[May 18 2017 update: I now include in this LINK the recommendations of Elise Bean, a long-time FATCA supporter and witness at the FATCA hearing.]
On April 26 2017 there was a Hearing at the U.S. House Subcommittee on Government Operations dealing with the harm caused by the U.S. FATCA law imposed on the world.
At the conclusion of the hearing, Chairman Meadows asked the Witnesses for “three recommendations on how to improve the legal framework set up by the Foreign Account Tax Compliance Act” (FATCA).
My personal-only interpretation of this request is that the Chair is saying something like: “If FATCA has to be replaced with something else, can you recommend three compromise laws/approaches that would achieve the “good” aims of FATCA but minimize the harm, and which would receive bipartisan support?”
— I enclose as a link the May 15, 2017 submitted personal recommendations of Jim Bopp, a witness and attorney for the U.S. FATCA/IGA/FBAR lawsuit currently pending in United States Court of Appeals for the Sixth Circuit (I am one of the plaintiffs).
From the Bopp text:
“This letter provides three recommendations on how to improve the legal framework set up by the Foreign Account Tax Compliance Act (“FATCA”).
First, we recommend that any taxation of overseas Americans comply with established United States constitutional principles and international legal norms.
Second, we recommend that the current laws be repealed in their entirety [Bopp goes on to include specifically FATCA, IGAs, FBAR, and citizenship-based taxation] and certain proposals rejected.
Third, we recommend that Congress enact a 1099 requirement on foreign banks, established by treaty, as long as this complies with established United States constitutional principles and international legal norms…”
—- Appended to the end of the Bopp recommendations are my personal thoughts as a separate submission: I support, as does Mr. Bopp, the repeal in entirety of FATCA, FBAR, IGAs, and citizenship-based taxation (the latter to be replaced with territorial/residence-based taxation), do not support any “watered-down” FATCA-replacement legislation whatsoever — which I believe will continue the harm, and offer suggestions on changing U.S. citizenship laws in the very limited context of FATCA harm. In hindsight, I now feel that I should have gone further in my recommendations for citizenship law changes.
—- When I receive the recommendations of strong FATCA supporter Elise Bean, a hearing witness, I will post.
— Ongoing developments: Republicans Overseas has initiated an intensive lobbying campaign with Congress to kill citizenship-based taxation and replace with territorial taxation. There can be no promise of success, but these people are trying. I am not aware of similar efforts on the Democrat side.
Witness response to Chairman Meadows’ request.
Comments?
WOW!
Ms Bean will have to work pretty hard to match that!
Beautiful arguments from Mr Bopp, but special thanks to Mr Kish, for the last paragraph about renunciation. While a swift and painless renunciation will not solve every expatriate’s issues, it is a moral and legal imperative for the US to provide it.
If we cannot make america right, we should have the right to leave.
@Mr .Kish
” In hindsight, I now feel that I should have gone further in my recommendations for citizenship law changes.”
Please elaborate.
Bobb’s 1099 requirement is clever. It calls out the lie about the IGAs and the banana republic that created them. He inserts “by treaty” which means the 1099 idea would be DOA just as the IGAs would be if the constitution has any meaning. The Kenyan prez cleverly changed the name of “treaties” to “IGAs” and voila, don’t need Congress. Such a farce and Jimbo is just calling attention to this.
Outstanding document by Bopp.and Stephen Kish.
Perhaps add: To “level the playing field” the residence/territorial based taxation must be the same residence based taxation as practiced by all other nations of the OECD. We would not want the RBT as proposed by ACA.
I had a few more specifics around a ‘Get out of Jail Free’ provision:
* Provide all U.S. designated U.S. persons resident overseas, including those considered “accidental”, opportunity to renounce U.S. citizenship/terminate a Green Card at $0 fee and $0 tax requirement, and with no requirement to obtain a social security number if they do not have one. Guardians of those with mental incapacity shall be able to renounce for these persons.
These have not been covered.
* Outlaw barring of financial services by U.S. based financial institutions to U.S. persons based on an overseas address.
* Respect the sovereignty of other nations with the following tax treaty changes: state that U.S. persons tax resident in another nation shall not also be considered a tax resident in the U.S. except in transitional circumstances; exempt foreign pensions from U.S. double taxation. Additionally, if one moves from a country to the U.S. then their holdings in their country of origin should not be taxed punitively.
Such a tax treaty change may act as extra protection against a reversal of policy in future.
I am sitting at my desk and ranting while people like you, Stephen, are working for change. Thank you!
Bopp’s proposals are excellent. I enjoyed the fact that he took care to refute the notion that SCE would somehow introduce some simplicity and common sense into FATCA.
I agree that renunciation should be simplified. Current requirements are indeed below the dignity of the United States. To use Ms Bean’s arguments backwards: if so many people want in to US citizenship and so few, proportionally, want out, why the efforts to keep the latter from leaving? A truly confident democracy should not act this way.
