Today (11/16/2017) the floor of the House passed the House tax reform bill. The earlier version is here .
Today also the Senate Finance committee passed the Senate tax reform bill. See link
Do not yet have the final versions of either bill but suspect that we are not helped in the bills. Will post here final versions when they become available.
Listen to the C-span clip found by BB in which Residence-based taxation is mentioned by Golding and Brady in the House tax bill debate — none of this however, appears to have been incorporated into the House or Senate bills passed on 11/16/2017
Republicans Overseas (RO) continues to press on, to make changes in the final tax package that will help us. The fight is not yet over, but it continues, right from the beginning, to be an uphill battle — and the odds don’t seem very good right now. RO says: “Again we need to focus on the Senate side since this fight is far from over.”
Personally, it makes no sense to me to blame Solomon and the handful of people at Republicans Overseas for trying to make a change and, so far, failing. Yesterday a friend reminded me that there was this Ismene, who kept telling her sister Antigone that it was pointless to even “try”: “…but you’re bound to fail…No sense in starting a hopeless task…Go then, if you are determined, to your folly, etc. etc.” Antigone responded: “When I have tried and failed, [then] I shall have failed.”
It’s important to understand that there is no way out of this that conforms with the various statutes and laws.
People are simply going to have to decide whether or not they are willing to comply.
The question is NOT what the IRC say, what the FATCA IGA says, what the competent authority says, etc.
It’s a question of what you will or will not do.
Remember back to 2011 – remember the number of people who were terrorized (relying on the encouragement of accountants and lawyers) to “do the right thing” and “comply with U.S. laws”. I am sure that almost all of them regret it.
This time when “The Call Of The Condor” is:
“It’s U.S. law!”
Your response might be:
“Yes, it’s U.S. law which is ANOTHER reason why I will not be complying!”
Let’s get real here. The USA is walking right into Canada and stealing your assets!
Me thinks that for the first time we will see people relying on the “I’m A Canadian” section of the U.S. Canada Tax Treaty!
https://youtu.be/pASE_TgeVg8
“The question is NOT what the IRC say, what the FATCA IGA says, what the competent authority says, etc.”
It absolutely is about what the Competent Authorities say, since that’s what the two countries have agreed.
US dual citizens can choose not to claim their rights under the treaty if it works out better to stay out of sight. But for a compliant US dual, who has signed any number of penalty-of-perjury forms accepting US taxation, to turn around and simply say: “Nope! Paid all the rest, won’t pay this one!”, without offering any legal justification for their position (such as is available under the treaty), would expose the person to serious trouble.
“for the first time we will see people relying on the “I’m A Canadian” section of the U.S. Canada Tax Treaty!”
Could you explain which section you mean?
http://www.fin.gc.ca/treaties-conventions/unitedstates-etatunis-eng.asp
See section 8.
Article XXVI A
Assistance in Collection
1. The Contracting States undertake to lend assistance to each other in the collection of taxes referred to in paragraph 9, together with interest, costs, additions to such taxes and civil penalties, referred to in this Article as a “revenue claim”.
2. An application for assistance in the collection of a revenue claim shall include a certification by the competent authority of the applicant State that, under the laws of that State, the revenue claim has been finally determined. For the purposes of this Article, a revenue claim is finally determined when the applicant State has the right under its internal law to collect the revenue claim and all administrative and judicial rights of the taxpayer to restrain collection in the applicant State have lapsed or been exhausted.
3. A revenue claim of the applicant State that has been finally determined may be accepted for collection by the competent authority of the requested State and, subject to the provisions of paragraph 7, if accepted shall be collected by the requested State as though such revenue claim were the requested State’s own revenue claim finally determined in accordance with the laws applicable to the collection of the requested State’s own taxes.
4. Where an application for collection of a revenue claim in respect of a taxpayer is accepted
(a) by the United States, the revenue claim shall be treated by the United States as an assessment under United States laws against the taxpayer as of the time the application is received; and
(b) by Canada, the revenue claim shall be treated by Canada as an amount payable under the Income Tax Act, the collection of which is not subject to any restriction.
5. Nothing in this Article shall be construed as creating or providing any rights of administrative or judicial review of the applicant State’s finally determined revenue claim by the requested State, based on any such rights that may be available under the laws of either Contracting State. If, at any time pending execution of a request for assistance under this Article, the applicant State loses the right under its internal law to collect the revenue claim, the competent authority of the applicant State shall promptly withdraw the request for assistance in collection.
