Category Archives: Issues regarding US persons abroad

What is the Ponsonby Rule, or better yet, its modern Canadian version? Basically, it sets out the process under Canadian law for ratifying international treaties. The key part is as follows:

http://www.treaty-accord.gc.ca/procedures.aspx

For treaties that require implementing legislation before the Government can proceed to ratification, acceptance, approval or accession (“ratification”), the Government will:

• Observe a waiting period of at least twenty-one sitting days before the introduction of the necessary implementing legislation in Parliament;
• Will allow Members of Parliament the same opportunities to debate, present and vote on motions, as for those treaties which do not require implementing legislation;
• Will subsequently introduce the implementing legislation for these treaties;
• Seek, only when the legislation is adopted, the authorisation from the Governor in Council to express consent to be bound by the treaty.

So what does this mean? Well in theory it is too late for the government to stick the implementation authority for a FATCA IGA into the spring budget implementation act. Parliament is going to be going to be going on a two week recess after Friday, after tomorrow, which means the 21 sitting day waiting period only begins when Parliament comes back. In fact the soonest FATCA implementation legislation can be introduced is May 21st which is long after the budget bill will be introduced and too late for standalone legislation to be passed prior to the Summer recess.

So would the Conservatives and Flaherty break their own treaty ratification policy (the above Canadian version of the “Ponsonby” rule was actually introduced by the Conservatives in particular foreign minister Maxime Bernier in 2008)? Well shortly after introducing it in 2008 Jim Prentice “almost” broke it involving ratifying a copyright treaty but backed off after understanding the implications of doing so. All I can say is the Conservatives don’t have many good options to implement an IGA. The one easy way is to abuse power even beyond what they have done already in other areas of policy. On the other hand they have backed off from controversial legislation when they price of getting it through was too much even for them.

Don’t Gamble with Gift Tax Returns

Gifting has been discussed at Isaac Brock from time to time, especially related to the Exit Tax.  For any of you that have gifted, the above Forbes article may be your reminder that the process is to be reported on Form 709.

But now the lawyers have one more reason to be busy: You must report 2012 gifts on Form 709 even if you don’t owe tax. Among other things, that’s so the IRS will know how much of the $5.12 million ($5.25 million for 2013) tax-free amount you have used so far.

Do-it-yourself types can download the form as a fillable PDF plus the instructions that go with it from the IRS web site

…

For the 2011 tax year, there were 219,544 gift tax returns filed, according to IRS statistics which download here as a PDF. However, very few of them — about 3,000 – involved gifts of $1 million or more. Most related instead to using what’s called the annual exclusion. This is the amount that you are allowed to give, in cash, property or gifts, to as many people as you want each year without dipping into your lifetime exemption amount. Last year the annual exclusion was $13,000. The annual exclusion for 2013 is $14,000. (See “IRS Raises Yearly Limit For Tax-Free Gifts.”)

There are various reasons why you might need to report these relatively small (in the scheme of things) gifts. To come within the annual exclusion, a gift must be a present interest, meaning that the recipient can use the gift immediately. That’s certainly true with cash, but can be a different story with gifts to trusts, in which beneficiaries don’t have any rights until later. Any time you make a gift that isn’t a present interest, it must be reported, no matter how small the amount.

From MEP Sophia In’t Veld

The United States Foreign Account Tax Compliance Act (FATCA) requires that foreign financial institutions register with the US Internal Revenue Service (IRS) and promise to identify, collect and report information on US clients’ offshore bank accounts. According to Financial News, entities must register by 25 October 2013 in order to be included on the IRS’s list of compliant institutions to be released in December 2013(1). In order to facilitate this process and ease the burden on financial entities, a number of countries have embarked on negotiations on so-called intergovernmental agreements (IGAs) with the United States on how to implement FATCA rules.

1. Can the Commission clarify which Member States have to date concluded IGAs on FATCA?

2. Can the Commission clarify on what legal basis it is ‘coordinating’ the bilateral agreements and conducting talks with the United States? What mandate does the Commission have to engage in talks with the United States?

3. Can the Commission clarify whether these IGAs can be modified or suspended unilaterally by the United States?

4. Can the Commission clarify whether, in its view, the reciprocity clause does indeed mean complete symmetry?

5. Can the Commission clarify the situation for foreign financial institutions from Member States that have not concluded an IGA? Would the foreign financial institutions in these countries be at risk of violating European law, notably data protection law?

6. Can the Commission clarify whether the European Data Protection Supervisor and the article 29 Data Protection Working Party (WP29) have been consulted on the model agreements, and whether they approve?

7. Can the Commission explain how FATCA and the IGAs relate to the new EU proposals for fighting tax avoidance and tax evasion?

8. Can the Commission clarify whether, once the Savings Tax Directive is in force, the United States could theoretically gain access to data from all the Member States through a handful of bilateral agreements?

9. Can the Commission clarify whether it has conducted an assessment of the financial, administrative and economic impact of the FATCA on European businesses, and whether European businesses are potentially at a competitive disadvantage compared to their US counterparts?

and the response from the EU Commission

. So far, the United Kingdom, Denmark, and Ireland have signed FATCA Model 1(1) intergovernmental agreements (IGAs) with the US, while Germany, Spain and Italy have initialled such IGAs. .

2. The US is negotiating with each Member State on a bilateral basis; the Commission is not involved in these negotiations nor is it coordinating them. .

3. A FATCA IGA may be amended by written mutual consent of the Parties; either Party may terminate the IGA by giving notice of termination in writing to the other Party. .

4. The reciprocity clause included in the Model 1 IGA commits the US to achieving ‘equivalent’ levels of reciprocal automatic information exchange with FATCA partners. .

5. See response to Question E-2760/12. .

6.  The Commission consulted the article 29 Data Protection Working Party (WP29) on FATCA and the Model IGAs. The opinions provided by the WP29 can be found on the Europa website(2). .

7. FATCA and the IGAs, as US initiatives, are not part of the recent Commission Action Plan(3) to strengthen the fight against tax fraud and tax evasion. However, the Model 1 IGAs are in line with one of the proposed actions i.e. promoting the automatic exchange of information as the future EU and international standard of transparency in tax matters. .

8.  No, that will not be the case. .

9.  The Commission has not conducted such an assessment but several EU businesses have done so(4). FATCA IGAs will also affect US businesses which will be required to act as withholding agents and also to report certain information about EU residents.