Both….
Lynne Swanson does it again. Another fine piece. This time at the U.K Tax News with a global audience.
She frames the story by asking the key question, “What If Other Countries Adopted American Citizenship and Tax Laws?
It is actually a frightening idea, however in this world of copy-cat taxation policies with OECD’s GATCA arising out of the U.S. unilateral global imposition of FATCA, and the U.K ‘Sons of FATCA‘, it is question that needs more attention. And, she got it!
As I understand it, the article was also published as a letter to the editor in Tax News International (subscription only), the most widely read tax publication anywhere, with the largest audience of compliance experts including Treasury and the IRS.
The questions she asks, is also a question posed by the late Andy Sundberg who penned a piece on January 6th that did NOT get as wide distribution as Lynne’s article did. It paints the picture of a dystopian nightmare for a person laboring under the demands from multiple countries all claiming their citizenship taxation rights. It was posted in February of 2012, the early days of IBS existence. What is the Systemic Risk of Citizenship taxation to the World’s Economy?
Later that year, there was Arrow’s excellent article written in June of 2012. The accidental Kenyan: What would happen if the African nation copied U.S. tax policy? by Don Whiteley. He focused on the impacts on Obama, and it got good play in Vancouver and Canada.
And now Blaze has completed the trilogy for even a wider audience, and answers the key “What if” in a manner that anyone should be able to understand, unless, apparently, you are a U.S. Congressman.
With this piece you are now armed with 3 good articles to send to family and friends that “Don’t get it!”
@Dash79…
You just fail to recognize the capricious nature of enforcement by all the Tax Bureaucrat elite of the world, if CBT were the norm. It would indeed be a disaster for global movement of people. It would create a HUGE administrative nightmare centered around giving up and re-attaining Citizenship. It would go against globalization trends. The UN would have to go on record supporting Eritrea’s claims along with 193 other countries that might like to grab a little extra revenue out of their diaspora.
Think of the nightmare of giving up and then re-acquiring passports, as you moved from tax jurisdiction to tax jurisdiction. The alternative is just to stay home, rather than move. An economic opportunity might be outside your shoreline, but the hazzle to take advantage of it would be too great. Think of all the Irish that would have probably never moved, if your global CBT were the norm.
That is why NO OTHER OECD country has yet copied it, but if I were Greece, I would be looking that the opportunity for new revenue out of all their Citizens living in Australia. What a windfall it would be! Help support the homeland deficits. With the OECD TIEAs (GATCA) they will soon be able to find them and enforce their CBT should they want to copy America.
I just don’t understand how you can not see the obvious, but that is why there are many POVs I guess, as we all see things from different angles.
@ Dash1729
What if, as in Belize, a bank simply asks ALL its clients to supply an SS number if they have one? Then comes the scramble for EVERYONE to prove or disprove their eligibility for a FATCA data transfer from the bank to the IRS, either via the CRA or directly. That’s where the CLN becomes essential and even with a CLN a bank might make that person prove or disprove all US tax obligations were met to obtain that CLN (tax returns, FBARs, 8854, etc.) Of course they would also include the usual questions to determine if you are a US person or not. That would catch the border babies who never got the mark of the SS stamped on them. Snowbirds I suppose would have to prove they never met the “essential presence test” and filed their 8840 forms on time. It would actually be much easier if all the countries in the world just paid an annual extortion fee to the USA to keep their US person residents safe from FATCA asset stripping, as well as all their financial institutions safe from FATCA withholding threats.
Dash: First, Obama did not renounce Kenyan citizenship. There was no need. Kenya does not foist citizenship on someone just because a parent was born there.
Second, those Canadian politicians had every reason–as did many of us–to believe their loss of US citizenship was a done deal decades ago. The US now wants to arbitrarily and unilaterally change the terms of that deal.
Third, I feel like I am being stalked by a former spouse (US) whom I divorced 40 years ago, even though I immediately remarried Canada. Suddenly US is saying: Honey, I am back. You are still mine. So is your money. So are your assets that you saved solely with Canada. So is all the information about those savings.