6. Subject to this paragraph, amounts collected by the requested State pursuant to this Article shall be forwarded to the competent authority of the applicant State. Unless the competent authorities of the Contracting States otherwise agree, the ordinary costs incurred in providing collection assistance shall be borne by the requested State and any extraordinary costs so incurred shall be borne by the applicant State.
7. A revenue claim of an applicant State accepted for collection shall not have in the requested State any priority accorded to the revenue claims of the requested State.
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 either to a taxable period in which the taxpayer was a citizen of the requested State or, if the taxpayer became a citizen of the requested State at any time before November 9, 1995 and is such a citizen at the time the applicant State applies for collection of the claim, to a taxable period that ended before November 9, 1995; and
(b) where the taxpayer is an entity that is a company, estate or trust, the revenue claim relates to a taxable period in which the taxpayer derived its status as such an entity from the laws in force in the requested State.
9. Notwithstanding the provisions of Article II (Taxes Covered), the provisions of this Article shall apply to all categories of taxes collected, and to contributions to social security and employment insurance premiums levied, by or on behalf of the Government of a Contracting State.
10. Nothing in this Article shall be construed as:
(a) limiting the assistance provided for in paragraph 4 of Article XXVI (Mutual Agreement Procedure); or
(b) imposing on either Contracting State the obligation to carry out administrative measures of a different nature from those used in the collection of its own taxes or that would be contrary to its public policy (ordre public).
11. The competent authorities of the Contracting States shall agree upon the mode of application of this Article, including agreement to ensure comparable levels of assistance to each of the Contracting States.
USCA:
Yes, I agree the US wouldn’t be able to collect the tax. But a compliant US-Canadian would have to decide whether to report their corporation’s past earnings and pay the tax. Leaving it off would be committing perjury.
Safer not to file, or object in advance through the MAP procedures.
A possible legal escape hatch that could be considered by the Government of Canada …
The recent dialogue on Corporate tax reform in Canada makes it clear that Canada is very interested in the retained earnings of Canadian Controlled Private Corporations. Canada will NOT want the USA to confiscate this pool of capital.
It occurs to me that on the same date the U.S. law takes effect, Canada could have a similar law confiscating the earnings of Canadian Controlled Private Corporations to at least the same extent. The application of the law would be automatically triggered by the applicability of the U.S. (currently proposed Sec. 4004).
This would create a taxable event in Canada at the same time, which would create a Canadian tax owing on the same event. This Canadian tax would then be used as a credit against the U.S. tax. This would then ensure that the capital would stay in Canada and then go to the USA. Various mechanisms to collect the tax would/could be considered (including the deferral or taking security, etc.)
The advantage to this approach is that it is not dependent on any interpretations of the treaty. Remember that that the USA overrides treaties all the time just by changing its domestic laws.
“Me thinks that for the first time we will see people relying on the “I’m A Canadian” section of the U.S. Canada Tax Treaty!”
Me thinks that until the lawsuit is settled that is not all that reliable of a defense.
“People don’t have to rely on hiding from the US. Those who can’t or don’t want to renounce can object under the treaty (MAP complaint).”
Good, all is well with the world then.
“Remember that that the USA overrides treaties all the time just by changing its domestic laws.”
Very true. The point of raising a complaint under the MAP article is not to get the US to behave ( which Canada can’t do). The point is to oblige both authorities to discuss this new law (if enacted) in order to come to an agreement about whether it causes double taxation.
@Plaxy
Or both. There are a number of permutations – one more example of there not being “one size that fits all”.
My basic point is that the compliance industry will necessarily be leading this “collection campaign”. People need to understand this reality.
The other reality is this. Most people even if they know of this will NOT be able to pay it. What are they supposed to do? This is an attempt to create a fictitious event that generates fictitious income with the expectation that people will pay a real tax.
In any case, it would take time for Treasury to redo the forms – I expect that a new kind of 5471 schedule will be created to facilitate this.
Finally, perhaps this is premature. We don’t know what the Senate version of this will be.
Here is an example of a MAP complaint which resulted in beneficial changes to the US/UK treaty:
https://www.gov.uk/hmrc-internal-manuals/double-taxation-relief/dt19939zd
USCA – I agree this particular bill may never become law. They’ll be back, though. For US citizens living outside the US, it appears to me that US tax compliance is likely to become increasingly difficult and expensive. It would seem prudent to have a defence strategy prepared. Something like: if possible, renounce – if not possible, stop filing or raise a complaint.
This TTFI / tax reform fiasco may serve as a useful early warning, giving those vulnerable time to decide and prepare their stratgey for when the US wolf again comes calling.
