Liberty and justice for all United States persons abroad

The Isaac Brock Society

Posted on by Posted in Issues regarding US persons abroad 96 Comments

cross-posted from CitizenshipSolutions dot ca

Introduction …

It is commonly believed that U.S. Tax Treaties are for the purpose of preventing “double taxation”. In general, US Tax Treaties do NOT prevent double taxation with respect to Americans abroad. For Americans abroad, double taxation is mitigated (but not prevented) by through Internal Revenue Code S. 901 (foreign tax credits) and Internal Revenue Code S.
911 (Foreign Earned Income Exclusion).

U.S. Tax Treaties include a “savings clause” (found in different sections of different treaties) that:

1. Guarantee the right of the United States to impose taxation on its citizens who are residing in other nations; and

2. Guarantee the right of the United States to impose taxation on its citizens as though the treaty didn’t exist.

Note that these “U.S. citizens” may (and in many cases are) citizens of their country of residence.

Those countries that have signed FATCA IGAs have effectively agreed to assist the United States in imposing taxation on their own citizens and residents. This will allow the United States to legally transfer capital out of the signatory country to the United States Treasury (for better use).

May 2016 – Elazar Cole and the “Savings Clause” …

On May 16, 2010, the U.S. Tax Court in the decision of – Elazar M. Cole v. Commissioner of Internal Revenue, T.C. Summary Opinion 2016-22 (May
2016) – confirmed the principle that a U.S. citizen cannot (as a general
principle) use the Tax Treaty to prevent U.S. taxation.

The decision is here

The “Savings Clause” and the Canada U.S. Tax Treaty …

Reverend John B. Duncan was the employed “Pastor” of a Presbyterian church in Canada. At all material times he was U.S. citizen.

The relevant part of the decision reads as follows:

Second, even if those provisions of the treaty were in effect during 1979, we still disagree with petitioner’s contention that the income he earned from personal services is not subject to taxation by the United States.[10] His argument fails to take into account the savings clause provision of the treaty, which is paragraph 2 of article XXIX. In construing a treaty, the provisions of the savings clause take precedence over the other provisions in the treaty, unless the other provisions are specifically excepted from the provisions of the savings clause. Filler v. Commissioner, 74 T.C. 406, 410-411 (1980). Paragraph 2 of article XXIX reserves the right of the United States to tax the income of its citizens as if the treaty were not in effect. Since articles XIV and XV are not excepted from the provisions of paragraph 2 of article XXIX, the savings clause controls and the income 975*975 petitioner earned is subject to taxation by the United States. Since his income is subject to tax by the United States, paragraph 4 of article XXIX is not applicable.[11]

Those interested can read the complete decision in the Duncan case here.

The Savings Clause of the
Canada U.S. Tax Treaty reads as follows:

Article XXIX

Miscellaneous Rules

2. Except as provided in paragraph 3, nothing in the Convention shall be construed as preventing a Contracting State from taxing its residents (as determined under Article IV (Residence)) and, in the case of the United States, its citizens (including a former citizen whose loss of citizenship had as one of its principal purposes the avoidance of tax, but only for a period of ten years following such loss) and companies electing to be treated as domestic corporations, as if there were no convention between the United States and Canada with respect to taxes on income and on capital.

Towards a new model Tax Treaty …

In 2016 U.S. Treasury released its new model tax treaty. An interesting discussion about the provisions took place at the Isaac Brock Society.

The first comment (which started a fascinating discussion) focussed on the text of the proposed “savings clause”:

Article 1 4 is the “savings clause” which is that part of the tax treaty which gives teeth to CBT, since it is this paragraph that allows the US to tax “by reason of citizenship its citizens, as if this Convention had not come into effect” (present day words in the UK-US Convention). The new words are similar, “the Convention shall not affect the taxation by a Contracting State of its … citizens”.