Fourth: Why do I need a CLN? Dash, did you do your research? If you had, you would know that the FATCA regulations require FFIs (even though my neighbourhood bank is not foreign to me!) to treat anyone born in US as a US person unless they have renounced US citizenship.
My Canadian citizenship oath did contain a signed statement renouncing all other citizenship. But, the FATCA regulations require a CLN as proof of renuncation or a reasonable explanation of why the US person does not have one. Unfortunately, the regs are silent on what constitutes a reasonable explanation. From what I have seen, there is nothing reasonable about FATCA.
I think any Canadian bank would have difficulty not accepting my signed Canadian oath witnessed by a Canadian citizenship official as proof. But, I also thought my Canadian bank where I have been a customer for 33 years would never ask me to prove anything about my citizenship or w here I was born. Their website indicates they plan to comply with FATCA.
Fifth: FATCA is the metastasized cancer that has developed from the lump of CBT that should have been excised long ago before it became life-threatening. Unfortunately, it is spreading rapidly.
@FromTheWilderness
“If you think forcing American expats/emigrants to pay for stuff they don’t use or receive (the consequence of CBT) is okay, your moral compass is seriously out of whack.”
I guess we are just going to have to agree to disagree here. It is fundamental to the nature of taxation–whether someone is a citizen, a resident, or whatever–that people often pay for stuff they don’t use or receive. And RBT can result in paying for stuff you don’t use or receive too. If a Canadian snowbird remains a Canadian tax resident but winters in the USA, they will never use or receive snow removal services–but they still have to pay Canadian taxes for that service, and rightly so.
“CBT was first introduced by during the American civil war to punish people who left the USA as refugees. The US is still punishing people for leaving even though the civil war ended over 150 years ago.”
What is your point? Men were dying and losing limbs in the bloodiest–and also most just–war in American history and the expats couldn’t even be bothered to throw in 3% of their income to help the war effort–sounds to me like the Civil War CBT was even more just than the current one.
dash,
It seems like you have a CBT fetish. Perhaps you should emigrate from the US and try on CBT for a while, just to see how it feels.
It is one thing if a person receives at least some public goods and services for taxes they pay. It is a completely different matter when they receive nothing in return other than a huge stack of complicated forms with draconian penalties for making errors due to complex rules that most homelanders can’t even understand. Moreover expats/emigrants get hit with all kinds of double taxation due to mismatches in the types of taxes that are recognised for credits (all consequences of CBT).
What was so just about the American civil war? The South wanted to secede and the North forced them at gunpoint to stay. Granted, Lincoln issued his Emancipation Proclamation (happy for that). But at the same time, he punished war refugees (people wanting to keep their limbs) for leaving.
By todays norms, punishing war refugees by levying taxes upon them would be viewed as a human rights abuse. What would world opinion (or USG propaganda) have to say if Assad decided to punish refugees with an income tax for fleeing Syria during its civil war?
dash,
“sounds to me like the Civil War CBT was even more just than the current one.”
Bravo, we finally agree on something!
@Dash
You ask for help to understand:
“That’s why I found and still find it so hard to understand why people didn’t know about CBT. Many people on here–who are clearly in general far more responsible about money than I am–somehow didn’t know about this? I don’t get it and still don’t. Please help me to understand because I truly don’t understand.”
I responded:
http://isaacbrocksociety.ca/2013/12/17/u-s-citizenship-based-taxation-unique-or-outrageous/comment-page-7/#comment-833670
Had the country you were born in had CBT, it seems to me that you would have been unaware of it for a number of years, and would have likely remained unaware of it until you enquired about it 10 years prior to visiting it for the first time. How many years passed between being 3 weeks old and 10 years prior to visiting your birth country? Is it not feasible the this could also happen to someone born in the US? Even with your awareness of the fact that you were born in another country, why is it you never enquired about its taxation laws until 10 years prior to visiting it?
Dash,
I am amazed that you still think that a hypothetical perfect scenario where CBT is perfectly implemented is worth defending (read: its a pipe dream).