@Plaxy
Agreed. It is simply impossible for anyone to live outside as a “U.S. Person” outside the USA. The only real discussion is about what course of action to take (or not) take. At the end of day, for those who have attempted U.S. tax compliance (and live outside the USA):
All reads lead to renunciation! (and even that might not be enough)
“renunciation! (and even that might not be enough)”
Now THIS I agree with. But for many, we can not comply, renounce nor hide.
Still waiting for Senate bill text.
Re: the House 14 and 7% transition tax on deferred earnings, Bloomberg cites a 10 and 5 (still harm) for the Senate bill that we have not yet seen.
— Would you say that a US person-owned small, one person, incorporated business located in Yellowknife Canada is obligated by both bills to pay this tax on something as awful-sounding as “stockpiled offshore profits”….? See below:
“…Senate tax writers released more details of their plan Thursday evening — specifying that U.S. companies’ stockpiled offshore profits would be subject to a rate of 10 percent for income held as cash and 5 percent for non-cash holdings.
The rates are lower than those contained in the House’s legislation, which proposes 14 percent and 7 percent for cash and non-cash holdings. Both chambers of Congress are rushing to approve tax legislation this month. If they succeed, differences in their bills would have to be reconciled…”
https://www.bloomberg.com/news/articles/2017-11-09/house-panel-set-to-vote-as-senate-enters-fray-tax-debate-update
The list of those unable to comply with US tax law is growing. The line of those heading to the exits is growing. The future of the the condor looks bleak (at least in the long run).
Many condors know just how much each renunciation earns them. It becomes a supply issue when they start fighting over the carcasses.
Bubblebustin – even better: a US citizen who has been compliant for five years past very likely might not need any condor’s assistance to walk legally and compliantly out the door.
The sequence of events would be:
a) reduce net worth
b) renounce
c) file 1040NR and 8854
I had to tell a young friend who just went through Streamlined to postpone his plans to incorporate here in Canada.
He owes you – bottle of bubbly at the least. 🙂
Timely Hodgen piece on some aspects of reducing net worth:
https://hodgen.com/zero-capital-gain-tax-spouses/
It’s not like we didn’t see it coming. All it took for it to be a good idea was a change in presidents. Maybe some interpretations of the current proposed legislation can be found in the past:
https://www.reuters.com/article/us-usa-budget-tax/obama-targets-foreign-profits-with-tax-proposal-republicans-skeptical-idUSKBN0L51IX20150201
Now isn’t that interesting.
I’ve thought for some time that everything changed when the Swiss banks were cracked. That seems to be the eureka moment, when it dawned on the US that US citizens living in other countries could be used to open those other countries’ tax bases to US taxation, far beyond the limits of the Savings Clause.
Regarding “… the Joint Committee on Taxation hasn’t completed TTFI’s scoring in time.“, perhaps I’m being naive, but honestly I can’t really see how the JCT could score TTFI at all.
It is chock full of both tax rises for US NRAs who might invest into the US, and requirements to renegotiate treaties, to the extent that I doubt anybody could sensibly tease out even the broadest economic impacts, let alone any detail. Trying to second-guess the behavioural effects of TTFI on the huge number of affected stakeholders — every single US individual taxpayer and every NRA investor into the US — seems like it would make scoring territorial tax for US corporations, or for that matter anything else, child’s play in comparison.
Doomed to languish, is my guess.
They always said FATCA wasn’t about tax. Turns out they were telling the truth. They had in mind a different trajectory for the tax grab.
FATCA/IGA makes use of the double tax treaty, and relies on international co-operation.
Treating non-US-source income received by a US citizen as US-source income, bypasses the treaty and relies only on the individual USC’s desire to comply with US law. Basically, the individual gets assessed under US tax law and must pay up if they want to remain compliant; the treaty becomes irrelevant – except for MAP.
I’ve added a document released by JCT concerning the Senate Markup.
It is not text but table-type style of what I presume is in the bill.
http://citizenshiptaxation.ca/h-r-1-tax-reform-bill/
Still in trouble:
3. Treatment of deferred foreign income upon transition
to participation exemption system of taxation and
mandatory inclusion at two-tier rate (5-percent rate
for illiquid assets, 10-percent rate for liquid assets)…………..
Maybe trouble:
4. Modification of stock attribution rules for determining
status as a controlled foreign corporation…………………………
5. Modification of definition of United States shareholder…….
E. Modifications Related to Foreign Tax Credit System
1. Repeal of section 902 indirect foreign tax credits;
determination of section 960 credit on current year
basis…………………………………………………………………………..