But then there seems to be a new second sentence which is more fierce, ending “… a former citizen or former long-term resident of a Contracting State may be taxed in accordance with the laws of that Contracting State.” On the face of it, this allows the US to tax people who have renounced and who are no longer US citizens. Perhaps FATCA will make it possible to enforce this, whereas previously it would not have been possible. Perhaps banks worldwide will need to ask “Are you – *or have you ever been* – a US citizen.” I hope I read this wrongly.

The pre-2008 expatriation regime allowed for a continued 10 year long US-taxation of covered expatriates. Perhaps this sentence is there for that, since its affect will not fully expire until 2017. The UK-US treaty has presently Article 1 6 which allows for taxation of an ex-citizen “whose loss of citizenship…had as one of its principal purposes the avoidance of tax …. but only for a period of 10 years.” A difference is that the new sentence in the model treaty does not restrict to 10 years.

Article 1 5 provides a few exceptions to the savings clause. These are not identical to the exceptions in present day UK-US treaty. Further study is needed to see if these exceptions are more generous or not. My first reading of this is that Boris Johnson would still have to pay US capital gains tax on sale of his London principal residence.

The “Savings Clause” in a FATCA world …

FATCA will reveal how the United States uses “place of birth taxation”
and FATCA to extract capital from the economies of other nations. (The “savings clause” effects different people in different countries
differently.)

A strong first step in a “FATCA Fight Back” would be to renegotiate ALL tax treaties to remove the “savings clause”. The Savings clause is how the United States “plants flags” in other nations. Film Maker Michael Moore understands this principle.

96 thoughts on ““Savings clause” in US Tax Treaties guarantees US right of taxation on residents and citizens of other nations”

  2. @Japan T

    “I agree totally except that we no longer have any rights left to be eroded.”

    Not quite, but close. At the moment it’s still legal to live off the grid in some places and cash is still legal tender, so it’s technically still feasible for someone to live off the radar. Granted, that’s changing quickly so that very likely won’t be true in the not-too-distant future.

    Soon we’ll all be microchipped, including kids.

    http://www.washingtontimes.com/news/2014/jan/22/human-microchipping-rise-researchers-warn-surveill/

    http://www.oregonlive.com/kiddo/index.ssf/2016/05/microchipping_your_children_co.html

    Dystopian doesn’t even begin to describe the world we live in.

  3. @badger

    JC provided a link (actually a link to a link) to a really interesting article

    “Two Little-Known Tax Treaties will lead to Substantially More Identity-Theft Crime, Industrial Espionage and Supression of Political Dissidents “

    In the same way we know your statement “the CRA has no grounds to make blanket assurances…,” the US needs to understand its own vulnerability.

    The article quotes Treasury Deputy Assistant Secretary for International Tax Affairs MythsteR Stack and comments upon the IRS:

    One of the critical principles under today’s existing international standards for information exchange upon request is that the country receiving information must ensure that exchanged information is kept confidential and only used for legitimate tax administration purposes. Consistent with this standard, the United States will not enter into an information exchange agreement unless the Treasury Department and the IRS are satisfied that the foreign government has strict confidentiality protections. Specifically, prior to entering into an information exchange agreement with another jurisdiction, the Treasury Department and the IRS closely review the foreign jurisdiction’s legal framework for maintaining the confidentiality of taxpayer information. Before entering into an agreement, the Treasury Department and the IRS must be satisfied that the foreign jurisdiction has the necessary legal safeguards in place to protect exchanged information. [24] and [24]

    In other words, “Don’t worry. The IRS will protect us.”

    Right. LOL. That is just too funny.

    And look what their own insistence on transparency provides:

    The recent hacks of the federal Office of Personnel Management (OPM), [20] the Internal Revenue Service,[21] and private databases have increased the public’s uneasiness about breaches of confidential data.[22] If the U.S. ratifies the Protocol and implements the OECD Standard,[23] the Chinese and Russian governments—to the extent that they are behind these hacks—will no longer need to hack the U.S. government or U.S. companies to obtain some of the information that was obtained in the hacks. The U.S. government will provide them the information as part of a bulk transfer.

