Professor Christians has released the paper that was the basis for her presentation at the Tax Conference on January 18, 2013. In order to listen/view her presentation see an earlier post with commentary on the Pepperdine Tax Conference.
Based on the video, what was extraordinary about the Conference attendees was that:
– at most half of them had heard of FATCA; and
– of those who who heard of it had little understanding of it.
What this means is that few in the “Homelander Elite Core” have any awareness of how much resentment FATCA is causing toward the US. Certainly the fastest growing and most articulate expression of anti-Americanism comes from US persons abroad. Gradually governments will become aware that US extraterriorial taxation steals from the treasuries of their countries. At some point this will result in even more diplomatic problems than exist today.
So, hang in! Keep the arguments coming. Work on educating the world. The US can have either FATCA or extraterritorial taxation, but not both. The rest of the world will not (in the long run) AT THEIR EXPENSE:
Root out US persons and turn them over to the IRS for processing when once processed the result will be a net loss to the Treasury of that other country. Here is what cooperation with FATCA means to Canada:
The Government of Canada agrees, that it will at the expense of the Government of Canada, identify US persons and then allow the US to extract wealth from the Canadian economy because they have identified those “taxic elements”. This is an accurate description of what FATCA really is.
In other words: The rest of the world, by cooperating with FATCA, is planning to commit suicide in order to avoid dying.
Perhaps in the interim, it would be wise for countries to not allow U.S. citizens to immigrate.
In any event, of interest in Professor Christian’s paper is:
Predictably, this has given rise to vociferous objection from parties who may not themselves even be subject to FATCA or its related reporting requirements, but who see the interaction of FATCA and citizenship-based taxation as an unnecessary affront to human mobility. To put this in international law terms, FATCA’s enforcement of citizenship-based taxation represents a violation of the duty of the US to “take into account the sovereign interests of other states, yet at the same time ensure that the interests of the forum state and of the international community are sufficiently heeded.”The violation arises because it involves aggressively pursuing people who live, work, and pay taxes in other countries based on their ongoing status as citizens or green card holders in the US, even if they also hold citizenship in the country of their residence.
Many such dual or multiple citizens may have lived for years and even decades without understanding their ongoing obligations to the US; some may not even have realized they had such status, because they may have—mistakenly—believed that citizenship required their affirmative consent or pursuit.
There are some fairly straightforward solutions to the citizenship-based jurisdiction reasonability problem, but they would require political appetite for tax reform that maybe lacking in the US. One solution is to reverse course incrementally by either exempting from reporting requirements any assets or accounts held in the same country as the owner’s residence, defined for these purposes under the normal international standard (such as that encompassed in the OECD Model tax convention).
That does not relieve the compliance burden of foreign institutions, but it does remove some of the stigma created by highlighting citizenship taxation via an already controversial expansion of the US tax jurisdiction. A related incremental move would be to move in the direction of the Stop Tax Haven Abuse Act by creating a “high tax country” kickout of sorts, which would exempt listed jurisdictions from FATCA all together. The US Treasury has already state that it will not consider such a move, so there are high political barriers to this solution even though it would accord with past international practice. Both of these incremental steps would move the US closer to the residence standards embraced by other countries including all of its developed country peers, and relieve some of the opposition to FATCA.
Pages 29 – 30
The U.S. can have FATCA or US person-based extraterritorial taxation, but it can’t have both!
It is foolish that the other 190 odd countries of the world should believe that they have to sit by and WAIT for the U.S. to change its policies with regards to citizenship basedd taxation. The U.S. is not the only country in the world that can take unilateral steps. What the other countries should do is to prohibit U.S. person immigration and prohibit currently resident U.S. persons from paying U.S. taxes.
If the U.S. were to be faced with such opposition it would have no choice but to change. Otherwise it will leave itself open for charges on human rights abuses and trade sanctions. Legislation should be enacted which prohibits local financial institutions from complying with FATCA and damages must be collected for any economic harm that is suffered by non-U.S. institutions for any monies withheld. It isn’t that hard. It just takes a collective will and it doesn’t even take a majority of the countries to be involved.
Canada, China, Brazil, Germany, Chile, Austrailia, Taiwan can collectively put a wrench in FATCA and citizenship based taxation. What we need is a coalition of the FATCA unwilling.
