I found a pretty good research paper back from 1997 describing the old Filipino system of of citizenship based taxation and the impact of the Canada Philippines Tax Treaty. Like the US Canada Treaty the Filipino treaty had/has a “savings clause” allowing the Philippines to tax its citizens living in Canada on Canadian source income. The paper suggests a route to bringing a charter challenge to get the treaty thrown out on the basis of equality of citizenship (something we have talked a lot about here). This is big very big. I am going to try to track down the author of this paper.
Double taxation: Riding on the backs of Filipino export labour, by Genevieve Hamada-Plank , Ottawa Law Review / Revue de droit d’Ottawa 29 (1997-98) 395-423.
Outraged, That is one strong letter! So well crafted! Thank you!
@Tiger, your phrase is a perfect description of what we’re hearing!
@Pacifica777 & Calgary411 – thank you. As I say, I don’t think it will have any impact, but I just felt absolutely compelled to write and send it at lunch time. And felt much better for it!
*There is a very strong arugment that the State Department by requiring US Citizens to provide a SSN upon renewing or requesting a US Passport at foreign consular facilities is engaging in a form of revenue collection. I suspect one of the reasons the State Department doesn’t tend to want to discuss tax issues during renunciation appointments is that they don’t want to be seen as attempting to collect taxes on Canadian soil.
@outraged – very strong well written – I like the way you used his points to hang the commentary on.
@calgary411, good comments, it’s only ethical, someone has to try to warn them – both Canada and the US should, but won’t – that smacks of a certain collusion, sins of omission.
@roger and @joe, I know what you mean about the US not caring a fig for international law – insisting it need not take any notice of what the rest of the world thinks – and flaunting that ego-centric position. So, it will not submit to international censure, but it puts the issue into the wider public or global sphere – and a wider international audience might leverage any existing outrage over FATCA – for those that know about it. And, if they don’t know about FATCA – so much the better – it will serve as a wakeup call for those who haven’t heard about it.
That makes it very timely. Maybe there is a certain moral suasion element too.
In a time of growing global economic crisis, who else in the world is going to support the US sucking out taxes and assets from their economies through claims on their residents and dual citizens? They might muse about extending their own claims beyond their borders, in a similar manner (like the new President of France?) but the more that musing aloud happens, the more evident that it is unworkable if everyone does it. It probably was only tolerable before the US decided to focus on treating all 6 million UScitizens/duals + ‘taxable persons’ abroad as criminals – and exponentially ramped up the FBAR’nFATCA fundraising.
And, it’s an election year – with ‘foreign’ banking an issue on the election trail – what with US citizen-Swiss accounts for Romney, and campaign donations from US citizen-Swiss accounts for Obama!
Interesting blurb about Passport Renewal and SSN
Some forms for applying for US Passports (DSP-11 12/87) request a Social Security Number, but don’t give enough information in their Privacy Act notice to verify that the Passport office has the authority to request it. There is a reference to “Federal Tax Law” and a misquotation of Section 6039E of the 1986 Internal Revenue Code, claiming that that section requires that you provide your name, mailing address, date of birth, and Social Security Number. The referenced section only requires TIN (SSN), and it only requires that it be sent to the IRS (not to the Passport office). It appears that when you apply for a passport, you can refuse to reveal your SSN to the passport office, and instead mail a notice to the IRS, give only your SSN (other identifying info optional) and notify them that you are applying for a passport. Here is the postscript source for the letter that was used by one contributor. Another reader has converted the letter to Word for the Macintosh. I’ve now converted it to HTML as well. Other readers have also used this technique successfully.
I had received reports that a new version of the passport application fixed the problems described above. Apparently, these new applications asked for SSN, but stated that failure to provide it wasn’t grounds to deny a passport. It warned that the SSN would be used to verify the other information on the form, and processing of the application might be delayed if the number was not provided.
There’s another new version (DS-11 03-2005) available now at the State department’s web site. It has a different notice that implies (in the same roundabout way) that the SSN is required by the abovementioned laws, and says passports will be refused if the number is not included. People have continued to report that using the letters provided by David Wise result in timely processing.