    The irony of this paragraph could not be more clear:

    The idea that the Russian, Chinese, and other countries’ tax authorities will not share the information with their intelligence services, other government agencies, and businesses (whether state-owned or private) is extraordinarily naïve. It is also naïve to think that the U.S. government can detect this intragovernmental transfer of data between foreign government agencies or ensure that it does not take place.

    At least some in the Homeland still have the right idea (even though it is apparent they do not see how their own government engages in exactly the same towards its diaspora and “deemed” “US Persons”:

    Financial and personal privacy is a key component of life in a free society. Unlike totalitarian regimes, free societies allow individuals a private sphere free of government involvement, surveillance, and control. The U.S. Constitution enshrines this right in its Fourth Amendment. All liberal democracies recognize this right to varying degrees and in varying ways.

    Financial privacy can be the difference between the survival or systematic suppression of an opposition group in a country with an authoritarian government. Many dissident and human rights groups maintain accounts outside the countries where they are active for precisely this reason. Similarly, business people who oppose an authoritarian government will often maintain financial resources beyond the reach of that government. Financial privacy can help to prevent corrupt officials from abusing their trust by selling information for identity theft, identifying kidnapping victims, or financial fraud. Financial privacy is the instrument that citizens can use to protect themselves from corrupt or authoritarian governments and from criminals working independently or in league with governments or government officials. Financial privacy can allow people to protect their life savings when a government confiscates its citizens’ wealth, whether for political, ethnic, religious, or “merely” economic reasons. Businesses need to protect their private financial information, intellectual property, and trade secrets from competitors to remain profitable.[28] In short, financial privacy is of deep and abiding importance to freedom because many governments have shown themselves willing to routinely abuse private financial information.

  4. That sounds like a homelander’s justification for not providing FATCA reciprocity, Trish.

    What is this international exchange of information “upon request”? Doesn’t sound like FATCA.

  5. @BB

    it is not about FATCA which is not mentioned once in this article if I recall. The first of the two treaties he is talking about is the PROTOCOL AMENDING THE CONVENTION ON MUTUAL
    ADMINISTRATIVE ASSISTANCE IN TAX MATTERS     . which was done in 1988.

    The second is the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information.

    According to the author, “the Competent Authority Agreement “implements both the Protocol and the 311-page OECD Standard for Automatic Exchange of Financial Account Information in Tax Matters.“

  6. Thanks, I guess I should leave this treaty stuff to the more knowledgeable. It gives me a headache.

  8. @Tricia and @Bubblebustin,
    re baseless CRA assurances in FATCA FAQs, and re unacknowledged vulnerability of US in terms of data security and information ‘exchange’;
    http://www.accountingweb.com/tax/irs/security-weaknesses-still-plague-the-irs-says-gao
    ‘Security Weaknesses Still Plague the IRS, Says GAO’
    May 5th 2016

    ‘IRS Needs to Further Improve Controls over Financial and Taxpayer Data’
    GAO-16-398: Published: Mar 28, 2016. Publicly Released: Mar 28, 2016.
    http://www.gao.gov/products/GAO-16-398

    and
    Treasury mentioned here;

    Information Technology:
    ‘Federal Agencies Need to Address Aging Legacy Systems’
    GAO-16-468: Published: May 25, 2016. Publicly Released: May 25, 2016.

    http://www.gao.gov/products/GAO-16-468

  10. @BB

    “Thanks, I guess I should leave this treaty stuff to the more knowledgeable. It gives me a headache.”

    It is very, very simple. Whether it is through FATCA, OECD or whatever, soon everyone in the world will have access to every transaction who make. They will who paid you and what amount, indicating your employer snd your worth. They will know to whom to pay for your utilities and which months your bills are less, indicating where you live and when you are vacationing. They will know to which schools you are paying to, indicating where you send your children to school. They will know that we donate to legal battles that are counter to the “interests of the State”.