The leaders of the world must stand up to the idiocy of the U.S.
Where are all the alpha leaders, or are they only capable of standing up to or cramming oppressive tax policies down the throats of their own people, the people who’ve put them in charge? The IRS doesn’t pay taxes in Canada, I DO!
@UScitizen…
Any chance you can break that LONG paragraph into some more readable chunks? thnx
The argument that extraterritorial application of the US income tax within the sovereign territory of another state is an insult to that state’s sovereignty that should be naturally resisted is a good one. The problem is that in every bilateral income tax treaty of the US the treaty partner specifically acknowledges the right of the US to impose its taxes on its citizens as if the treaty did not exist.
In short, all existing US tax treaty partners have already agreed to tolerate the “insult”.
The argument still applies with full force, however, with regard to the other 140 odd countries with which the US has no such treaty. But, as Ms. Christians trenchantly observed at Pepperdine, these are – for the moment – mostly poor countries.
The question for them is: knuckle under to the Gringos or turn to China as an alternative that offers both internal economic developmental assistance and world financial leadership.
@todundsteuer- the thing is that up until the passage of FATCA is was the U.S. practise to never enforce citizenship based taxation or the FBAR’s. In other words the U.S. has a longer history of practising de facto residential taxation and I think that that historical precedent has more weight than does the savings clause.
Also there is the very salient point which is that FATCA is an U.S. unilateral abrogation of all treaties that are currently in place and this means that now is the time for each of them to be renegotiated.
I do believe that changing the weight of the world financial markets to other countries such as China, Brazil, Singapore is something that can be done if there is the will. It would mean abandoning the U.S. dollar as the world’s monetary exchange but I believe that would be a good thing.
There is no reason why one country should be able to stare down 195 others. It makes absolutely no sense at all. What we need is politicians with the conviction to stand up for their country’s sovereignty. Caving in to the U.S.’s myopic and irrational demands is nothing more than to allow the slow bleeding of their respective treasuries.
Now is the time for change.
*Not sure where to put this
the Davos Forum has several webcast of meetings
Wednesday 0900 CET is on the Global Financial Context
http://www.weforum.org/
Thanks, Patricia … I started a new thread for it. World Economic Forum Annual Meeting, Davos, Switzerland, 22-27 January 2013
@Todundsteur
You point out that:
“The problem is that in every bilateral income tax treaty of the US the treaty partner specifically acknowledges the right of the US to impose its taxes on its citizens as if the treaty did not exist.”
I have a question for you. The US taxes “Green Card Holders” who live outside the US in the same way that it taxes US citizens living outside the US. Interestingly the “saving clause” applies in its plain terms (I think) only to US citizens. Therefore, it seems to me that “Green Card Holders” living outside the US have more rights under the US Canada Tax Treaty than US citizens do.
My questions to you are:
1. Do you agree with this?
2. How would this affect the ability of the US to tax Green Card Holders, or any non-US citizen/person/entity outside the U.S.
See below and thanks in advance.
http://www.fin.gc.ca/treaties-conventions/usa_-eng.asp
Article XXIXMiscellaneous Rules
1. The provisions of this Convention shall not restrict in any manner any exclusion, exemption, deduction, credit or other allowance now or hereafter accorded by the laws of a Contracting State in the determination of the tax imposed by that State.
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.
The FBAR filing requirements date from 1970 and are not the subject of any US treaty that I know of. They only began to be enforced in 2008 after the penalties were mysteriously elevated by someone who did a quick cut and paste job on a committee reconciliation draft of the October 2004 “JOBS Act”. It wasn’t until the 2008 UBS scandal broke four years later that the juiced up FBAR penalties were then used in 2009 to extort additional penalties from the bad actors who got caught in the UBS scandal together with the innocent rubes who got gulled into participating in the first of the IRS’s multiple voluntary disclosure scams.
FATCA did not become law until March 2010. Its withholding provisions on gross proceeds are currently not scheduled to begin until after 31 December 2016. Plenty of time to sell your investment or change banks to a PFFI – if you can find one in your neighborhood.