I applied for a renewal of my passport in July, 2000, and received a new passport in August. I used the 1997 version of the form for Renewal by Mail, which I obtained at the State department’s web site, and sent a suitably modified version of Professor Wise’s letter. (The letter assumes you are delivering the application to a postal clerk.)
Take a look at http://usxcanada.wordpress.com/perspectives/#passport for reference #1 to Federal Register item on proposed rulemaking re passport and SSN
Right after this article was written, in 1997, the Philippines passed a new Internal Revenue Code that ended the tax on foreign income of nonresident citizens, effective in 1998. Although the article is very well written, it fails to inform that the Philippine income tax rates on nonresident citizens were 1% to 3% (http://www.lawphil.net/statutes/presdecs/pd1973/pd_323_1973.html), much lower than the rates on Philippine residents (the case of Eritrea is similar). This explains why the Philippine tax is very small compared to the total Canadian tax in the examples in the article.
I researched the income tax rules on individuals of all 196 recognized independent countries in the world, their 42 inhabited dependencies, and 7 unrecognized countries, a total of 245. (I’m amazed that I was able to find everything online. Thanks, Internet!) Results:
181 tax the worldwide income of residents and the local income of nonresidents (residential system)
37 tax only the local income of residents and of nonresidents (territorial system)
25 don’t tax the income of individuals
2 tax the worldwide income of citizens and residents, and the local income of nonresident foreigners (citizenship system)
There are a few exceptions under the residential system:
France: Due to a treaty, French citizens who reside in Monaco (which doesn’t have income tax) are considered residents of France for tax purposes (Monaco also cedes sovereignty to France in many other areas). Interestingly, French citizens by descent who were born and always lived in Monaco have been protesting against this situation (http://www.impots-francais-de-monaco.com), very similar to the complaints by Americans abroad;
All new residents of Saint Barthelemy (a French dependency with no income tax) are considered residents of France for the first 5 years after moving there;
Residents of France who move to Saint Martin (another French dependency, but it has income tax) are still considered residents of France for the first 5 years after moving there;
Spain: Residents of Spain who move to Andorra (which has no income tax on residents) are still considered residents of Spain for the first 5 years after moving there;
Saudi Arabia: Citizens of Saudi Arabia and of the 5 other countries in the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates, none of which have income tax) who reside in Saudi Arabia don’t pay income tax, but they have to pay mandatory zakat (charity) calculated on a portion of their worldwide assets. Citizens of other countries who reside in Saudi Arabia don’t pay zakat but pay income tax on some of their local income. (Muslim residents of Libya, Malaysia, Pakistan, Sudan and Yemen also pay mandatory zakat in addition to income tax, while in other muslim countries zakat is voluntary.)
And a few exceptions under the territorial system:
Cuba taxes its citizens only on certain local income, and foreigners on all local income;
North Korea doesn’t tax its citizens, only the local income of foreigners (officially, North Korea doesn’t have any taxes; instead, the government owns almost everything and raises revenue by selling products and utilities);
Andorra doesn’t tax the income of its residents, but taxes the local income of nonresidents.
Exception under the citizenship system:
Eritrea taxes its nonresident citizens at a rate of 2%, much lower than for its residents. Officially, it is a voluntary contribution, but it has been reported that the government enforces it by harassing the citizen’s family in the country, confiscating the citizen’s assets in the country, blocking inheritance, or denying passports, entry or exit until the tax is paid. Eritrea does not allow renunciation of citizenship.
Therefore, the United States is the only country or territory in the world that taxes the worldwide income of its citizens at the same rates regardless of where they reside.
Reminder that the US condemned Eritrea for their practices of extraterritorial taxation. Hypocrisy.
*@Shadow Raider, Thanks so much for doing this research and consolidating the results. Very useful information.
@Shadowraider: Wow. Thanks. That must have taken a phenomenal amount of work–even with Internet.
I’m intrigued at what may have brought you to Brock knowing that you are not directly affected by this issue. I’m delighted you are here.