    But we have nothing to worry about.

  11. “cash is still legal tender”

    So what? Federal Reserve Notes are legal tender in the US, but no one can make the IRS accept them.

    In the US, legal tender only has its non-meaning for debts that already exist. If you offer to buy something but you don’t owe money for it yet, the party offering it for sale doesn’t have to accept legal tender; they can say what they’ll accept, and you pay that or give up. Only if the debt is already owing, public or private, then legal tender acquires its non-meaning.

    The IRS wrote a settlement for how much addition to tax I would owe for illegally writing honest declarations on tax returns when I didn’t know that it was illegal to be honest. I signed the settlement, the IRS signed the settlement, and the IRS reneged. Did I owe a debt? The IRS said yes. However, since the IRS reneged, I didn’t pay it. The IRS wrote a second settlement which I didn’t agree to. Finally the IRS wrote a third settlement, I signed it, the IRS signed it, and I tried to pay it.

    I didn’t know the exact amount that I agreed to owe, because the IRS knew interest rates it was charging and I didn’t know. I carried twenty (20) Federal Reserve Notes for US$100 each, one for $50, a few for $20 and $10 and $5 and $1, and a few coins for 25 and 10 and 5 and 1 cent. So I could pay any expected amount in exact change in a manner that was as close as reasonable[*] to being minimal.

    I went to an IRS office on a Friday that wasn’t a holiday. They wouldn’t let me into the building.

    I went to an IRS office on a Tuesday that wasn’t a holiday. They refused to state the actual amount that I owed. I offered to pay an overestimate of US$1,300 in the form of thirteen $100 Federal Reserve Notes. THE IRS REFUSED LEGAL TENDER. The IRS told me to buy a US postal money order. I paid the USPS thirteen $100 Federal Reserve Notes plus $2.80 for USPS fees, took the money orders[**] to the IRS, and the IRS accepted them.

    I’ve tried to find the meaning of legal tender. There doesn’t seem to be one. Even when legal tender is legal tender for existing debts public and private, no one has to accept it. I’ve read that the debt ends at that point but I can’t find a law saying so. I’ve read that interest stops accumulating at that point but I can’t find a law saying so. I found a law saying that certain objects are legal tender, but none that gives any meaning to legal tender, in the US.

    [* I wasn’t carrying US legal tender notes for $2.00 or fractions of a dollar, nor US legal tender coins for $3.00, $2.50, $0.50, $0.20, $0.03, $0.02, or $0.005. So I couldn’t exactly make some amounts using minimal quantities, but I came reasonably close.]

    [** Money orders plural, because the US Treasury suspects the US Treasury of money laundering[***] and therefore doesn’t allow more than US$1,000 in a single US postal money order even when payable to the US Treasury.]

    [*** I also suspect the US Treasury of money laundering. So does TIGTA, the US’s Treasury Inspector General for Tax Administration, which reported embezzlement by IRS employees.]

  12. “[* I wasn’t carrying US legal tender notes for $2.00 or fractions of a dollar …”

    Geez, how could I forget.

    I also wasn’t carrying US legal tender notes for $1,000.00 or $500.00.

  13. @Norman Diamond

    “So what? Federal Reserve Notes are legal tender in the US, but no one can make the IRS accept them.”

    I have no idea what the IRS has to do with my comment. My point deals with the fact that it is still possible for individuals to live their lives without being tracked, but that won’t be the case much longer.

  14. “cash is still legal tender, so it’s technically still feasible for someone to live off the radar”

    There is no practical accomplishment from the legal tender status of cash, because the IRS refuses to accept legal tender for payment of what the IRS alleges to be an existing debt, and no one else has to accept it either.

    If someone isn’t a US person and lives as far off of the US’s radar as off of Eritrea’s radar, it might be possible for them to live off the radar, but not because of cash being legal tender (though this is further irrelevant because if they have nothing to do with the US it wouldn’t even matter if legal tender meant anything in the US).

