in a way that they can carry on being American. I am not American, and at risk of alienating American posters here, the thought horrifies me. So, I have no need to appease the US monster and I don’t want it intruding into my life here, in any way, including having to modify my behaviour in Canada.
@ Em I will be copying those words and taking them with me.
Enough with the thread hijacking – I assume FFIs know Canadian law but wondered if they might need a reminder; that is, a fact sheet. Some have suggested that Canadian FFIs provide notice re: some investment vehicles not being good choice for US persons; isn’t it reasonable to expect Canadian FIs to adhere to Canadian law and not ask re:citizenship? As they are asking, is it possible that they don’t know/need a reminder? A succinct summary might be helpful for Canadians to have when visiting their banks or financial planners
@Dm56,
I hear you. Moving one’s banking to a small local credit union, is not something any of us should have to do, however a side bonus is that doing so tells the Canadian banks exactly what you think of them trying to FATCA you. They could have chosen to redirect the money spent on compliance, on fighting against FATCA, instead. They don’t deserve our business.
@WhiteKat – I take your point and will think on it more. I don’t think it helps with mutual funds, etc though.
Thanks for your input
Not sure if that’s the intention, but the above possibly reads such that being dual from birth unconditionally excuses one from the exit tax (including excusing one from the tax compliancy test). Unfortunately, dual from birth can only excuse a person from the tax liability test and the net worth test. An individual who has not met their previous 5 tax year obligations when renouncing will be a convered expat and thus subject to the exit tax regardless of being dual from birth.
@tdott thanks – you are correct. That was my shortened thinking process – if I became compliant, I would not be a covered expatriate by virtue of my dual from birth status. However, I skipped that part and then jumped to, I am not going to be compliant anyway. Just illustrates how worked up this whole thing has got me.
I had briefly considered getting it done with the IRS but I just don’t think I should have to.
@DM56
I’m beginning to wonder if the majority of renunciants feel the way you do. Just what proportion of US citizens are willing to renounce without certifying 5 years of tax compliance? What will the ramifications be for those who make that choice?
DM56 You don’t need to change a thing. Carry on.
If you have a long standing relationship with your FI, and they don’t know you were born in the south, then it won’t come up. RRSPs will be exempt. TFSAs will probably be exempt. Accounts under 1 million will onle be subject to “electronic review’ of existing customer data. On opening a new account a bank will ask your citizenship- you answer Canadian. They ask -‘is there any reason you might be considered a US person?’ (their way of getting around the place of birth problem) You answer No.
I think some Brockers may be getting excited over quite innocent questions from investment companies. If you have US investments they have always been required to establish citizenship so that the US company (Apple or IBM or ATT or whatever) will apply the correct withholding at their end.
@DM56, usxcanada, all
It is never easy to stand up to unfairness or oppression. There will be controversy between Canadian banks and their customers regarding FATCA. Vigilance and opposition are costs of freedom.
People in Canada used to lose their jobs because they were gay. Delwin Vriend lost his job at a school because he told his employee he was gay. He received no relief under the Alberta Human Rights Code because sexual orientation was not included as a prohibited ground for discrimination. However, the Supreme Court of Canada disagreed and “read in” sexual orientation as a prohibited ground for discrimination; now it is included in all Human Rights and Charter protection in Canada. Mr Virend had to get his nose and knuckles bloodied to win justice, but when he won everyone else in Canada won as well.
Argumentation:
The attribution of “US-person-hood” and “US tax residency” based SOLELY upon a US place of birth is the FRUIT OF A POISON TREE, and the poisoned tree is national origin discrimination.
It is remote to claim that a Canada who was born in the US decades ago, and subsequently has no concrete tie of residence or economic activity in the US, is somehow a “US tax resident”.
It is remote because it is based solely on a foreign law defining citizenship in a foreign country. The concept of “tax residency” put forth by FATCA apologists is build on a foundation of sand: national origin discrimination. The US-person “indicia” is based upon US place of birth, but only US law defines tax residency based upon place of birth.
So a foreign law defines certain Canadians as “tax residents” of that same foreign state because they were born there. But it can argued in Canada that, since that definition has no legal standing in Canadian law, it is remote and it cannot serve as a Legal Defense or Exemption for national origin discrimination.
Chartered banks in Canada are governed by the Canadian Human Rights Act. “Ethnic or National Origin” is an enumerated (prohibited) ground for discrimination. See http://www.chrc-ccdp.ca/eng/content/how-are-human-rights-protected-canada
@KalC
It stands to reason that the banks and their customers will be playing a lot of “wink-wink, nudge-nudge” in their screening processes. What happens when the US gets wind of this conspiracy of silence?