Between this project and your goal to rewrite IRS Tax Code, you are making a huge contribution. Have you ever thought of running for Congress? Oh wait, you probably have too much common sense for that.
Petros, Shadowraider’s findings might be worth a thread of its own.
*One of the interesting things to remember is the US DOESN’T tax the income in certain circumstances of its citizens living in Puerto Rico, the US Virgin Islands, American Samoa, Guam, and the Northern Marianas. All of these places have their own income tax systems that in certain cases are based on that of the US mainland. Additionally many in the District of Colombia want the same taxing priviledges at these territorries(Anyone who is anyone in DC politics is Democrat although the views of Elenor Holmes Norton are not necessarily mainstream in the Democratic Party). The US Democratic Party is too much of high tax party to allow the District of Colombia to be turned into a tax haven.
Additionally Citizens of former US territories but now independent nations such as the Marshall Island, the Federated States of Micronesia, and Palau are still allowed to live and work in the US as non citizens(right of return) but are not taxed on their income in their home countries or anywhere else in the world where they might live.
As I said the passport SSN reporting requirement is a violation of international law in a strict sense. Having said that the actual law requring this goes back to 1986.
Just catching up from yesterday, and this is a very interesting thread. Thanks Tim for always adding something new and good to the discussion!
Thanks for all that effort on delineating the taxation policies of all the countries in the world.
Maybe this comment should be pulled out and made into a separate post??
I appreciate you getting the qualifiers just right with this final statement:
@Tim, That is right, thanks for adding these details.
@Roger, @Blaze, @Just Me, You’re welcome.
@Blaze, I have stated before that I may have to move out of the US in the future, so I could be personally affected if I don’t correctly complete one of the required and complex tax forms. I also wrote that I am outraged at how the US is treating its own citizens abroad. However, these two reasons are not concrete or personal enough to justify the amount of work I have done.
What really motivates me is that I personally know a couple of immigrants that returned to their country of origin because of an FBAR problem (that’s how I first became aware of the issue), and I can’t forgive the US government for having caused this. At least not until it fixes the situation. I sometimes hear in the news about people affected by absurd government actions, I never do anything about it but this time it has touched home. I used to admire this country as most Americans do, but now I opened my eyes to what it really is, and I feel stupid that I didn’t see it (or didn’t want to see it) before. I’m almost ashamed to be a US citizen, to live here and work for the country that does things like this. It’s like I condone it, and it bothers me every day. So I am not affected myself, but it’s personal.
I realized that I am one of the few people with the ability to help on this issue, because apparently I seem to have better “skills” than most people for finding information and deciphering laws and regulations, and because I happen to live near Washington, DC. Thank you for your compliment, but I don’t want to run for Congress, I just want to show to the government the absurd injustice that it has created so it can fix it. Maybe I’m too young and naive to think that I could influence the government of the most powerful country in the world to change the basis of its taxation system, but I have seen other powerless people standing for what is right and having success. It’s not impossible.
@Shadowraider: “One person can make a difference and everyone should try.” (John F. Kennedy)
You can be our Erin Brokovitch!
Shadow Raider –
One more plaudit. That summation of extraterritorial taxation practice around the world, followed on by your motivational backstory – these redound indeed to your glory at Brock.
Thank you for sharing that motivation with us.
It is very good for someone to be able to work on behalf of immigrants to the US with pre-existing accounts and assets from their country of origin – and then fined and penalized on those already taxed and legal funds. We tend to see the situation – and talk about it from the perspective and details as they effect us as individuals, or classes of individuals, but the injustice inherent in the immigrant plight you touched on, is not as well represented here, and it deserves serious advocacy work too.
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I downloaded the article from this link today:
If it breaks again, try this:
“Also, IRS audits on Canadian soil would be prohibited, depending on the tax convention allows.”
The IRS wrote that it was authorized to audit me in Japan. I replied that although I doubt whether they’re authorized, I invite them to do so. The IRS refused to proceed. The US government complained to a court that I invited the IRS to perform the audit that the IRS threatened to perform.