Yesterday, the U.S. Treasury released it’s 2016 Model Tax Treaty.
I suspect that people will interpret this in terms of how it affects their individual situations. This gives a huge clue with respect to information exchange and how the U.S. views “double taxation”, citizenship-based taxation and related issues.
In the past, Brokers have been tremendously resourceful in analyzing complex documents.
I invite you to read the model agreement and comment on whether you see any improvement in how it affects your situation in different countries. Common sense dictates, that the text of the model treaty can be used as an interpretive aid for interpreting the existing treaties.
I am particularly interested in whether you see anything in this which would affect: pensions, PFIC, foreign corporations, etc.
Is this about continuing double taxation or is it about ending double taxation?
Is this Treaty better suited to justifying the exchange of information under FATCA?
When (if) you comment, please make clear which country you live in.
I notice right at the beginning, in Article I it reads:
4. Except to the extent provided in paragraph 5 of this Article, this Convention shall not affect the taxation by a Contracting State of its residents (as determined under Article 4 (Resident)) and its citizens. Notwithstanding the other provisions of this Convention, a former citizen or former long-term resident of a Contracting State may be taxed in accordance with the laws of that Contracting State.
5. The provisions of paragraph 4 of this Article shall not affect:
a) the benefits conferred by a Contracting State under paragraph 3 of Article 7 (Business Profits), paragraph 2 of Article 9 (Associated Enterprises), paragraph 7 of Article 13 (Gains), subparagraph (b) of paragraph 1, paragraphs 2, 3 and 6 of Article 17 (Pensions, Social Security, Annuities, Alimony and Child Support), paragraph 3 of Article 18 (Pension Funds), and Articles 23 (Relief From Double Taxation), 24 (Non-Discrimination) and 25 (Mutual Agreement Procedure); and
b) the benefits conferred by a Contracting State under paragraph 1 of Article 18 (Pension Funds), and Articles 19 (Government Service), 20 (Students and Trainees) and 27 (Members of Diplomatic Missions and Consular Posts), upon individuals who are neither citizens of, nor have been admitted for permanent residence in, that Contracting State.
Who but a tax law specialist like Professor Christians can understand this legal stuff? Personally, I wonder if there is no way to finally get the residual smell of this U.S. sh*t off me before I die. It’s still stressful for me after getting a CLN back-dated to the 1970s, because I refuse to deal with the IRS re form 8854 or any other way. It’s impossible to know for sure that I am finally free.
@Walt, I think you’re right that this is an attempt by the U.S. to get other countries to accept U.S. CBT and FATCA in treaties, rather than just in IGAs, and as you say, “that would be a whole new level of abusive taxation.”
I’ve been supporting the ADCS-ADCS lawsuit financially and have volunteered as a witness, though I don’t know if I will be useful as a witness. I’m disgusted that other governments, including Canada’s, aren’t standing up to the U.S.re Citizenship-Based Taxation. I hope none of them will accept this new “model” tax treaty.
The existing treaty contains this clause:
“8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that
(a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State, ”
This not in the new draft. Looks like an attempt by the US to tighten the screws further yet. I’m sure our government will again turtle and give up some more sovereignty.
@John
That clause is not in the current US/Australia treaty. My impression was that Canada was possibly the only country that had gotten this concession from the US. Maybe someone more knowledgeable can confirm or refute this.
Why does it even matter what goes into a treaty? The US can use the “Last In Time” rule to renege on a treaty no matter what the treaty says.
On the other hand, the last in time rule means that treaties can also take precedence over earlier federal statutes.
Sure, until Congress or president or court makes a new law or case law or executive order throwing out the new treaty.
I thought if you have a treaty between two countries BOTH country have to agree to it.
Not if the US is one of the treaty partners: http://isaacbrocksociety.ca/2012/06/12/the-last-in-time-rule-makes-tax-treaties-with-the-united-states-essentially-worthless/
Also not if Japan is one of the treaty partners.
Also not if Canada is one of the treaty partners, depending on the treaty.
Also not if Germany is one of the treaty partners, though that might depend on who the fuhrer is at the time.
I bet we can find around 190 other examples too.
Then why have treaties if they are only passed by one country?
A treaty is signed by some number of countries but I’m not sure if that means anything. After signing, a treaty is ratified by some number of signatory countries, which might or might not be all of them.
If a treaty is ratified by enough countries then it’s supposed to be legally binding, i.e. countries are supposed to start obeying it. This is supposed to be the meaning of treaties.
In actual experience, each country gets to decide which parts of each treaty it will obey, and even if it obeys part of a treaty one time it might not obey the same part another time.
As for asking why have treaties, or why care about what wording goes into a treaty, I beat you to it, February 19, 2016 at 11:02 pm.
The US Government has a long history of breaking treaties with Native Americans:
http://www.npr.org/sections/codeswitch/2015/01/18/368559990/broken-promises-on-display-at-native-american-treaties-exhibit
The history of the *world* is a lengthy catalogue of broken treaties. If there are any treaties in existence today that have not been broken, just give it more time. And that goes for FATCA too. Eventually, it will collapse. I would just rather not wait for “eventually”.
This is an important IBS article but it may be panic inducing instead of what the writer intended
This is a model treaty. It has never been signed by another country nor has it been approved by the us senate nor does it change any existing treaties.