Bi-lateral tax treaties determine the maximum tax a treaty partner may impose on a particular type of income. But, the treaties typically say absolutely nothing about how each treaty country is to go about determining who is eligible for the reduced treaty rate or how they collect whatever tax is owed and/or determine eligibility for a refund of excess withholding.
The US is one of the very few countries I know of that allows persons to “self-certify” their eligibility for US treaty benefits. Based on that self-certification it then restricts withholding taxes to the treaty limit. Thus, if someone lies on a Form W-8BEN, the US withholding agent will never be the wiser and the US has lost the revenue for good. Most countries like, for example, Switzerland or France, withhold at whatever maximum rate their domestic law provides and then force the foreign payee to file a refund application for the difference. Such refund application procedures typically include a requirement that the payee obtain a certificate of residence from the tax authorities of the treaty country in which he resides. Switzerland is pretty good about processing a properly completed refund application. France usually drags its feet for as long as it can get away with and Italy …. just fuhgedaboudit.
With FATCAT the US is doing essentially nothing more than changing its own previously exceedingly generous method of determining treaty eligibility. It never had any treaty obligation to provide this nearly uniquely generous system in the first place that, quite frankly, left the US vulnerable to all kinds of cheating and fraud.
For countries without US tax treaties, the only real change their residents will notice from FATCAT will be the possibility of 30% withholding on their US bank deposit or portfolio interest – and even then only if they use a foreign financial institution as an intermediary – and on the proceeds of securities transactions; again, only if they use an FFI as an intermediary. Even where he uses a non-participating FFI as an intermediary, the NRA individual adversely affected will have the possibility – theoretically anyway – of seeking a refund of excess amounts withheld. That is, in principle, no different from Switzerland or France.
The tax treaties authorize the US and its treaty partners to tax their respective “residents” as that term is defined by their domestic law. Green card holders are persons who, having declared their intention to reside in the US indefinitely and make it their home are awarded the right of lawful permanent residence and the obligation to pay taxes as residents – wherever they actually live. Green card status is greatly coveted throughout the world and many otherwise worthy candidates for that status are barred or delayed from obtaining a green card by the US quota system.
A green card holder who on a US tax return claims to be actually and permanently resident in a treaty country for tax purposes can escape US taxation under the treaty “tie-breaker” rules. In most cases that person is acting contrary to the declared intention upon which the award of his green card was based and, if his claim of actual foreign residence on his tax return is discovered, he can be administratively determined to have abandoned that status. The problem is that under existing law, the IRS is statutorily prohibited (IRC §6103) from revealing to the USCIS the tax position taken by a green card holder to escape US tax liability. Thus, as a result of the US’s strict rule on the privacy of “tax information”, oxymoronic “non-resident alien greencard holders” can live outside the US in violation of the terms of their US residence privilege, pay taxes as if they were NRAs and yet still retain their I-551.
I would be pleased to hear from anyone who sees any justice in that.
FATCAT has manifold defects – not least of which are its utter lack of reciprocity (i.e. blatant hypocrisy) and crude contempt for the rule of law and cultural values of any country other than the US – that may ultimately cause it to unravel. But, the principle underlying it is valid and may indeed eventually become the world model for tax enforcement.
@Todundsteur
Thanks for the comprehensive reply. Any significance to the use of the word “citizen” in the Canada US treaty?
@Todundsteuer- the fact that FBAR’s were not included in any tax treaty is exactly what makes the new form 8938 so despicable. The new form asks for essentially the same information as the FBAR with two major modifications which is the question relating to the date of the account’s opening and the fact that the form gets filed with your tax return.
The question now is will Canada now have to provide collection assistance on because that information has now been directly linked to the levying of U.S. tax reporting. In my opinion it would be quite appropriate for Canada to continue to refuse to collect any penalties on what is essentially the same information on a reporting requirement but has only been cynically repackaged by the U.S. Treausry into a taxation requirement. This is yet another clear demonstration of how the U.S. is the dominant author of these tax treaties and shows the contemptible view that America has of all other taxing authorities.
I have absolutely no sympathy for the U.S. when it comes to such things as the issue of self certification, non-resudent green card holders and whether or not the U.S. got the short end of the stick. The way that I see it the U.S., through citizenship based taxation, has made a lot of its own problems by having an unjust system of extraterritorial taxation in the first place.