JC alludes to an important point, especially given the current political climate: the risk that what we gain now may be reversed in 2 or 4 years. I cannot imagine that once FATCA is dismantled it would be easy to put up again, if only because other countries will have grown wiser (not holding my breath though). Thoughts?
Twitter users may retweet this:
https://twitter.com/ExpatriationLaw/status/864573753577156608
There is a discussion on Facebook more around 1099INT.
@Fred Eleanor Norton made this point: it is very difficult to enact legislation, thus a brake on any reversal.
Tax Treaties stay around a long time. So a change there would add extra brake.
Perhaps governments have been quiet about U.S. infringement of their sovereignty or deferred to the U.S. as they recognize that they agreed as part of their local law (tax treaty) to the U.S. claim that U.S. persons shall be treated as tax residents of the U.S. even though they may be physically tax resident in a country other than the U.S (if this is what the U.S. claims – which we hope that the U.S. will end such claim).
Do we call such tax treaty amendment a Global Mobility amendment? The Senate would need to know that this is desirable, and not just contemplate treaty text from the compliance orientated Treasury Department.
Quite a change of possibilities from a year ago!
@JC, very important point about those bound for life by the current rules;
“Guardians of those with mental incapacity shall be able to renounce for these persons.”
Thank you for remembering on behalf of those who currently have no choices.
And some kind of flexible arrangement for minors – ex. should have an extended flexible non-punitive affordable option to accept inherited US citizenship status OR NOT .
Thank you very much @Stephen for your proposal and sustained efforts on behalf of so many.
This post is music to my ears! Stephen, I particularly liked your letter … short and precisely to the point. Jim Bopp’s was great, of course, but I felt he weakened the urgency of his message regarding the switch to RBT by including the 1099 business. With RBT the whole 1099 thing is unnecessary. I’m sure there was a strategic reason for including this issue which, as a lay person, I don’t thoroughly understand.
Fred (B): “if so many people want in to US citizenship and so few, proportionally, want out, why the efforts to keep the latter from leaving? A truly confident democracy should not act this way.” Exactly! Well said!
Yes, indeed. If the tax issue is not solved to our satisfaction by this fall we need to gird our loins for a serious attack on the renunciation fee and all the other obstructions that have been set up to prevent us from getting out and moving on.
The devil is whispering into my ear that maybe we should press the US to resurrect the distinction between a US “national” and a US “citizen.” (Presently the only non-citizen nationals are denizens of American Samoa. Such people pay no US taxes.) The conversation would go like this:
US: “We wish the renunciation process could be easier, but all these (expensive!) hoops are necessary to protect would-be former citizens. Or something.”
EXPATS: “Then make it easy to renounce, and easy to get citizenship back.”
US: “No, because then people would renounce to avoid taxes, then re-affiliate whenever they need the US government to save them.”
EXPATS: “Fine, then formally make us second-class citizens, with no taxes etc. but no voting rights either.
US: “Oh no, second-class citizenship would be wrong.”
EXPATS: “But you already have non-citizen nationals.”
US: “But that’s only for American Samoa. And your parents have to be non-citizen nationals. And you have to declare or something on your 18th birthday. Anyway, we’re trying to phase this category out. I mean, who wouldn’t want to be a US citizen?”
EXPATS: “So change the law. Make it for American Samoa plus expats.”
Tax Treaty. shall not also be considered a tax resident in the U.S. except in transitional circumstances of less than a year.
After reading Mr. Bopp’s letter to Chairman Meadows, I wrote to Mr. Bopp the following:
“Sir, with reference to your recommendations to Chairman Meadows, I kindly ask if you can please clarify three issues:
1.) On the bottom of page three, you wrote, “… overseas Americans must be provided due process and equal protection under the laws.” To me, it is impossible for expats to have equal protection as compared to US residents simply because we live outside US legal jurisdiction. There are no US courts or US law enforcement where we live to protect us. If “equal protection” is a requirement to justify income taxation, then expats should not be subject to US income taxation. Perhaps I do not understand the meaning of the equal protection clause of the 14th amendment, but that is the way it appears to a layperson like myself.
2.) On page 17, you wrote that 1099 INT’s should be issued to “US citizens,” which by definition includes US expats. If Residency Based Taxation (RBT) or Territorial Based Taxation (TBT) is the objective, then why not write, “US residents” or “US taxpayers?” Using the term “US citizens” implies that it is acceptable for Citizenship Based Taxation (CBT) to continue.
3.) The recommendations include RBT, which is great. However, RO is actively lobbying for TBT, which is even better. Is there a logical reason to lobby for both at the same time? Please don’t misunderstand me, RBT and TBT are both acceptable. I am just curious if lobbying for both at the same time runs the risk of achieving neither.
In closing, I would like to express my sincere appreciation for everything that you and RO are doing for expats. It is far more appreciated than you know.”
