cross-posted from citizenshipsolutions
Update January 2018: This post has been updated with some new links and discussion
Part I is here.
Part II is here.
Part III is here.
Part IV is here.
Taxation of #AmericansAbroad in the 21st Century: “Country of birth” Taxation vs. “Country of Residence” Taxation- Part V (Final)
What the U.S. calls citizenship-based taxation is actually a U.S. claim that it has the right to impose “worldwide taxation” on the residents and citizens of other countries.
Specifically the U.S. claims the right to impose taxation on:
1. Who: residents and citizens of other countries; and on
2. What: income earned in other countries or property situated in other countries.
(The U.S. also taxes U.S. corporations on profits earned in other countries when those profits are taxed by those other countries. This has led to “inversions” which are the corporate equivalent to renouncing U.S. citizenship. Note that the 2017 “Tax Cuts and Jobs Act” has resulted in “partial territorial taxation” for certain U.S. corporations.)
Under the guise of what the U.S. calls “citizenship-based taxation, it actually taxes people who are neither U.S. citizens nor people with an actual residential connection to the United States and are “tax residents” of other countries.
The two obvious examples are:
A. Permanent residents of the United States (AKA Green Card holders) who do NOT live in the United States (having either moved away or in some cases having never moved there – see the story of Gerd Topsnik); and
B. Non-citizens who are NOT Green Card holders. The obvious example are people who have lost their U.S. citizenship for immigration purposes but are still treated as taxable U.S. property for tax purposes. The S. 877A Expatriation rules clearly contemplate this reality. Furthermore, there are certain U.S. tax treaties that specifically allow the U.S. to tax people who were but are non longer U.S. citizens. (Furthermore, the “savings clause” found in all U.S. tax treaties “saves” the right of the United States to impose full taxation on its citizens.)
My point is that the U.S. has long since separated the idea of being “taxable U.S. property” from being a U.S. citizen for nationality purposes.
Therefore, although birth in the U.S. makes one a U.S. citizen, a U.S. birth should NOT make one taxable U.S. property for life. Surely citizenship should mean more than taxation.
The U.S. is laying claim to people because they were born in the USA. There is no reason why it has to. They just do it because they think they can. The U.S. is the only developed country in the world that attempts to control the lives of its citizens (under the guise of taxation) when they move from the United States. This is an intolerable and grossly unfair policy.
The discussion and debate at the Toronto Conference on “U.S. Citizenship-based taxation” demonstrated that citizenship should be neither a necessary nor a sufficient condition for taxation. Taxation should be based on some kind of voluntary connection to the United States. It is submitted that those in Categories:
(A) Border babies
(B) Those who move from the U.S. with their parents as children
(C) Those non-U.S. residents who were born outside the U.S. to U.S. citizen parents
(D) People who left the U.S. as young adults, have never returned to the U.S., and have accumulated all of their economic assets outside the U.S.
do NOT have any connection to the U.S. that could possibly justify U.S. taxation. In each of these cases, taxation is NOT based on a connection to the U.S., but only on the circumstance of a U.S. birthplace! Can it really be that the United States of America is the only advanced country in the world where:
“The circumstances of your birth determine the outcome of your life?”
To tax those who are not residents of the United States solely because they were born in the United States:
“Is unjust and is inhumane. People do NOT choose where they were born!“
What about the person in Category (E) above? This is the U.S. citizen and resident who leaves the United States temporarily with the intention of returning. This is the ONLY kind of U.S. citizen that could rationally be subjected to U.S. taxation while living temporarily outside the United States. But, to tax even this person is incompatible with the realities of the modern world.
Citizenship imposed vs. citizenship chosen
The current practice of U.S. “place of birth taxation” is much more analogous to a “property interest” that a country has in it’s citizens than a voluntary commitment to the engagement that should characterize good citizenship. It is respectfully submitted that “citizenship” should imply a voluntary connection to a country and not a form of “ownership” where the citizen exists only to serve the government.
