Category Archives: Issues regarding US persons abroad

I thought the results of the Israeli court case deserved their own post.

According to the report, the judge in this case has determined that our expectation of privacy in the modern world is limited. Therefore, Israel must comply with the United States FATCA demands and perform the transfer to the U.S. of the (excuse me) private financial information of Israeli citizens living in Israel just because they have some sort of nominal association with the U.S.

The issue that was completely missed in this case was discrimination, a shocking oversight considering the historical background of the judge’s nation. I hope that Mr. Arvay in his prosecution of the Canadian lawsuit will stress this point heavily. Regardless of whether or not privacy must be held as a limited “right” in modern society, it should be equally limited and not more limited for some citizens than for others. As it now stands in Israel, Canada and every other country in the world, those deemed by the United States to be Americans have even greater limitations placed on their privacy than any other members of their populations.

That is the issue. That is the injustice. That is the wrong. That is our cause.

We’ve only just begun to appreciate how differently U.S. citizenship/taxation law affects Americansabroad, based upon their country of residence. This is perhaps the most bizarre I have come across so far; dual citizenship denied on account of apartheid (i.e., a white South African could be dual at birth but not a black South African).

NB: Please be sure to read the response of Mr. Ferszt to this post on the citizenshipsolutions site

cross-posted from citizenshipsolutions dot ca

Introducing this “guest post”

This guest post is written by Dominic Ferszt of Cape Town, South Africa. I first became aware of Mr. Ferszt when, in October of 2014, his post: The Accidental Tax Invasion” was published in Forbes. I have discussed various aspects of “citizenship-based taxation” with him since. I am very pleased that he has accepted my invitation to write this “guest post” for publication at Citizenship Solutions. His post exposes an aspect of “citizenship taxation” and the S. 877A U.S. expatriation tax that has not (as far as I am aware) been discussed before. Those who did NOT acquire “dual citizenship” at birth because of discriminatory laws (example British and Canadian laws saying that citizenship could be passed down from the father but not from the mother) will find this post extremely interesting and relevant.

Without further ado …

Apartheid and the Accidental Taxpayer

How the United States Congress has passed legislation which imposes a tax obligation in accordance with the discriminatory policies of foreign nations; and how this might offer a glimmer of hope to millions around the world who feel unjustly targeted by FATCA or the IRS.

By Dominic Ferszt, Cape Town

In 2010, the United States Congress passed FATCA, or the Foreign Account Tax Compliance Act. Since that time, anyone with a bank account outside the U.S. has suffered some consequence.

FATCA requires all financial institutions outside the USA, notably banks and insurance companies, to review their records to identify possible evidence that customers may be U.S. taxpayers. Once identified, the financial institutions are required to report certain financial information; ultimately to the IRS.

This seemingly simple task has proven to be a complex compliance exercise costing the banks billions of dollars every year; and such perpetual expenses inevitably reflect in our bank fees. Perhaps the more brazen face of FATCA has been the requirement, by millions around the world, to go into a bank and sign a form declaring to the U.S. government (under penalty of perjury) that they either are, or are not, a U.S. taxpayer.

However, there is one group of people, likely numbering in the millions, whose lives have been unexpectedly and disproportionately shattered by the passage of FATCA. Some call them ‘Accidental Americans’, but what they have in common is some formal connection with the United States which they long ago abandoned. Perhaps they were born in America to foreign parents or overseas to U.S. parents, perhaps they studied or worked there in their youth, perhaps they emigrated long ago. Many of them do not even speak English. The problem they all share is that they (unknowingly) carried with them a perpetual obligation to pay U.S. tax after they returned home; unless they had performed some obscure and punitive expatriation process known only to a few U.S. tax scholars in ‘white shoe’ law firms. These individuals continue to be U.S. taxpayers (regardless of where they live in the world) because they are U.S. citizens. In the case of ‘foreigners’ who, under U.S. law, inadvertently acquired citizenship at birth, their tax obligation is arguably discrimination based on “national or social origin” or “birth” as articulated in the Universal Declaration of Human Rights.
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Some of you know that the Israeli Supreme Court recently issued a temporary injunction preventing implementation of the U.S. FATCA law in Israel. See for example Forbes article.

On September 12, 2016 the Israeli Supreme Court, however, quashed the injunction.

Marc Zell, a counsel to the two petitioners (Republicans Overseas and Rina Schreiber) confirmed to me today (September 14) that they have no intention of giving up the FATCA litigation fight in Israel — which will continue. He also reminded me that the lawsuit is in fact still pending as the Israeli Supreme Court has not issued an opinion.

Two surprising statements made by the Justices deserve mention:

1) “Privacy in modern life is very limited,” said Justice Menahem Mazuz, one of three judges who ruled on the matter. “This is nothing new, the only change is that the regulations have now been codified into law.” [“The court ruled that the Israeli law, passed as part of an arrangement with the United States Treasury Department, did not violate Israel’s Basic Laws of Human Dignity and Liberty.”]