I am stunned by your flimsy arguments defending an incredibly narrow view and implementation of CBT. Why the attachment to a concept or idea that will never be executed the way you hope? All evidence suggests it will never be implemented the way you describe, and all evidence suggests that the USA is using CBT as a financial weapon (and they are just getting started).
The way that the US is implementing and enforcing CBT to me is one and the same.
It’s like you’re saying the guillotine is fine (CBT) as long as you don’t use it (FATCA).
Truth is, it isn’t a perfect world and CBT is being rammed down peoples throats whether they like it or not.
By the way – you never did answer my question about my “homework”. As Pacifica pointed out earlier, there is nothing in my Canadian passport that would suggest I should research and or follow US law while being born and growing up/going to school and working in Canada (for my whole life).
Also : it would help if the US GOV website worked too:
http://travel.state.gov/law/citizenship/citizenship_775.html#res
click on “Tips for Americans residing Abroad” –
I think it is kind of ironic. I feel like they (the US) hasn’t given me many tips/help/basically absolutely nothing other than headaches, professional fees, sleepless nights, and navigating a minefield of regulations that even paid professionals disagree with. (I have worked with over 5 US/CAN accountants and got advice from more than one lawyer – and 2 different financial advisors. They have differed in opinion more than once.
Also – to speak to your earlier points: that’s great that you’ve found a job/opportunities in the US that you have made a career of for the last 25 years. My American parents grew up and were educated in the US. My father, upon receiving his doctorate applied for jobs in the US and Canada. He ended up picking Canada (and is very glad he did – as it was better pay and benefits) – the only other real option was New Jersey for them (I am glad they didn’t pick that job). In the area of employment my father was involved in, jobs have been and continue to be consistently much better in Canada than they are in the US (my Dad is the first to admit this). You’ll find that the US is not always the best place for jobs (they aren’t exceptional). In fact my current occupation is much better where I am (better pay) in Canada than what I find with my colleagues in the US. I have confirmed this with industry reps who travel all over the US and Canada.
The only rational argument I can see for you standing in “defence” of your very narrow view and implementation of CBT, is that there is no rational argument. It is emotional (I’m not saying that this is wrong). You are entitled to this. Thus the “agree to disagree”. This is how I am right now with my parents who have no intention of renouncing. They don’t look at it the same way as I do. That’s why I am renouncing, and they are not.
Good luck in your future endeavours.
My renunciation appointment is less than 3 weeks away and it couldn’t come soon enough.
@ All – thank you Brockers for your support. I feel like I know many of you even though we have never met. I am forever appreciative of the sanity this community has given me. Keep up the good fight! We still don’t have an IGA!!! We’ve been holding out this long – keep the pressure on! I’ve written countless letters and met with my MP – we all need to keep it up!
@Calgary411 – you (and many others posting here – but particularly you) have been an inspiration to me. I sincerely wish you find a resolution to your situation. I intend to continue the fight for you and for the many that will follow us.
I don’t want to toot my own horn, but the US will be losing a 1%-er (by US and Canadian standards). I have 2 other friends who I’ve known for years who will be renouncing very soon (next month and a couple of months after that), and they are also 1%-ers. If the US cares about all of this money they think they will be getting by doing this – they are sorely mistaken. I will be reviewing my US properties and investments and being more discerning in the future (read: it won’t be the US that benefits).
Too bad FATCA is creating so many bad-will ambassadors from these formerly goodwill ambassadors.
This is what happens when the US government rolls out the guillotine (CBT) and threatens to use it (chop/FATCA).
@Dash1729
you wrote: “What are the circumstances in which you need a CLN? I don’t recall ever, while in Canada domestically, being asked for my birthplace or to show a document (eg passport) that lists birthplace. A driver’s license ordinarily suffices as ID–and it doesn’t list birthplace. You can quite truthfully assert that you are not a US person because you aren’t.”
With FATCA in effect the BANKS will require one to show their CLN to keep their financial bank accounts from being reported to the IRS. THAT is why we need a CLN.