  15. @Norman Diamond

    My original comment was in reply to Japan T. Maybe I’m just tired but I really don’t understand what you’re saying, or what it has to do with what Japan T and I were talking about.

    Currently, cash makes it easy for people to pay (or be paid) for goods and services without being tracked. Serious discussions are taking place about moving to a cashless society as well as monitor and regulate the use of existing digital currencies (such as BitCoin), which would make it even harder for someone to live under the radar.

    http://www.econotimes.com/Europe-moves-forward-to-set-up-digital-currency-taskforce-214006

    http://fortune.com/2016/05/04/cashless-economy-500-euro/

  16. @ Westcoaster and @ Japan

    Just catching up tonight. Thanks for your kind comments from last night. I am neither naive nor brave. What I do is not selfless. On the contrary, it is self preservation. It’s just the way I need to conduct my life so I can live with myself. I always received a “D” in Deportment and Conduct in boarding school, and I never could figure out why. I thought I was just a regular kid but the nuns always wrote on my report card I had a chip on my shoulder. I didn’t even know what Deportment meant until I was about ten years old.
    If those determined Dementors couldn’t break my spirit in the ten years they tried, I submit the USG doesn’t stand a chance.Of the many reasons I am a plaintiff, one is because I can and because I read and learned about what others had been through because good people like you bravely shared your stories here and that injustice just didn’t sit well with me nor with Gwen,my partner in crime.

  17. “I thought I was just a regular kid but the nuns always wrote on my report card I had a chip on my shoulder.”

    And when you got older, you learned it was a Xeon.

    “I didn’t even know what Deportment meant until I was about ten years old.”

    It means that anyone who tells the truth, when the government can’t accept the truth, has to be deported.

    “If those determined Dementors couldn’t break my spirit in the ten years they tried, I submit the USG doesn’t stand a chance.”

    Oh they will. Even though Obama stopped torturing and started droning instead, there’s a reason why Obama defends Bush’s torture policy in court. The US still needs torture. Droning can only kill your body. Torture kills your spirit.

  19. @WestCoaster.

    I agree with you to a certain point. Yes, there are still those who have a few rights left. I look at in the “whale and minnow” terms used often to describe different types of victims of FATCA, etc.

    To me, everyone is already in the net. Everyone. Bet the net is huge. Only those who have been actually caught up in the net know its true nature while those near enough to witness the whales and minnows that are caught, know of the net’s existance.

    Everyone else is swimming around without any knowledge that they and everyone else is in a net. They don’t even know that there is a net.

    Exercising that last little bit of freedom that they think they still have will give the authorities all that is needed to land them in the frier first.

  20. Truth is USG is a corporate financial mafia organisation wich I will allways defy and to who I shall never comply.
    I don’t pay taxes to a country from wich I get zero services from, that’s outright roberry !
    I’m not their property just because I was born there, that’s against human rights.
    I pay taxes to the country where I live.
    Time for retarded USA to comply with the rest of the world and switch to resident based taxation.

  21. U.S. Launches Microbiome Project

    Washington (AP[*])

    We share our bodies and surroundings with teeming communities of microbes that are crucial to the health of people and the planet, and now the Obama administration is beginning a major project to better understand those invisible ecosystems — and even control them.

    The National Microbiome Initiative, announced Friday at the White House, aims to bring together scientists who study the microbes that live in the human gut and all around us to speed discoveries that could bring big payoffs.

    “Actually we have no hope of understanding them” admitted Obama. “Hope was just a campaign slogan. There’s no hope any more.”

    “But control them, of course. Did you think there was some other reason we brought in FATCA?” he continued. “We don’t give a shit about the microbes, but we’ll use them to control when US persons give a shit.”

    “Just think of the discoveries we’re going to speed up. Those could bring big payoffs all right. We’re going to collect enough penaties to fix America’s surface transportation!”

    [* Yes, AP really did report part of this news article.]

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