Cross-posted from The Flophouse. Also, just for fun (and because my mom bugs me about keeping the bloghouse tidy) I updated the page of Flophouse posts, articles, interview and links on the page called The American Diaspora Tax War of 2012-2014: The fight against FATCA and citizenship-based taxation. Anything up there, folks, is all yours if you want to quote or repost.
I think it is fair to say that the face of American emigration/expatriation today is Eduardo Saverin. That is the name that consistently comes up when I talk with homelanders about Americans abroad and our relationship to the U.S. tax system. This is the face, the poster child if you will, that supports the narrative that Americans abroad have all fled the US to escape taxes. That’s right, folks, American emigration is all about criminal behaviour unless we can prove otherwise to the satisfaction of our compatriots.
How powerful is this narrative in the homeland? Powerful enough that two senators tried to get a law passed based on that one highly publicized case. The bill, called the ex-Patriot act, was introduced in reaction to Saverin’s renunciation and had a very clear objective: it was mean to punish past, present, and future expatriation – to prevent (or at least strongly discourage) Americans from leaving the US for other lands and cutting their ties to the American political community.
The first goal seemed to resonate with the homelanders since they are still talking about how ungrateful Saverin was and how he got away with something. The millions he paid to expatriate (yes, Saverin paid the Exit Tax – the tax on emigration) seems to be either forgotten completely or dismissed as a mere token amount that did not sufficiently compensate the US (and US taxpayers) for the benefits he received as a US citizen.
It was the fact that the Exit Tax and all the other ugly aspects of US emigration policy like the Name and Shame list (1996 Reed Amendment) are not turning out to be a sufficient deterrent that three senators decided to up the ante with a law that would, in addition to the stiff Exit Tax, banish these expatriates forever from American soil. Senators Robert Casey (D-Pennsylvania), Jack Reed (D-Rhode Island) and Charles Schumer (D-New York) introduced the act in 2012 and in spite of all the headlines it generated, it didn’t go anywhere. That didn’t stop them, however, it just slowed them down for a few months. According to AngloInfo they reintroduced their proposal hidden inside a 2013 immigration bill which just goes to show that these fellows are deadly serious and if they can’t get what they want openly, they are perfectly happy to do so by stealth.
With all the anger over emigration and expatriation in the US, why didn’t this bill pass? I don’t think it had anything to do with the right to expatriate that is enshrined in international law since the US Congress has never shown that they give two hoots about that. It was the possible impact on Americans living in the U.S. that I’m pretty sure was the deal-breaker.
Homelanders suffer from a two delusions relevant to our discussion. One is that every American is simply a “temporarily embarrassed millionaire.” The other is that Americans living abroad are all living the good life outside the US. “Good life” is a very nebulous concept but if you listen to the homelanders carefully you’ll hear them place so many of their personal yearnings and desires into that term and it can be anything from security, opportunity and better health care to personal growth and adventure. One way to look at it is that it is an expression of all the things that they think they can’t find or can’t have in the United States.
The vast majority of Americans may never ever leave (many Americans don’t even have passports – the esseential document that makes leaving any country possible) but they still dream emigrant dreams. How else to explain their eagerness to buy books about Americans restoring old stone farmhouses in Provence or life on the beach “Down Under” or retirement in Belize/Mexico/Thailand any of the other autobiographical adventure tales that do very well back in the States? And every American who lives vicariously through these stories feels the tug. “That could be me,” he or she thinks before coming to his senses and listing all the reasons why it just isn’t possible “right now.”
But perhaps, once relieved of the “temporary embarrassment” of limited means, it could happen. In any case, the idea that there might be impediments to leaving the United States (whether that means just taking a trip, settling permanently outside the US or renouncing) just doesn’t sit well with Americans. Is not the “freedom to leave” the very essence of freedom? If Americans couldn’t be mobile (and global) – if they could not become citizens of other countries and choose to attach themselves to other political communities elsewhere – then they would join the captive citizens and subjects of other states who are, most agree, not free at all.