I think the biggest ramification is that one would automatically be deemed wilfully non-compliant. From what I can gather (others can correct me if wrong), wilful disregard of tax obligations really pisses the IRS off and so massive penalties can apply. Thus, it would be extremely important for a non-compliant expat to stay the heck away from the US (not a big deal for some of us) and hope that their direct flight to Mexico never has to make a forced landing in the US; as US law could one day change, making it legal to hold an expat for wilful non-compliance and/or non-payment of penalties. If that sounds a little far fetched, keep in mind which country we’re talking about here.
My 2 cents.
@bubblebustin
I agree – Canadian banks have no interest in pissing off their Canada-resident customers, so there could very well be a lot of “don’t-ask-too-hard-don’t-tell”. However, if there is enough of this, the numbers will look out of whack and the US might decide to do something (though I can’t guess what).
@tdott There are SO many Canadians who are not compliant, I just don’t know how the IRS will be able to deal with it. Even now, there are many who are completely innocent of CBT or of FATCA and carry on into the US, in happy ignorance. Would the US really throw my 80 + year old mother in jail for wilful noncompliance? How would that look?
I have stayed the heck away from the US, as you put it, for a number of years and intend to carry on that way. May I ask what your situation is – are you a USP and how so? I am always interested in learning how others have handled this mess – it helps develop my own approach and I think is helpful to others who are just learning about this.
@tdott
They USG might send in moles to see if FFI’s a performing due diligence to their satisfaction.
So someone renounces and tells the IRS to pound sand. Flaherty says the CRA won’t collect tax and penalties for the IRS on Canadian citizens, but we can assume that there will be vulnerability for those who my have incurred a US tax liability prior to becoming Canadian citizens, especially if there’s no statute of limitations on those who have never filed US taxes. The same people take their CLNs to the bank to stop their financial information from being handed over to the IRS. Could the IRS use a John Doe summons to target such groups of people, if they know they exist?
@DM56,
It’s not just Canadians. I am talking to folks in Mexico, France, UK and Thailand. I’d say the compliant are a very tiny minority of US Persons abroad.
I wonder exactly the same thing – how is this going to play out? Millions of people around the world being “outed”? I personally think that the French are going to scream bloody murder.
Tell a Frenchman that, mon Dieu, he’s an American too, well, them’s fighting words. 🙂
Some days the temptation to relinquish and then just kick back and enjoy the show is, well, very attractive….
@DM56, @tdott:
Bear in mind that even for covered expatriates, the exit tax only kicks in if you have more than IIRC US$640K in assets – in other words, you can be a covered expatriate and not be liable to pay the exit tax.
There are other disadvantages – if a future version of the Reed Amendment passes, I suspect it would use the covered/uncovered distinction as a basis for who is exiled, so there’s that to bear in mind.
@Victoria
and how many of these outed people will renounce without becoming US tax compliant? My personal choice is that I will be, but there are many here who’ve said that they don’t intend to.
@DM56
The optics of tossing an 80 year old woman in jail could very well result in a softer touch “on compassionate grounds”. However, not every wilfully non-compliant expat would be such a sympathetic person. And I would not put anything past the IRS after the way it used the OVDI to abuse people who should not have been in it to begin with.
As for my own situation: born in the US, only US ties are some distant relatives, could live with never stepping foot in the US again, dual from birth like you and bubblebustin and some others.
I went thru a period that seemed to last forever trying to decide on what to do. I’d read something at IBS or elsewhere and that would flip my current leaning. Eventually I came to a firm decision that I have been pursuing since: get compliant and then renounce in order to make a clean exit. My main (probably only) reason for going this route is peace of mind. I want to put an end to this crap once and for all, and *for me* that means making a clean exit – YMMV, of course.
BTW, I totally agree that getting compliant should not be necessary in order to make a clean exit. However, in the end I decided it’s necessary to deal with the cards you’re dealt, not the ones you wish you were dealt. I console myself with 2 points:
1) Unless there is some horribly unforeseen circumstance, the USG will not be entitled to a single penny of my assets (all of which were legally accumulated in Canada). That gives me a great deal of satisfaction.
2) Regardless of the fact that I hope to not be a USC in the not too distant future, I can do my small part in fighting the massive piece of US overreach that is FATCA.
@ A Broken Man on a Halifax Pier says,
“Bear in mind that even for covered expatriates, the exit tax only kicks in if you have more than IIRC US$640K in assets – in other words, you can be a covered expatriate and not be liable to pay the exit tax.”
Are you sure about that? I thought being a covered expatriate ( no matter how you got to be one) means you are liable for the exit tax. So, someone meeting the asset threshold is a covered expatriate. Also, someone who fails to certify tax compliancy is a covered expatriate. In both these cases, the exit tax is applicable.
That was my understanding anyway. Now, you have me curious.
@broken man
I believe it’s the first $640K of *gain* on assets (assets are considered sold on the day before renouncing) that is excluded from the exit tax. Having said that, some assets can not use this exclusion. A notable one is a RRSP. So a sizable RRSP could be problematic. You can’t gift it away; and if you collapse it before renouncing you have to pay tax to Canada.