This Brock comment which just appeared is deserving of its own post and your specific attention, thoughts and assistance.
But first, …
This has been a very interesting week for Canadians who are possibly impacted by the U.S. Transition Tax. We have the interview of the Hermans which appeared on the National.
Here is @suzanneherman1 on CBC The National talking about the transition tax https://t.co/UCEuDWBTA8
— Laura Snyder (@laurasn1000) May 1, 2018
We have articles by Elizabeth Thompson. I expect that Ms. Thompson’s articles led to the the following editorial in the Halifax Chronicle:
Halifax @ChronicleHerald understands that USA is attempting 2 confiscate individual Canadian pensions by using IRC Sec. 965 @USTransitionTax – CDN Finance Minister @Bill_Morneau must respond! Could include @Canadiansabroad @CanadiansInUSA @CDNSnowbirds https://t.co/lhdc1ydb5o
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) May 5, 2018
A second article from CBC indicated that Murray Rankin* (a 2014 ally in the fight to stop the FATCA IGA, had referenced the “transition tax” in the House of Commons.
Trudeau government should help those hit by #Trump #tax say MPs @MurrayRankin and @PatKelly_MP https://t.co/JxrapDuTq4 #cdnpoli #TaxReform #taxes
— Elizabeth Thompson (@LizT1) May 2, 2018
It appears that there is momentum growing in the “campaign for awareness”.
Moving on: How can we better frame the message? How can the right question(s) be used to educate?
It would be helpful for Brock readers and commenters to consider, when conveying the message:
1. What are the most important aspect(s) of the transition tax to convey?
2. What should be the language used to convey those ideas?
Beginning with the following Brock comment …
CAB asks for the assistance of Brockers as follows:
“URGENT I have been in contact with my local MP (conservative) and he is willing to submit a Question for Question Period regarding the Transition Tax. What I need to do is put together some background information and the actual wording of the question we want to have asked. There is no guarantee that it will be selected but it is certainly a shot. My understanding is that if not selected for this weeks question period then it can sit in the queue and be picked up at a later date.
My first kick at the can in composing a question — ” Mr. Speaker, The United States as part of their tax reform has recently passed a new law aimed at bringing home the profits of money off shored in large multi-national corporations. While it is laudable to repatriate these earnings back to the US homeland the application of this law makes no distinction between the large American corporations and those small Canadian corporations owned by Canadian citizens permanently resident in Canada but also hold a secondary US citizenship. These Canadian corporations owned by doctors, restaurateurs and small mom and pop shops are not Google and Apple . These corporations hold the retirement savings of Canadian citizens; the retained earnings of Canadian entrepreneurs ear marked to grow and expand their business. Application of this tax will effectively bankrupt Canadian businesses and wipeout the pension plans of our Canadian citizens. It is a violation of the Canada -US tax treaty as the US has created a fictional tax event retroactive to 1986 where the first right of taxation has been usurped by the US. First installment of this tax is due June 15 2018 .
Will the government of Canada commit to negotiating with US treasury to exempt Canadian corporations from the disastrous effect of this tax? Will the government use the the Canada US tax treaty to protect our sovereignty and tax base against this raid by the US government? The Finance Minister has committed to studying the effects of this extraterritorial law. But time is of the essence. Will the government provide direction to our citizens prior to June 15 2018 when the first installment is due.
Those affected are first and foremost Canadian citizens ,resident in Canada , and deserve the protection of the Canadian government.”
Looking for your feedback – want to make sure I set the right tone and get the right question asked that will help us the most. Also any suggestions as to what I can include in the package that I need to send would be helpful.
Keep our fingers crossed”
*For those who were not following this in 2014, you will see that MP Murray Rankin played a prominent role in opposition to the FATCA IGA. See here:
How close the border is? How about Stanstead, Quebec where it used to be legal to cross the street? I walked across the border in Niagara Falls but it doesn’t compare. We need a wall and Trump should pay for it.
What about the fact that if the first installment is not made, the entire amount is then due in its entirety? That is definitely a finisher for some people…………….
The transition tax itself is a finisher; it matters little whether its paid immediately in one lump sum or in installments. The only logical way forward is to hope for the best, rely on the treaty, and refuse to pay it, period.