[Compare the above statement on privacy with a similar argument made by U.S. Treasury Department et al. against the plaintiffs of the U.S. FATCA lawsuit: “…there is no legitimate expectation of privacy concerning information kept in bank records, and the Sixth Circuit has repeatedly reaffirmed as much…”]

2) Justice Hanan Meltzer in part justified the law by noting its acceptance by the United States, saying this created a presumption of constitutionality.

“As long as the US law is in force, there is a presumption of constitutionality in regards to its purposes.” Above from: http://www.israelnationalnews.com/News/News.aspx/217717

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The platforms listed side by side ties expats with either fairshare/terrorism/corruption/criminality/evasion/cracking down whilst the other focuses upon constitutional rights and the ability for overseas Americans to lead normal lives. Consider the expat-relevant platforms in regards to the Congressional and Presidential choices.

(No relevant information found yet from the Libertarian or Green party)

The platform gives direct information as to what the two parties think of us.

Update!!! September 1, 2016

Read the article referenced in the following tweet:

Outraged by Apple's tax dodge then https://t.co/PEjnAz6TIL

— U.S. Citizen Abroad (@USCitizenAbroad) September 2, 2016

You will find comments from Schumer, Levin, and Paul Ryan.

____________________________________________________________________________________________________

From the EU:

Irish tax rulings to Apple are illegal state aid. Effective taxation as low as 0,005 pct. #Apple has to repay up to €13 billion unpaid tax.

— Margrethe Vestager (@vestager) August 30, 2016

From the Jack Lew:

Jack Lew believes that the EU Apple tax decision means that EU is taxing income that ought to be taxed in the USA https://t.co/jmGkhhRYVQ

— U.S. Citizen Abroad (@USCitizenAbroad) September 1, 2016

On the hypocrisy:

https://twitter.com/SophieintVeld/status/770897743569117185

Oh my God! #YouCantMakeThisUP!

Have a look at the above video.

In the world according to Lew:

The idea that Apple’s European profits, should be taxed by Europeans, is to reach into the U.S. tax base!!! Only the United States should be able to impose taxation on U.S. companies.

Is this guy really this mentally challenged, or is he just “Paid the big bucks” by Obama (who is his intellectual “equivalent” (to pull a word out of the FATCA IGAs) to spew this hypocritical BS?

Has it not occurred to this member of the “Homelander Elite Corp”, that the whole purpose of the U.S. tax system is to dip into the legitimate tax base of other nations, and transfer the revenue and capital of other nations to the U.S. Treasury?

What does he think the effect of: PFICS, CFC rules, Subpart F, foreign trusts, the taxation of capital gains on Canadian homes, the taxation of RDSPs, etc. is?

Does he not understand that CBT enforced by FATCA is a declaration of war on other nations?

If you watch this interview, you are left with the impression that he actually believes what he is saying.

Leaving aside the issues in Europe, does this “person with blinders” not understand that the behavior of Apple and other companies is a direct result of the U.S. tax system, which features the highest corporate tax rates in the world? The policies that are forcing DNA citizens to renounce have parallels that are causing Corporate citizens to renounce/invert.

Does he not understand the the U.S. tax system directly discriminates against U.S. companies in favor of the companies of other nations?

And he goes on again about the “retroactive nature” of the EU decision:

This coming from the guy who wants to impose retroactive PFIC taxation on the mutual fund investments of Americans abroad.

This coming from the guy who heads the agency that will NOT commit to the view that the U.S. “Exit Tax” rules should not be imposed on Americans who relinquished U.S. citizenship prior to 2004.

These people are deserving of nothing but contempt, ridicule and scorn.

The sooner they are put out to pasture the better it is for the world.

Well, at least the EU tried to instill some reason in him …

Very good meeting with Secretary of the Treasury Jack Lew on the European economy and transatlantic cooperation. pic.twitter.com/XiQBa6STAg

— Margrethe Vestager (@vestager) July 13, 2016

E.U. Commissioner on Apple Ruling https://t.co/oCec8um5zD via @nytvideo

— U.S. Citizen Abroad (@USCitizenAbroad) August 30, 2016

Today the E.U. ruled that the “tax deal'” that Apple negotiated with the Government of Ireland violated the E.U. prohibition on “State Aid”. Understand that this decision was NOT about taxation. It was about the Government of Ireland giving a benefit to one company (zero tax) which they wouldn’t give to other companies. It just so happened that the benefit given was a generous tax deal.

Anxious to characterize the E.U. decision has a “tax related decision” (probably because the United States perspective is that EVERYTHING is about taxation), the Obama Treasury commissioned a “White Paper” which was released on August 24. (You can read it below.) The “White Paper” is evidence of a standard of hypocrisy which should be an embarrassment for even the administration of Barack Obama. One of the objections (among many) was that (assuming that this is about taxation, which it actually is not) the E.U. was engaging in “retroactive” tax enforcement.