@ Japan T
I realise that, but I thought we were here to help each other.
Someone here was unsure if reporting from the US had started, and the extent and scope of it. I said it had and it only covered interest, not account balance and that may be a way our resident countries may have a way out of FATCA.
I did not expect to be picked upon because of semantics, I know that you fully understand the situation.
I fully understand your predicament and I really sympathise with your situation but you must try to keep it in perspective. The IRS are understaffed overworked and what could they gain by coming after you? Your country is not one of the 5 that will collect on behalf of the US.
I really wish you well but I do not think engaging in petty squabbles helps the situation.
No country is going to back out of FATCA as long as they are subject to the US imposed penalty. Not going to happen.
For most, the IRS is not a threat, for the reasons you give.
The damage is from the very information we must keep secret now being open to the general public. One may not want some of their employers knowing who some of their other employers are. They can now very easily find out and so can fraudsters, scammers, kidnappers and those with a fetish for mixed raced kids and any and all other manner of ne’er do well.
As far as I or other USCs trying to convince our local governments to ditch FATCA, that would be violating the Logan Act and make us criminals.
I took no issue with the information you provided, thank you. It was the comment of CRS being more fair or balanced that FATCA that caught my attention. Many seem to like to point out that CRS is in some way better than FATCA because it is balanced. A bizarre approach to the problem.
Everyone knows FATCA is unfair at every level, countries signed on anyway. They direct us to “a US tax professional” in the case of Japan and to the US gov. in case of some EU countries. Raising a stink about how the US is cheating them out of their FATCA data will noy result in them quitting FATCA but might cause evey country on earth to put pressure on the US to send the agreed upon data. Not an outcome I want.
“Raising a stink about how the US is cheating them out of their FATCA data will noy result in them quitting FATCA but might cause evey country on earth to put pressure on the US to send the agreed upon data. Not an outcome I want.”
It’ll never happen, not till hell freezes over.
The private banking information of U.S. tax residents and citizens sent to foreign nations so those nations can consider taxing them? Nope, not in a billion years.
@Mike. As Heidi indicated it is only interest info that is being sent to some countries not every country similar to FATCA/CRS reporting. Secondly it’s not US tax residents and citizens info as anyone living in US is able to open up an account and can’t keep an account while living outside US(legally yes you a US citizen/ permanent resident can open one online also by giving a friend/relative address ). This can’t be done by a non resident/ non US person easily unless they are able to come to USA and open an account. The interest info is the only one going to be reported to another country (if ok by IRS) not the total account balance or any transactions and foreigners are avoiding it by opening up a current account. There is not much interest in certificates of deposit or savings account generally in USD all over the world minus a few places like Mongolia for instance. Legally a US citizen can’t keep an account by providing a foreign address if not living in USA as I was told by a US banker years ago. I don’t know how Heidi’s got reported as she is a US citizen supposed to be living in US with US address. Maybe Heidi can shed more light on this issue.
I was a US citizen living in the US when I opened this account ( a credit union savings bond). I retired back home to Switzerland in 2012, renounced, wrote to this financial institution, sent them my change of address, cln. They noted my change of status, said, once a member always a member. Last year they sent me a 1042s stating only interest earned with a note that another is sent to the IRS to be sent to my resident country. I also had other saving bonds with other institutions in the past which closed me down once I no longer lived in the US. I am told it is possible to retain accounts if one uses an address of a relative (credit card etc)
Oh I doubt very much that the US would do so but not so sure of all other nations banding together to get them to do so. We’d, of course, would be the ping pong ball that gets smashed hither and thither in their dust up.
Just thinking it may be that this particular credit union has international employees but saying that my old bank has continued to let me have an account even though it knows I live abroad and am no longer an American. I think it all depends on the institution and of course if you have an account history.
“We’d, of course, would be the ping pong ball that gets smashed hither and thither in their dust up.”
Yup, collateral damage in governments desperation for money.