Also Dash1729
Here is another reason that I don’t want the IRS to see my banking accounts. Em bought this up in the FATCA Discussion Part two just now.
this.
“Hidden in the report which the White House panel on NSA released today is a stunning implication: that the U.S. government has been using its massive offensive cyber capabilities to change the amounts held in financial accounts and otherwise manipulating financial systems.”
http://investmentwatchblog.com/is-the-u-s-government-changing-the-amount-in-peoples-financial-accounts-and-manipulating-financial-systems-with-its-offensive-cyber-capabilities/
BorninCanada,
We’ll all be with you as you go up the elevator to the US Consulate in that desolate Rocky Mountain Building across from the Main Library Branch in downtown Calgary — well, maybe they won’t let us in but it is a pretty picture. We will be you in spirit. I’m glad it’s finally here for you, the day for your renunciation, another step to getting on with your life. I’m so sorry you didn’t have a choice in all of this and I can tell you that your parents never knew what would be ahead for you that happy day you were born to them, US citizens, in Canada. But that was then and this is now, and you will soon leave the insanity of what this must feel like for you.
I can’t tell you how much your kind words mean to me — and for all of us to know that we’re making a difference for people. Thank you.
It sounds like you have done plenty already behind the scenes. Thanks for all of that and for sticking around to help the many others there are to be. We’ll wait to hear how your next steps go. All the best for the holidays to you and your family and for the new year that brings your renunciation. Senseless!
Dash, I was wondering what you think about what I posted – regarding the less than 50% of US states which allow those deemed US citizens living abroad to vote without having established a period of US residency.
1. You feel that we do not place value on being able to vote in US elections. But, it appears that the US federal government places even less value on it since it has not seen fit to make our registration and absentee voting 100% possible – instead of letting individual states effectively refuse those abroad access to that ‘right’.
2. And to the point you made re our ‘homework’; if the IRS Taxpayers Advocate, and various US Bar Associations note that the US tax laws and rules for those filing from abroad are complex and not well understood or known, then why do you still feel that it is not probable or understandable? If even accountants and tax preparers inside the US and outside did not understand who had to file and how, and know about or understand the FBAR and later the 3520/A, and now FATCA form 8938, then how should we have known or understood? If as I posted, the IRS has cancelled all IRS services in Canada for at least the 3rd year in a row, then who is responsible for getting the homework right?
I asked whether the State had a responsibility to inform and educate its citizens, and not just individuals. When the IRS was given the FBAR to enforce, and also given the non-willful penalty, the understanding was that it would be doing active education in order to tell people what compliance was necessary. But, the IRS chose to sink money into enforcement, and not into education.
3. So again, what do you see as the responsibility of the State in preventing and in remedying this matter? A democracy is based on a social contract between citizens and the State. In this social contract with the US, what is the responsibility of the State towards those born and or living abroad?
4. Regarding access to the US marketplace and labour market. You did not acknowledge that our children and ourselves have been disadvantaged by being effectively prevented from using the tax deferrals, matching grants, and tax free savings vehicles that both the US provides as incentives to post-secondary training for US residents (and not just US citizens living inside the US) AND, denies us the ability to save for our children’s education where we live outside the US – by treating our RESPs as ‘taxable foreign trusts’. So, the US discriminates against US citizen children abroad by denying them the education savings incentives and supports BOTH from the US AND from Canada where they reside. How then can our children reap any of the advantages you cite re being able to work in the US, when the US effectively prevents them from being able to afford the very post-secondary training that would make them competitive in both the US AND the Canadian labour market?
I note also that though the US labour market is larger than that of Canada, the US is actively seeking to send US military veterans up here to find employment http://www.calgaryherald.com/business/energy-resources/Pentagon+officials+tour+oilsands+part+effort/8167280/story.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+canwest%2FF6910+%28Calgary+Herald+-+Business+%2F+Energy%29&__lsa=a620-f3a0 . If the US is such an advantageous place to work, then why send US veterans away, out of the US, and into Canada to work? Surely the US government can find employment at home for those who have served their country?