White-Paper-State-Aid

See the following from page 15 of the Obama Treasury White Paper:

III. The Commission Should Not Seek Retroactive Recoveries Under Its New Approach

Where State aid involves impermissible subsidies provided through the tax system, the Commission requires the Member State to recover the amount of tax that, in the Commission’s view, should have been imposed in the first place. These amounts can be significant, since the Commission can require recovery for up to ten prior years, with interest for the period the illegal aid is granted until the aid is recovered.

In Fiat and Starbucks, the Commission has ordered the Member States to recover the allegedly unpaid tax with respect to prior tax years.

Because the Commission’s approach in the State Aid Cases is new and was not foreseeable by the relevant companies, recovery of past allegedly unpaid tax would constitute retroactive enforcement of a newly adopted approach to State aid.

With no indication of the Commission’s new approach, U.S. companies have been receiving transfer pricing rulings from EU Member States for decades and had no reason to doubt their legality. Under these circumstances, recovery of past allegedly unpaid tax would be inconsistent with EU legal principles and the Commission should void retroactive enforcement.

As I read the complaint of the Obama Treasury, I thought that …

III. The U.S. Treasury Should Not Seek Retroactive PFIC Penalties Under Its New Tax Treatment of Americans abroad

Where the investment in mutual funds involves impermissible tax deferral provided through the retirement planning system, the U.S. Treasury requires the American living abroad to pay the “interest charge” imposed on investing in a non-U.S. mutual – the amount of tax/interest that, in the Treasury’s view, should have been imposed in the first place. These amounts can be significant, since the United States Treasury can require recovery for many years dating back to 1986, with interest for the period that the illegal mutual fund was owned until the interest is recovered.

In Streamlined and OVDP, the IRS has ordered the taxpayer abroad to pay the allegedly unpaid interest charges with respect to prior tax years.

Because the U.S. Treasury’s approach in the treatment of Canadian (and other non-U.S. mutual funds is new and was not foreseeable by the taxpayers abroad, recovery of past allegedly unpaid tax and interest charges would constitute retroactive enforcement of a newly adopted approach to IRS treatment of Canadian mutual funds.

With no indication of the IRS’s new approach, U.S. citizens living abroad have been investing in non-U.S. mutual funds purchased from non-U.S. mutual fund companies for decades and had no reason to doubt their legality. Under these circumstances, recovery of past allegedly unpaid tax, interest and penalties would be inconsistent with fair tax principles and the U.S. Treasury should avoid retroactive enforcement.

There’s hypocrisy, extreme hypocrisy and the Obama administration!

Karen is organising a group to take anti-FATCA/CBT action in Australia and has launched the website Let’s Fix the Australia US Tax Treaty!

The mission of Let’s Fix the Australia/US Tax Treaty! is to press for amendments to the Australia/US Tax Treaty and the FATCA IGA to eliminate discrimination against a subclass of Australian citizens that is also disadvantageous to all Australians. We plan to gather the voices of those impacted, including Australian-only family members, and highlight the obligation of the Australian Government to defend its sovereignty and protect Australians against US extraterritorial law.

The purpose of Let’s Fix the Australia/US Tax Treaty! is twofold:

First, to encourage affected Australians to write to their elected representatives to lobby for change on the Australian side of this equation. Australia has signed two agreements with the US that allow this to continue: the Double Tax Agreement (Tax Treaty) and the FATCA IGA. The Tax Treaty was last amended in 2001 and does not provide for US recognition of the tax-advantaged status of superannuation. There are other portions of the treaty that guarantee the double taxation of dual citizens resident in Australia. Our Australian government must put pressure on the US to come to the table an re-negotiate the Tax Treaty.

Second, to serve as an educational resource for both the affected dual citizens trying to understand how the Tax Treaty affects them AND to help educate our elected representatives on the problems caused by Australia’s capitulation to one-sided US demands.

The Australians have been very active and this is a great new development.

Regarding this new website, JC commented on another thread:

In Australia we are out to make some “noise.” On the Day Roy Berg presents to the Tax Institute of Australia seminar on superannuation, on US taxation and Australian Superannuation, a new website aimed at the injustices has been launched:

Best wishes for making lots of “noise” and effecting much needed change!

Let’s Fix the Australia US Tax Treaty!

"I complied with human rights-violating U.S. renunciation rules — and this leaves a bitter taste." https://t.co/H5qRkzhxxq

— John Richardson – Counsellor for US persons abroad (@ExpatriationLaw) August 24, 2016

Click on the link in the above tweet to see the complete discussion.

The bottom line is that Dr. Stephen Kish – Chair of the Alliance For The Defence of Canadian Sovereignty and plaintiff in the Bopp FATCA Lawsuit, has formally renounced U.S. citizenship. He performed this act in Iceland which is the final resting place of Robert James Fischer – one of the most famous and well known cases of U.S. citizenship relinquishment.