RBT is a reasonable approach. In times of financial turbulence, it is not better to hold bank accounts or real estate in the country of residence only. For example people living in Greece or Cyprus found themselves locked out of of their savings or checking accounts and those having over 100k euros lost everything over 100k euros. Canada passed the same laws after Cyprus impounded depositors money. I am sure most of you are not aware of that and countries allowed this change on their laws after Cyprus. Companies move to tax havens and want TBT to be implemented since they will hold accounts in safer jurisdictions and untaxable and safe. They have lawyers to take care of this issue. But a person who has his or her retirement in one country should not feel safe anymore. RBT is therefore the common, the best choice to buy real estate and bank accounts all over the world or businesses all over the world without all the problems. For example foreigners don’t want me as a partner in their business or their accounts would be exposed to IRS and there is no way unfortunately to set up a business locally without a local partner in some countries that I want to open up a business in. The rest of the world does not have these problems. There are problems in getting the money out of some countries where I want to invest in so you have to open up an account overseas to do your transactions. How would TBT resolve that ? Only RBT is the best choice so it allows anyone to open up accounts in different geographical locations even as low as 10k so you are not suddenly locked out of your savings by some events like what happened in Cyprus or Greece. This is what I was advised to do when I moved myself overseas. Cyprus and Greece were eye openers for everyone who has all his savings in one country alone. Look at Venezuela now or other countries in Europe and South America. Let me emphasize RBT is a common sense approach nowadays.
Even if they implement TBT banks in several jurisdictions would not accept US citizens as they would be still scared of running afoul of withholding penalties on them. They are not border control agents but bankers. Secondly, I am sure they will all never issue 1099s as they have other millions of other clients to take care of. They will simply say no to US citizens as they do nowadays to US citizens.
I guess all the legalities are over my head, but abolishing CBT would certainly do the trick for me.
I was just wondering if anybody had any ideas on how to hinder tax evasion without the demons of FATCA and CBT. I really do think that hiding money in Swiss banks OR Delaware is unfair to the people. So how to catch somebody who lives in New York and hides money in Liechtenstein? One certainly cannot count on those banks to turn such clients away voluntarily. I guess the Obama administration thought long and hard about it. I just wonder if they could not have come up with a better solution. Is there none in an increasingly global world?
RBT is better because it is an easy, common, off-the shelf answer. It is immediately applicable and in fact widely applied already by the American diapora. It will not induce different or additional taxation. It will not complicate life, laws, rules.
TBT as I understand it is complicated if one country applies it but not the other. For instance under TBT the US may want to tax my US income (if I had any), but my country of residence wants to tax it too, because I reside there and they tax worldwide income. Therefore TBT will actually introduce the risk of double taxation is some situations where it did not exist. It would work of course if it were adopted worldwide, which is not going to happen any time soon.
RBT and TBT can both be mitigated by treaties, many are already in place. They can be written, or are already written, to minimize undue tax burden, notably double taxation.
CBT on the other hand overrides double taxation treaties and allows not only for double taxation but also for double compliance, which is arguably even worse because it involves more people.
To summarize: RBT is by far the better, simpler, easier and perhaps most fair option for most of us. TBT may be something to consider for corporations. It would probably need to be implemented after discussion with trade partners.
“CBT on the other hand overrides double taxation treaties and allows not only for double taxation but also for double compliance, which is arguably even worse because it involves more people.”
CBT doesn’t override double taxation treaties. The treaty allows the US to withhold most treaty benefits from USCs, regardless of whether they live in the US or elsewhere.
It might seem a meaningless distinction but it isn’t because it’s exactly the fact that the treaty acknowledges the US’s right to tax its citizens “as if this treaty had not come into force” that made it legal under local law for local governments to give “administrative assistance” i.e. information to the US about USCs.
And that’s the nail FATCA got hung from.
AARO / FAWCO suggest mitigation measures not remedy.
https://aaro.org/images/2017_position_papers/recommendations_to_subcommittee.pdf
Bopp/Kish recommendations — LIKE
Bean recommendations — mostly UNLIKE
FAWCO/AARO recommendations — somewhat LIKE but I doubt FFIs would be keen on doing 1099s according to IRS specs anymore than US FIs would be keen on doing CRS reports on their overseas clients
Bean manages to convey her disdain for us with snide remarks on the “reportedly” high renunciation fee. Suggestions include further complicating FBARs (I don’t need 8938 so losing it would not help me) and further threatening FFIs if they discriminate against US citizens. I think the US should just invade the rest of the world so the whole planet could be constantly threatened with ever more complex and pointless forms, regulations and withholding. Please stop!
Is Elise Bean for real??? That had to be the most lame cop out I could have ever imagined…….unless of course you are of the belief that the usa is the centre of the universe and we should all be paying fealty.
And US treasury bonds??? The last thing I want to own would be those useless pieces of paper, however, as the usd collapses as it’s bound to do, I will be laughing even harder after hearing her thoughts than I would have otherwise.
I like Jim Bopp way better.