I can’t agree with that. I know a couple of individuals who have had corps for 35-40 years with very large amounts of retained earnings. Not that an installment isn’t bad enough but it definitely would matter a great deal to these people should they have to pay it all at once. Kind of like the Exit Tax on a foreign pension….no deferral………deadly.
Besides, what is the harm in adding another dreadful aspect about the situation?
If the TT doesn’t finish you off, GILTI will.
It would indeed be very bad, if enforceable and enforced, but like all the rest of CBT, it can’t be enforced.
The only expats who really do have to pay the transition tax are IRS registered tax advisers who own or have shares in CFCs. Which is nothing if not ironic.
It seems to me the target should be the duplicity of the governments – the US and its treaty partners. They all say in public that US duals “have an obligation” to pay tax in both countries, and the non-US partners hand over the financial details of US duals as if this were so, yet within the text of the treaties they all agree never to enforce it against dual individuals – in order not to allow duals a chance to go to court in either court.
Gaslighting. It’s despicable.
Thanks to all for your feed back. I have submitted to my MP and did the best I could – now it is a wait and see. Fingers crossed
Thinking about it further: if Canada or Australia or any IGA 1 government wants to take the position that its dual USC citizens are taxable on domestic income by both countries, shouldn’t they be obliged to credit US tax paid – regardless of whether it’s the Transition Tax, or GILTI, or capital gains tax on only residence, or top-up tax on domestic tax-favoured pensions.
Speculation: It’s difficult for a dual USC to contest CBT in his/her home country’s courts, because the home country doesn’t collect from citizens. But might it be possible for a dual USC to challenge his/her home country’s refusal to allow credit for US tax paid?
If such a case succeeded, a solution would have to be found: either allow credit (thus avoiding double taxation of the USC’s domestic income) or stop using international treaties/agreements as an excuse to treat USC duals’ domestic income as always double taxable, with no procedure for appeal to national law.
Apologies, CAB. My post crossed with yours. Mods, please feel free to move or delete.
Fingers crossed indeed.
Good luck to you and your MP, CAB.
“if Canada or Australia or any IGA 1 government wants to take the position that its dual USC citizens are taxable on domestic income by both countries, shouldn’t they be obliged to credit US tax paid”
Countries that sign tax treaties with the US already take the position that their dual USC citizens are taxable on domestic income by both countries. The source country gets first crack at it and the other country is supposed to give credit for the tax paid to the source country. Hypothetically if the Transition Tax were applied to actual distributions after the source country gets to tax the actual distributions, then the Transition Tax would only be a normal run of the mill CBT offence which the US designated as a human rights violation when performed by another country.
Thank you for your valuable efforts CAB.
ND: “The source country gets first crack at it and the other country is supposed to give credit for the tax paid to the source country.”
Except when the US uses the saving clause to tax USCs on income for which the residence country has “primary” taxing rights. For example, when the US punitively taxes a USC’s residence-country-source tax-favoured pension or savings plan.
That’s what the saving clause is for – to save the US from having to allow USCs to claim credit for foreign tax paid, thus preventing the US from taxing the USC on his/her worldwide income regardless of where the USC resides.
Hence the FEIE, for example, whereby the US replaces its obligation to give FTCs with a conditional US tax break. And makes it much easier for a USC to claim the simple US tax break rather than struggle with the complex FTC form.
The treaty partner has agreed to these abuses, by agreeing to the saving clause. Politicians might find it hard to defend this collusion in court.
“… if the Transition Tax were applied to actual distributions after the source country gets to tax the actual distributions, then the Transition Tax would only be a normal run of the mill CBT offence ”
Yes, that’s what will happen when the Transition Tax succeeds in forcing the USC to make a distribution in order to be able to pay the Transition Tax: the residence country will tax that real distribution, and the US will “allow” credit for the tax paid to the residence country, and the USC will send the remaining portion to the US as a penance for having been born in America.
“The treaty partner has agreed to these abuses, by agreeing to the saving clause. Politicians might find it hard to defend this collusion in court.”
Politicians don’t have to defend it in court. A government’s Department of ‘Justice’ will defend it in court. A court will accept whatever lies a Department of ‘Justice’ makes up.