I know that lots of people still want to say that it isn’t the tax that is the problem but the reporting and penalties. Well I say that those who would say that are completely wrong. The tax is the problem, as are the concomittant penalties and the investment restrictions. The U.S. tax regime both invites non-compliance and manufactures criminals out of honest people. In spite of this the U.S. tax system still enjoys one of the highest compliance rates in the world at well over 90%.
The Americans should count themselves as fortunate instead of trying to portray themselves as victims of the world’s envy. After all don’t forget that America itself is the world’s biggest tax haven. The best way for the U.S. to protect its status is to case aspersions on its competitors while recasting itself as the champion of justice. Talk about a case of misdirection.
If FATCA type tax regimes are indeed the future then the world can look forward to economic growth that will be diminished because of the unwillingness and inability of people to deal with such a Byzantine regime.
Tod –
Nice to see all that meat in your sandwich of 1:18 pm above. Any chance you could elaborate on the opening bit and give us more exact detail on the 2008 elevation of FBAR penalties? What they were before, what they became? Possibly with links to docs. On the consumer side, I saw the filing requirements getting more specific and time-consuming.
Here’s a data tidbit that I will toss in on this FBAR topic re “the estimated average burden associated with this collection of information … per respondent or record keeper.”
TD f 90-22.1 (Rev. 3-2011) = 20 minutes
TD f 90-22.1 (Rev. 1-2012) = 75 minutes
Don’t you wish you could amp up your benefits at the same rate they can amp up your burdens? A factor of 3.75 in ONE YEAR.
@usxcanada
A good reference for the history of the FBAR, which may have some of the details pre 2006, is Hale Sheppards Treatise. It provides good context and warnings back then… Doesn’t help you with your question vis a vis 2008 http://www.hbtlj.org/v07p1/v07p1_sheppard.pdf
In 2008, there were new provisions added to the IRM as to FBAR penalty administration, but the ground work had been laid earlier to use it as the bludgeoning tool. In April 2003, (a key date) the IRS was delegated civil enforcement authority for the FBAR from FinCin. And of course, none of us knew what was coming. We should have been reading Hale’s warnings! 🙂
Here are the new provisions of FBAR enforcement that were added to the IRM in July of 2008. See the IRM. http://www.irs.gov/irm/part4/irm_04-026-016.html
Before that date, they really did not appear to have guidance to Examiners on how to deal with FBAR failures. But, they were in place when the UBS prosecution started, and before they issued their OVDP off the back of the media coverage this was getting. So, it seems, they were ready to crank up the processing mill, as they had guidance ready for agents should folks decide not to take up the OVDP program, or at least that is how it appears to me. I could be wrong. Maybe there was something pre 2008, but not sure what it was as all we have now, is post 2008 IRM guidance.
However, notice the convergence of IRM dates and UBS prosecution: From Wikipedia
In June 2008, the U.S. Federal Bureau of Investigation made a formal request to travel to Switzerland to probe a multi-million-dollar tax evasion case involving UBS.[129] The investigation had, in part, been prompted by disclosures made by Brad Birkenfeld, a former UBS banker in Switzerland, who testified to the US Department of Justice, the US Securities and Exchange Commission, and the US Internal Revenue Service.[130] In July 2008, a United States Senate panel accused Swiss banks, including UBS and LGT Group, of helping wealthy Americans evade taxes through offshore accounts, and calculated the total cost of this practice as being in excess of US$100 billion annually.[131] The report specifically accused UBS AG and Liechtenstein’s LGT Group of allegedly marketing tax-evasion strategies to wealthy Americans.[132] U.S. clients held about 19,000 accounts at UBS, with an estimated US$18 billion to US$20 billion in assets, in Switzerland, according to the findings.[133] In response to the report and the FBI investigation, UBS announced that it would cease providing cross-border private banking services to US-domiciled clients through its non-US regulated units as of July 2008.[134] In November 2008, a U.S. federal grand jury indicted Raoul Weil, Chairman and CEO of UBS Global Wealth Management and Business Banking and member of UBS’s Group Executive Board, in connection with the ongoing investigation of UBS’s US cross-border business.[135] UBS would eventually cut ties to Raoul Weil in May 2009 and he would face charges after UBS had settled its criminal case with the government.[136]