@ badger
“If the US is such an advantageous place to work, then why send US veterans away, out of the US, and into Canada to work?”
It could be to get them into our medical system since the U.S. keeps cutting back on funding for its veterans. U.S. veterans, like our own, will be laden with pre-existing problems (some quite undetectable initially) and Canadians would be forced to pick up the tab for their medical expenses if they manage to get PR cards.
http://www.cic.gc.ca/english/newcomers/after-health.asp
@Em, I am sure that it is something like that. And the US will not be warning them of all the extraterritorial US tax implications and costs imposed.
@northernstar
“With FATCA in effect the BANKS will require one to show their CLN to keep their financial bank accounts from being reported to the IRS. THAT is why we need a CLN.”
Sadly, yes, you are right. That is indeed what will happen if FATCA goes into effect.
And that is why we at Isaac Brock Society and Maple Sandbox need to do everything in our power to ensure that, indeed, FATCA will never go into effect.
@northernstar
“Hidden in the report which the White House panel on NSA released today is a stunning implication: that the U.S. government has been using its massive offensive cyber capabilities to change the amounts held in financial accounts and otherwise manipulating financial systems.”
I’m quite sure the US government would be capable of this if they had a massive amount of artificial intelligence supported by a minimal amount of human intelligence.
I have no doubt that they have the massive amount of artificial intelligence needed.
When it comes to the minimal amount of human intelligence that they would need to back up this plan–I wouldn’t be too sure of that.
@badger
I would recommend focusing on your specific circumstances. You’re from Wisconsin, right? The Badger State? Wisconsin does seem to be one of the states that freely allows voting from abroad regardless of circumstances–based on the link you posted earlier–so I hope you will exercise that right.
@BorninCanada
“By the way – you never did answer my question about my “homework”. As Pacifica pointed out earlier, there is nothing in my Canadian passport that would suggest I should research and or follow US law while being born and growing up/going to school and working in Canada (for my whole life). ”
I didn’t see that message. But for many years–this happened with repeated renewals of my Canadian passport–there was a paper pamphlet included with the passport renewal entitled “Bon Voyage, But…” which explained the possible drawbacks of dual citizenship. This pamphlet is still available, in online form, at the following link:
http://travel.gc.ca/travelling/publications/bon-voyage-but
Regarding your “homework”, no worries! I’m a dog lover myself, and it just sounds like your dog may have eaten your homework, and you never got a chance to look at that pamphlet. I’m sure he/she is/was a great dog! Again, no worries!
@BorninCanada
“Good luck in your future endeavours.”
Wow! Good luck in my future endeavours? Isn’t that what employers say to that fired employee when their on the way out the door? Thanks for the good wishes. I think.
@bubblebustin
“How many years passed between being 3 weeks old and 10 years prior to visiting your birth country?”
35 years. Yes, you may have a point that I might have looked into this sooner. I was in school until about age 29–and one doesn’t really think that much about taxation issues until one has some assets to protect–and this didn’t happen until the age of 29 or so. Nevertheless I still might have looked into this a bit before age 35.
However, I think the real point here is that, having been born in a third country, I NEVER viewed the Canada-US border with the same casualness that I think a lot of people born in North America did in the pre-9/11 era. The Canada-US border was always–from my perspective–a very serious border to be taken with great respect. It is possible and understandable that people who grew up in North America pre-9/11 and who had a North American birth certificate had quite a different perspective and perhaps I’m not fully sensitive to that.
@FromTheWilderness
“It seems like you have a CBT fetish. Perhaps you should emigrate from the US and try on CBT for a while, just to see how it feels.”
I’d be happy to do so if someone in another country would offer me a job. The consistent attitude of employers in other countries where I’ve applied for a job–eg Canada, Australia, the UK, France, Argentina–is that I’m overqualified for the job. But I’ve never had trouble finding work in the USA.
dash,
I find your employment situation interesting. My situation was the opposite. I left the US 20 years ago in search of decent paying work in order to pay off my students loans. I was underemployed in the US and barely able to keep my head above water, let alone pay down my loans. It is my understanding that the student loan debt situation is now much worse than what was at the time I left.