So how to explain the countervailing desires of homelanders to punish people like Saverin (and the unrelenting characterization of American emigrants as suspected tax evaders) while rejecting anything that would close the door (even partially) on their own right to emigrate or expatriate?
One answer, I believe, can be found if we look at the very different reactions to two well-known expatriations. On one hand we have Saverin who is still being vilified for leaving the US and renouncing his citizenship. In fact the anger was so high that Americans lawmakers are still trying to make political hay out of it. On the other we have another very rich citizen who relocated to Switzerland and gave up her citizenship, Tina Turner. Ms. Turner is not as rich as Mr. Saverin but she’s still up there with 200 million USD in assets (which meant that she most likely had to pay the Exit Tax).
Her renunciation was widely reported but did not generate anything even close to the outrage that followed the news of Saverins’ renunciation. The usual anti-expat suspects in the US Congress like Reed and Schumer were strangely silent about it and the US media bent over backward to say that Ms. Turner had very good reasons to expatriate (renounce) that had nothing whatsoever to do with the US tax system. Nor have I seen (though perhaps I wasn’t looking in the right places) homeland Americans calling Tina Turner a traitorous, ungrateful tax dodger and calling for her permanent banishment from the United States. In a nutshell, Eduardo Saverin was presumed guilty and Tina Turner is presumed innocent. (Or at least that’s the way it looks from where I sit.)
Why?
I will give you my take on it and then I would love to hear your thoughts.
I think Americans at home can more easily identify with Tina Turner. Here is a self-made African-American woman who did not come from great wealth and who succeeded because she is smart, beautiful and talented. She is admired and liked by millions of Americans who grew up (like me) enjoying her music. Her migration to Switzerland is portrayed in the media as something that happened by pure chance (an “Accidental migrant”) and for a wonderful purely positive reason (romance) – both of which resonate with Americans dreaming emigrant dreams. And now she intends to stay permanently and retire in her adopted country with the l’homme de sa vie. All this explains her decision to the satisfaction of homeland Americans.
Tina Turner’s migration story is, well, something Americans can actually identify with. It says that even someone who began life disadvantaged and with modest means can have the American Dream + which consists of succeeding in the US and then moving abroad to do whatever one fancies out there in the world beyond the borders of the US. (And what is even more interesting is that some Americans suspect these days that the only way they can succeed is by leaving America.)
There is just one problem with Turner’s story: it explains her migration but not her renunciation. Tina Turner could have done all of the above as a dual US/Swiss citizen. If those are the reasons Tina Turner emigrated/expatriated then she could have had every single one of them and stayed a US citizen. Clearly there were other considerations that caused her to consider cutting her ties to the US – a process that is not simple and is likely to cost her a great deal of money.
Lex parsimoniae – the downside to living abroad and being a dual US/Swiss citizen is that lifelong relationship to the US IRS that all Americans outside the US are subject to that would have affected not only her but her husband as well. It is simply defies common sense to think that the US tax system didn’t have any effect at all on her decision to renounce.
Homeland Americans seem to genuinely believe her (or her lawyers) when they insist that the US tax system wasn’t a consideration but they don’t find credible Eduardo Saverin when he said of his renunciation: “The decision was strictly based on my interest of living and working in Singapore.”
Two faces of American emigration/expatriation and dare I say it? Deux poids, deux mesures.
@Publius, you wrote: “I give it a year tops before attitudes change,…”
How do you think things will change? I would assume that most US persons in the UK have already been notified by their banks that their data will be transferred. Unless the UK banks adopt drastic measures like in Switzerland requiring people to prove that they’re tax compliant or else close their accounts, it seems that no much will change. I think it all depends on how aggressive the banks will be. I think we might see change also depending on how aggressively the IRS will go after the non compliant people. But we won’t know until 2015 or 2016. If I recall, foreign governments shall send their first batch of data mid 2015.