More conniving to avoid allowing credit for foreign tax paid: a USC business owner who long ago checked a box to make his/her business a “disregarded entity” for US tax purposes, is now safe from the Transition Tax. But the imaginary “tax baskets” have been changed, with no clue as to which carried-forward tax credits can be used against what.
“An unexpected hit to foreign tax credits in the 2017 Tax Reform”
The writer (a USC partner in a UK law firm) comments with a soupçon
“Let us hope that the IRS comes to the rescue of self-employed non-resident Americans soon – we are certain that Congress did not have these people in its sights even if some of them are partners in law firms.”
Not being a lawyer, and having no illusions about the US Congress, I reckon they probably did.
“Politicians don’t have to defend it in court. ”
They do, in many countries. Not the US, of course. It’s the treaty partners, who should be called to account for colluding with the US to allow double-taxation of USCs. They can get asked about that pernicious discrimination clause as well – the one that says nothing’s discrimination if the target of the discrimination is a US citizen.
Inspired by the effort to get a question asked about this in Parliament, I’m thinking about ways to write to our MPs to urge support for efforts to defend Canadians against this latest wave of US extraterritorial tax incursion.
This is a rough draft. It is far too long I know, but I thought I’d offer it up in case anyone wants to use any part of it or draw on the sources for their own communications to MPs.
Some of the MPs will be the same ones we contacted against the FATCA IGA etc. so we could rejig the content to acknowledge that. Of course some of them are also the same CONS who brought us the IGA and dismissed us as merely ‘Americans residing in Canada’. (Some, like Liberal MP Wayne Easter appears not to understand how US extraterritorial CBT and FATCA work and recently proposed that Canada emulate the US http://www.ourcommons.ca/Content/Committee/421/FINA/Brief/BR9073189/br-external/AmsdenBarb-e.pdf ).
“You may remember that submissions were made to Parliament (Christians, Cockfield, https://ssrn.com/abstract=2407264 ) against the FATCA enabling IGA implemented in Canada in aid of US claims to extraterritorial imposition of US taxes and penalties on law-abiding Canadian citizens and other Canadian resident taxpayers – due solely to the US extortionate threat of FATCA economic sanctions against the Canadian financial sector. FATCA is a legally dubious US extraterritorial law ( Christians https://ssrn.com/abstract=2280508 ) that continues to cost Canadian taxpayers ( https://openparliament.ca/committees/finance/41-2/63/rick-stewart-2/ ) , businesses ( http://www.cbc.ca/news/canada/fatca-facts-what-canadians-need-to-know-about-new-u-s-tax-law-1.2493882 ), shareholders, accountholders in aggregate billions of dollars for Canadian financial and non-financial institutions and the CRA to implement and sustain – with no end contemplated, and still NO sign of the promised equivalent reciprocity by the US.
There is still a robust outstanding lawsuit against domestic implementation of the FATCA IGA in Canada ( http://www.internationalinvestment.net/products/tax/anti-fatca-lawsuit-plaintiff-vows-fight-fatca-will-go/ )and the US, and various challenges being prepared in France ( https://www.csmonitor.com/World/Europe/2018/0504/For-accidental-Americans-the-hidden-costs-prove-taxing , https://www.nbcnews.com/nightly-news/accidental-americans-living-abroad-fight-tax-bill-uncle-sam-n867711 ) the EU (ex. http://www.europarl.europa.eu/RegData/etudes/STUD/2018/604967/IPOL_STU(2018)604967_EN.pdf ) , and potentially in Australia.
Following that, the US went one further outside the existing inadequate terms of the Canada/US tax treaty and without notice imposed a new investment tax to pay for US domestic healthcare – which Canada was not consulted on and which Canada has not sought a remedy for – despite clear evidence that it is blatant double taxation by the US. The 3.8% NIIT (Net Investment Income Tax) was implemented in 2013 to fund the Affordable Care Act (Obamacare) but to date has never been addressed by the Canadian government or the tax treaty, despite the fact that those Canadian resident taxpayers subject to it cannot get Canadian tax credited to offset the NIIT paid to the US even though they are Canadian resident taxpayers, and receive no healthcare or other benefit from the US.
Now there is this latest travesty;
‘Thousands of Canadian residents with corporations facing massive U.S. tax bills because of Trump’s tax reform’
“…..”I do know that the minister of finance and government officials have been having some discussions with the Americans on that,” said Easter, who also chairs the House of Commons finance committee. “It’s a huge problem for Canadian businesses and it needs to be addressed, so I’m sure it will probably come up in some of the meetings.”