That said its very useful as a guide to interpret existing treaties and it may be useful to the ADCs litigation in showng USA intent to strip away the revenue rule
Concern yes panic. No
One other thing but with tin foil hat on
The widespread use of the. Term former citizen warns me that a cln may not be a golden ticket as do mestic future law could rope you back in
Again I remain convinced the master nationality rule is where the future battle lays
Making reference to “former citizens” in tax treaties is ridiculous.
The US has zero legal connection to them after they have renounced/relinquished US citizenship.
No doubt Robert Stack, enemy of Non-Resident Americans, stuck that in there with the blessing of the Democrat establishment, ie. Chuck Schumer et al.
@Publius
very good idea to look for other treaties and your idea of putting two side by side…
@Karen
I think I still did not understand when I responded, what you were saying…….sorry about that
I detest reading treaties. However, this one is clear now, exactly what the US is doing. They are plannng to put a clause in their future treaties with other countries that says they can tax former US citizens even though there is no law in the US authorizing them to do so.
They are taking out the revenue rule clause that up to now, or at least presumably up to now, protects CDN-US duals.
Is there anything that directly says there is an agreement procedure about collecting? Will have to re-read specifically with that idea in mind. So difficult to read this crap. Have to run to store but this is going to be something to pay attention to. I don’t think one needs a tin hat George, it is clearly setting the stage for something. And a CLN istill has some value; at the very least, it was the law at the time (same as many CDN relinquishers of earlier decades lost their US citizenship…)
Did anyone take a look at the preamble?
https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/Preamble-US%20Model-2016.pdf
We will probably be dead before this comes to pass but then…there’s always the kids…..I cannot understand how anyone can claim there is goodness in the US govt. ….
I started reading the treaty. Unless I am missing something, it sounds all dandy, sounds like Residence Based Taxation. I suppose I did not get to the “savings clause.” But this a major point: the governments, parliaments, etc of the world have been mislead as well.
Suppose country A is stronger than country B. Then:
A’s government doesn’t have to obey A’s laws.
B’s government doesn’t have to obey B’s laws.
A’s government doesn’t have to obey B’s laws.
B’s government has to obey A’s laws. Except, when A tells B to violate A’s laws, then B has to violate A’s laws.
Suppose country A is stronger than country B, but both have nuclear weapons. Then:
A’s government doesn’t have to obey A’s laws.
B’s government doesn’t have to obey B’s laws.
A’s government doesn’t have to obey B’s laws.
B’s government doesn’t have to obey A’s laws. But A is also stronger than C, D, E, F, etc., so A forces C, D, E, F, etc. to join a financial and trade boycott of B. B’s government still doesn’t have to obey A’s laws, but B’s citizens suffer even more human rights abuses than they did under B’s government alone.
Suppose country A is stronger than country B, but B has oil. Then:
A’s government doesn’t have to obey A’s laws.
B’s government doesn’t have to obey B’s laws.
A’s government doesn’t have to obey B’s laws.
B’s government doesn’t have to obey A’s laws. Except if B is Canada.
Treaties are the same as A’s laws. Even if A refuses to ratify a treaty, A still doesn’t have to obey it but A forces B to obey it.
@Tricia — I think that they need to include “former citizens” in the treaty to enforce the status of “tax citizen” on those who renounce without notifying the IRS on form 8854. Once you have renounced, you’re a “former citizen” for the treaty, not a “citizen”. If former citizens aren’t included in the savings clause, then once you’ve renounced you get full benefit of the treaty, just like any other citizen/resident of your (non-US) country. My point earlier was that the old treaties with the 10-year sunset clause effectively have a sunset clause on “tax citizen” status.
It is my understanding that the previous 10 year clause applied to US source income. The intent as I understood it, was to prevent US citizens from renouncing and then investing back in the US to take advantage of the various tax free benefits the US provides to foreign investors in order to attract foreign capital.
Whether or not this has anything to do with the intent of the reference to “former citizens” in the new treaty template remains to be seen.
@Karen — However, including former citizens and long term residents in a savings clause without a 10-year sunset means there is now no barrier to the US (retroactively) making people who have filed 8854 and exited entirely properly into perpetual “tax citizens”. The lack of any “on US income only” qualifier exacerbates this danger.
@Watcher — yes. Quite worrying. We will have to be vigilant when our countries start negotiating new tax treaties with the US. I will be making sure my Australian elected representatives are aware of the traps that have been set for current and former US persons in the tax treaties (in addition to the inequities of FATCA and US exceptionalism). For those who have no assets in the US and a CLN, I think (hope) that future intrusion by the US into the financial lives of former US citizens will be very difficult to enforce.
The term “former citizens” being included in the model tax treaties serves as more proof that the US considers anyone born as an American to be a US tax slave forever.
Americans are born into perpetual slavery, but too busy playing with their iphones to realize it.
@Bob, this is why I am hesitant to resume investing in local mutual funds even as a former citizen with a CLN, as I fear there could be future risks of retroactive PFIC taxation. I don’t think I will ever enjoy complete peace of mind, even after all my statutes of limitations have finally closed.
@Bob, @Karen, and @Watcher, I wouldn’t be surprised if the US wear to retroactively re-impose worldwide taxation on former citizens to deter expatriations. As a bully, they could probably get away with it too. Death and taxes….