I still insist though there is NO WAY that the US government is going to be handing over FATCA level financial information on their own residents and citizens, not as long as there is stars in the sky.
There would be a riot in congress if this was tried.
@Heidi. True it all depends on your account history to let you keep the account. Plus they do let non citizems to open up an account such as they let several non citizen friends open up their large accounts that I know of personally. Guys you are correct in assuming they are not handing out FATCA level reporting to any countries as several non citizens I know now are holding rather very large non interest bearing accounts in US. Irony isn’t it ?
I too doubt the US would collect on behalf of other counties tax agencies. I am not so sure they wouldn’t share info, perhaps as Canada and others are doing with FATCA, sending data but saying they will not collect.
My bigger point was that trying to get the governments of the nations we live it to complain to the US about how unfair it is that they provide the info FATCA requires while the US does not might end in a big pissing match with us and our neighbors being the only ones getting wet.
“I too doubt the US would collect on behalf of other counties tax agencies. I am not so sure they wouldn’t share info, perhaps as Canada and others are doing with FATCA, sending data but saying they will not collect. ”
I am not sure what other data the IRS could share.
US banks have not been asked to provide bank account balances on foreign person accounts to the IRS on behalf of FATCA, all they are required to do is provide interest earned and report to the irs on the 1042s in much the same way as they report US citizen/resident interest earned to the IRS . All they need is a simple program to identify a non US address. The tax reporting to the IRS is the same for both resident and non resident from a US bank. The banks have not had to invest in software to identify nationality, bank balances etc like the rest of the world , just to discern a non US resident. It is simple for them, they report taxable interest earned by non US residents.
Again, don’t know where to put this.
IRS Releases Notice on U.S. Passport Revocation Process
Affected taxpayers will be given 90 days to resolve their tax delinquencies.
Paul F. DePasquale, Elliott H. Murray 1, Rebecca Lasky | Feb 06, 2018
Not sure it has any new information other than dates, but it might be useful to someone.
“I’m not sure what other data the IRS could share.”
That’s not the point. The US agreed to reciprocate what it demands from all other countries. They aren’t, won’t and probably can’t, but they agreed to.
Due to the fines, pushing the fairness angle will not result in our countries of residence pulling out of FATCA but might result in them pressuring the US to provide the same as it receives. The US won’t and a big tug-o-war with anyone who has lived abroad or is a dual national being the rope ensues. Won’t be pretty for us.
I remember reading that Fatca had a get out clause if the US failed to reciprocate in a reasonable length of time, presumably one in which congress would agree to loosen US bank secrecy. But you are right, our countries will do nothing to challenge or cancel the agreement because of the fear of the withholding.
“I remember reading that Fatca had a get out clause if the US failed to reciprocate in a reasonable length of time, presumably one in which congress would agree to loosen US bank secrecy.”
I must say that I do not recall that. However, it is moot for those whose data has already been reported. Even if the get out clause could be triggered, banks have already spent the money setting up the FATCA reporting systems. They’ll probably just keep on reporting as it would just be easier for them to do so than to anger the IRS.
@Heidi. The banks all over the world have correspondence accounts in USD in US banks to settle USD transactions. Many banks were fined heavily and left USA angrily. At first all banks of the world stated we would not do anything with FATCA during the initial stages as it was being reported in a blog that got closed down now. They did not want to spend millions required to pay for their additional software. Now they are requiring US citizens and permanent residents a heavy fee to open up their accounts to pay for the software as they want every customer. However banks in HK and Singapore don’t want US related customers anymore as they have plenty of Chinese who are depositing billions with them. There are plenty of companies in HK and Singapore who specialize in HK and Singapore structures to ward off CRS reporting. But even those companies stay away from US related people as well as some nationalities sanctioned by US due to heavy handed regulations. US is the only developed country that uses heavy hand to punish banks, companies and its own citizens as well as countries whose citizens are unable to open up an account due to sanctions.