Yet, with their limited resources, 2 things can happen:
1) they’ll start by going after big accounts and we might see the first casualties of wealthy accidentals.
I think that at this point, wealthy homelanders have already rearranged their financial affairs.
2) they send mass mailing to all non compliant people, and that will create mass panic.
For this to become more public, maybe they should go with 2). From a resource point of view, this is actually the easiest thing to do – just like it’s more of a pain for FFI to adhere to the 50K threshold. I bet a lot of them are just going to report every American account, regardless of how much money it contains.
@No one, I believe you’re predictions are spot on. The IRS will be utterly inundated with data so will probably initially focus on big accounts though they’ll put the fear of God into minnow expats with mass mailings with bold warnings…they might even do a few random audits to indicate that the rules apply to all US persons regardless of wealth levels.
One of my concerns though (as I believe Publius also mentioned) is of how many merely middle class expats could still wind up owing substantial taxes due to PFIC taxation. This could cause the IRS to become even more aggressive in its enforcement of offshore taxation…
While I don’t wish to be alarmist, we can’t be complacent either. I also believe that foreign financial institutions will report all potentially US accounts, regardless of size to be on the safe side. No doubt even many former citizens/green card holders will have their details forwarded. This is why it’s so important to properly exit the US tax system cleanly by filing 8854 and certifying five years tax compliance. After all, it would be so easy for the IRS to discover an undeclared account and try to assess a non-filing or even FBAR penalty.
It seems to me that the easiest way to hit non-compliant expats is to start fining them for not having filed tax returns because it would be a straightforward penalty to assess, especially as all their non-filed years would still have completely open statutes of limitation. People completely unaware of their filing responsibilities will have also unwittingly created huge messes such as PFIC taxation or capital gains taxes on real estate, etc.
@Deb
I agree – George Clooney’s bride-to-be should be warned quite publicly. Anyone Brocker-bloggers from the UK want to help with this????? 😉
@Bubblebustin
I’m sure one could find her work snail-mail address and send her some pointed information!
Glad you folks liked the post. The next one I want to tackle is this Reddit thread that I thought was pretty interesting: http://www.reddit.com/r/todayilearned/comments/23y5wo/til_the_us_is_the_worlds_only_industrialized/
Some of the comments are so ill-informed that I was laughing over my keyboard. Except that it isn’t funny, is it? These are the misconceptions that make it so hard for Americans outside the US to get their story heard.
I think if Clooney marries her, she will move to America for good.
Victoria, enjoyed your thoughts and writing, as always.
This was an interesting article you might like;
The Yale Law Journal
VOLUME 123 2013-2014
Forum
‘Citizenship, Passports, and the Legal Identity of Americans: Edward Snowden and Others Have a Case in the Courts’
23 Apr 2014
Patrick Weil
http://yalelawjournal.org/forum/citizenship-passports-and-the-legal-identity-of-americans
The link to the article I posted above came from here http://taxpol.blogspot.ca/2014/04/recent-items-of-interest-on-citizenship.html courtesy of Allison Christians.
@Badger, Thank you! I hadn’t seen her round-up yet (nor the Patrick Weil article).
@noone I have heard stories of US persons who wish to open new accounts in the UK being rejected; however, I have not yet heard anything about so-called high street banks doing anything at all about FATCA so far. I’m not sure the place of birth shows up on many of their records on pre-existing accounts. And there are many US persons in the UK who are US by descent—meaning that they have a UK birthplace even though they are actually dual citizens.
@Em
Excellent article; thanks for sharing.
Is anyone building a list of good website contacts to spread the word of our Cdn Charter Challenge?
Is anyone building a list of well-known US renunciates /relinquishers who might be approached to help support the Cdn challenge?
QM, I suspect you’re correct that my high street building society doesn’t actually have it recorded that I joined as a US citizen. I am inclined not to bring it to their attention anymore either.
As for other accounts, I get the impression that I might still have to jump through several hoops before I could open a share dealing account on my own, even with a CLN. After all, even that can’t fully prove to the FFI that I’m no longer a US person for tax purposes unless I showed them my 8854,FBARs, and past five years of tax returns, etc.