With regards to CBT and the civil war, the crux of my argument is that CBT was intended as a punishment for people who emigrate from the US — and it still is. There is no fairness to it, CBT is just plain and simple punishment for leaving.
@Dash, though I don’t AGREE with your support for CBT, I can see your point about how it could be arguably reasonable to be willing to pay an annual tribute tax of perhaps 2% to be able to maintain display citizenship; however, it almost seems like entrapment in the way the US failed to clearly inform Expats and accidental Americans about CBT.
I had been led to believe that the tax treaty would save me from double taxation and that CBT would only apply towards Expats living in countries with no income tax if one earned more than the foreign earned income exclusion.
I had erroneously thought that the income exclusion also included all passive income; furthermore, as I’d naively believed that my filing requirements were simple, I’d always self-filed especially because I can easily self file where I live. People of my income bracket generally don’t need accountants where I live so had been completely unaware of PFIC taxation on non-US mutual funds. I had assumed that, as a permanent resident of Great Britain (and a dual citizen), I could take full advantage of tax-free registered accounts where I live. We don’t even have to mention our income or gains from ISAs on our UK tax return so had believed, with the supposed protection of the tax treaty, that there was also no requirements to declare this ISA income on the US tax return axis had believed it was fully tax free!
The money section of the Sunday papers frequently recommend investing in mutual funds in ISA tax-free accounts which are similar to IRA accounts as a popular way for ordinary middle class people to help save towards retirement. It all seemed plain vanilla to me. Thus, the savings clause I subsequently learned about in the tax treaty, plus the confiscatory PFIC tax treatment of non-US mutual funds seemed like extortion to me.
I felt duped; of course, had I realised from the start, would have probably just saved in the local credit union (building society) or got an accountant from day one.
I had to pay approx $25,000 to my specialist tax preparer to arrange a disclosure and several years of amended returns and FBAR. I also found a dual Us/I’ll compliant financial planner but had to pay almost $5000 to form a relationship with her, so none of this came cheap. It all seems overly burdensome for someone who isn’t wealthy.
My initial desire was to keep both citizenships; The advisor and accountant both advised me to move my investments in the ISA into a US-compliant portfolio with a specialist brokerage, but it had very high fees; plus, I learned that, even with consolidation and full compliance, I was still going to be facing ongoing annual tax preparation fees north of $2000; I thus realised that I was going to find maintaining my US citizenship far too burdensome and expensive so renounced.
I also wanted to emphasize both that I was only in my early 20s and a student when I first arrived to the UK so have spent all my working life in Britain; up to then, my parents had always supprted me so had never even filed till after moving here. I met my husband during my year studying. Secondly, though I did face US taxation from the UK mutual funds, I didn’t renounce to avoid taxation because my subsequently compliant investments were no longer drawing double taxation and would have, at worst, resulted in de minimus double taxation over the long-term!
@Dash1729
I’m happy you now see how someone well into their adult years can remain oblivious to the tax filing requirements of the country of their birth, as you were of yours until you were 35. As I mentioned in an earlier post, you could have incurred a very large tax liability in that time, had your birth country exercised CBT, like many of us have with the US. Can you speculate as to how you’d view CBT if you were in that predicament?
Could your respect for the Canada-US border come from the fact that you required a visa to cross into the US, something anyone born in the US or Canada would not require?
Anyway, I truly hope you continue to enjoy your life in the US because I think you belong there. I might still be there had my mother not moved the family to Canada when I was 12. If things ever go south down south you know you can always return to Canada (did you say you were a Canadian citizen?) and continue to pay US taxes in appreciation for all the benefits you will no longer receive from the US. And if I should ever choose to return to the US (not likely), I’ll thank the Canadian government for only subjecting me to a departure tax vs stalking me for the rest of my life.