Easter’s comments come as thousands of Canadian residents with U.S. citizenship across the country are grappling with the impact of a one-time, retroactive repatriation tax included in the 1,000-page U.S. tax reform Trump signed into law just before Christmas.
The measure was intended to get big American multinational corporations like Apple and Microsoft to stop parking billions of dollars in foreign subsidiaries. However, it is also hitting U.S. or dual citizens in Canada who have corporations – many of whom have lived their lives in Canada…….”
I am writing to you about the affected Canadian taxpayers;
( http://www.cbc.ca/news/politics/transition-tax-trump-corporations-1.4639020 ) many of whom are Canadian-born citizens, all are Canadian taxpayers residing in Canada, with small local businesses – which includes such individual Canadian doctors, dentists, etc. with small incorporated practices – which is very common.
Many are dual Canadian/US citizens only by virtue of the unique vagaries of US citizenship law which imposes US status on people born outside the US but with one or more qualifying US citizen parent, or who were born in the US while their Canadian citizen parents were in the US on short work or study stays, or whose family lived in border areas such as Niagara, and had mothers sent by our medical system over to US border hospitals when Canadian hospitals were unable to serve them because of overcrowding or a lack of specialty antenatal, obstetric and post-natal services. In many cases the US status is involuntary, and due to the caprices of US law, the US extraterritorially claims them as US taxpayers – and claims the sovereign right to tax those Canadian taxpayers over and above the Canadian taxes they pay as Canadian residents – despite their lack of any actual US residency, economic connection, income or property.
The current Canada US tax treaty has been allowed to continue to contain many gaping double tax holes which benefits the US, and which it is content to proliferate at Canadian expense.
A previous example is the US extraterritorial punitive and grasping treatment of Canadian sited and owned tax exempt or deferred savings instruments such as our RESP, RDSP and TFSA, which the US treats extraterritorially as US taxable ‘foreign trusts’. It is only in recent years that the US has treated our RRSPs as legitimately recognized exempt or deferred retirement savings and only recently has the US tax paperwork to continue to assure that status been somewhat simplified and made less subject to penalties for errors or gaps in filing in order to prevent the needless penalties and US tax incurred even decades after they were finally recognized in the treaty as legitimate tax deferred instruments.
Now the US has extraterritorially imposed a massive retroactive tax (back to 1986) on small individuals and businesses in Canada – collateral damage in its quest to tax Apple and other US corporations with assets ‘overseas’.
When will Canada’s government stand up for law abiding Canadian individuals and businesses whose legal local assets are increasingly the target – (unintended or not) of greedy US overreach?
Will you lend your assistance to urge the renegotiation of the current woefully inadequate Canada US tax treaty to plug the existing double tax gaps and stop this most recent US tax grab?
Will you assist the Canadian individuals and families who cannot rid themselves of inherited involuntary or unwanted US citizenship except at great expense and facing great complexity to do so (the current fee for those seeking to relinquish or renounce before a US consulate or embassy as required = 3003.86 CDN dollars per person ( https://adcsovereignty.files.wordpress.com/2014/10/adcs_prr_oct27_2014-efinal.pdf ) ? “
The deadline is June 15th. What to do? IRS Medic discussion with…
John Richardson, Esq. http://www.citizenshipsolutions.ca/
David Sutherland, CPA https://www.jccscpa.com/people/david-…
Anthony Parent implies that someone has to be compliant to renounce. At the very end John corrects him and points out two important facts. You do not have to be tax compliant in order to renounce and the CRA will not help the IRS collect from Canadian citizens.
Thank you @CAB for helping us by creating and posting a clear succinct line of questioning that we can also emulate with our own MPs. I have used it and other supplementary material to contact my MP, (who I had in prior years spoken with re FATCA).
This might also be persuasive to MPs;
“……..Valère Moutarlier, Head of Direct Taxation in the European Commission’s Directorate General of Taxation and Customs Union pointed out that the US Tax Cuts & Jobs Act 2017 (TCJA) has already been referred to the OECD Forum for Harmful Tax Practices, saying that it “raises new corporate tax issues.”….”