I wouldn’t be surprised if the banks start expecting even more proof of compliance. I tend to think I will just stick with my ISA via my financial planner or top up my personal pension fund if I want to add to my investments. This would also keep my UK tax compliance simple.
Monalisa, Just for info I spoke with someone last weekend about her situation. She is a US Person and fully compliant. Not rich, not poor – just an average person. She got a note from her bank which I have copies of. They FROZE her accounts until she could provide a few year’s worth of FBARs and they were asking for proof that they had been submitted and received. Uh, to my knowledge it’s only in the past year that we got any proof of filing. What a mess. I could not believe it.
The only bright spot in the encounter was 1. Meeting a very lovely person and 2. having another friend who was there (an American who had been having trouble understanding what all this FATCA stuff was all about and what the problem was) having his very own OMG moment.
@Victoria, “She got a note from her bank which I have copies of.”
What country? I know Switzerland is its own kettle of fish.
Was the person solely US Citizen? If not how did they get ratted out?
In the EU, I can not see what legal basis a bank would have for demanding copies of FBARs and proof of receipt and freezing accounts.
@qm “I have heard stories of US persons who wish to open new accounts in the UK being rejected; however, I have not yet heard anything about so-called high street banks doing anything at all about FATCA so far.”
That would likely be with investment accounts or selectively bank accounts opened in-person and the manager rejecting the account.
There has been a major shift in the UK getting ready for FATCA but I do not believe its IGA based rather it is “compliance industry” based.
Take a walk down the internet High Street and look at account opening questions.
Nowhere in the IGA does it state you need to ask place of birth but some places are now asking for place of birth. I believe that asking place of birth is a violation of the Equalities Act and EU rules hence why some places will only ask if you are a US Citizen and some simply ask if you are a dual or multi and if yes, fill in the blank.
I tend to think that the IGA was more on the lines of dont ask dont tell. Having said that, I also believe you need to be completely honest. If you are a US permanent resident in the EU, you need to state you are a US Citizen. If you are practicing US Citizen though multi, meaning you vote have a valid US passport and all other trappings then its clear you are multi. If you honestly relinquished regardless if you are documented or undocumented, then you have single citizenship.
@Victoria, was a French bank doing that? If so, you might want to put the person you met in touch with Frederic Lefebvre, who is mounting a file documenting the trouble French expats have, but I am sure that could include discrimination against Americans as well.
@George, apart from Switzerland, there have been reports of such behavior by banks in Belgium.
@monalisa1776, evertime I see “your name” my mind starts hearing Dean Martin sing Mona Lisa…..
” I suspect you’re correct that my high street building society doesn’t actually have it recorded that I joined as a US citizen. I am inclined not to bring it to their attention anymore either.”
If anything you are OTHER. Remember, for £10 you can request the file records they have on you. But to go charging in with “Here is my CLN” that is cringe worthy.
“I wouldn’t be surprised if the banks start expecting even more proof of compliance.”
As things stand right now in the EU and with IGAs, they have no legal basis to demand forms for a foreign government that have no basis in domestic law. But I do think its wise for former Americans to stick with exempted firms and exempted IGA products. Also, any firm that asks for Place of Birth is in my opinion going to rat you out no matter what forms you show them.
In my opinion it is illegal for a EU bank to hand over financial records to any foreign government of a sole EU Citizen living in his/her country of residence solely because they were born in the USofA even though they have fully documented gotten rid of that clinging nationality. It is going to happen and a bank is going to get sued.
Again I think the enemy is the compliance industry, first.
@George
That would be Nat King Cole 😉
If the comment sections of any of the articles that have been covering US renunciations are any indication of what resident Americans believe about Americans abroad, you have to conclude that most think we are more like Saverin than Turner – that we are fleeing the US for money. First of all, one can not easily flee the country and renounce. Unless you already have another citizenship and were born with one (either by birth or descent) acquiring one usually takes awhile. I guess, they’d then argue that people like Saverin can (and would) easily buy one, which I suppose is not unfounded.
I suppose that with the belief that the majority of those renouncing are the Saverins of the world, the EXPATRIOT Act wouldn’t seem excessive, even though it lumps Turner in with the tax evaders by virtue of her wealth. Do Americans have a strong belief in justice, that if you are wrongfully accused your innocence will somehow magically prevail in the end?
Ironically, if there was any hope of justice prevailing, a lot of us wouldn’t be renouncing.
noone
What I think is likely not to last a year is the left’s unquestioning view of FATCA and the U.S. form of CBT taxation. I don’t think that the automatic exchange of information will be eliminated (even Switzerland is signing up), but I don’t think that CBT will last in its current unacceptable form. My reasons:
First, we have a very strong and persuasive argument regarding the excessive complexity and expense of the tax code. An acquaintance of mine who works on inequality couldn’t see any problems with U.S. citizen based taxation until I mentioned that an extremely numerate senior person in our organization (earning over $95,000 a year) spends over 100 hours a year preparing his U.S. tax return and that it me several days to do mine.
Second, U.S. CBT after FATCA does a lot of things that would appall many of its supporters. Who would expect that something called FATCA would end up taking money from disabled people living in Canada and raid middle class education and retirement savings? If the U.S. applies the letter of the law to Mexico and other developing countries, FATCA could very easily come to be seen as Yankee imperialism and lose left-wing support. According to Nina Olsen’s 2013 Report, Mexican dual-nationals may have foreign trust filing requirements because of the privatized nature of the Mexican social security system. From what I have read, they may also have PFIC issues because they had to buy Mexican funds before 2010.
Third, there are a lot of us who are against various aspects of CBT from across the political spectrum. A lot of committed people pooling knowledge and skill can be surprisingly effective.
Fourth, there are big doubts about whether this will continue to work multilaterally. Even if the U.S. agrees to the automatic exchange of information, U.S. CBT is generally at odds with WTO policy. In committing to the WTO, the U.S. agreed not to raise nationalistic barriers to finance, which seems at odds with things like dramatically increasing the penalties for PFICs. The WTO is the one organization that can and does make enforceable judgments against the U.S.
Don’t expect any progress before November. There is a great deal of international excitement over the possibility cracking open tax havens, so foreign governments don’t want to hear about problems because they don’t want to rock the boat/lose momentum. In the U.S. it is mid-term time in the U.S. and everything is highly polarized. Rangel, FATCA’s author, is in the re-election battle of his life. The chances for sensible reform (like form reform) will be greater after November .
And for those home landers who find it unimaginable that we wouldn’t know about our tax obligations, I’d point out that the US government allowed millions of people to reinstate their US citizenship when they did or did not know that taking another citizenship was an act of renunciation, however, not knowing about something that no other nation does is somehow unforgivable for them. You’d think that knowing about citizenship matters would be more important to them than tax. It’s quite possible that if the US government actually sat down and dealt with these things constructively, they probably wouldn’t be half as punishing as many of these home landers are.
Good post Victoria! You write like a poet. Speaking of banks, as Victoria did above, I will be getting a divorce from mine soon. As soon as Ontario credit unions (elsewhere too) can get their act together and go after business as non-FACTA reporting FFI’s, there will be a torrent of new deposits. So far they don’t seem very on the ball with information. Their websites are all happy talk about car loans and mortgages. Don’t they realize the bonanza that awaits if they would only reassure members and potential members that they are FATCA free zones? I will have to call anonymously (from a payphone if I can find one) to see if my own credit union will rat on its members. If 98% of their business is local, they should be FATCA free right?
@Bubblebustin
Of course it’s unforgivable for them. After all, it’s all about the money in the end. Rights don’t even factor into the equation anymore, and perhaps they never really did to begin with.
And yes, I’m still counting the days.