I used to use two e-mail accounts for Brock matters. Going forward, please e-mail me only at Pacifica@IsaacBrockSociety.ca
The Six Faces Of The 965 Transition Tax – The Ugliest Face Applies To Americans Abroad
John Richardson discusses how six categories (some winners, some losers) are affected by the s. 965 Transition Tax and how the biggest loser of all is US citizens living outside the US who are tax resident of another country, in particular:
“ . . . . a US citizen living outside the United States will be subject to “double taxation” when dividends are paid to the shareholder. This is because:
1. The 965 transition tax is a U.S. levy on “deemed (without a realization event) income” and no realization event in the other country which would trigger tax; and
2. A non-US tax payable in the country of residence when there is an actual distribution/realization event.
Because the U.S. tax and the foreign tax liabilities are not triggered at the same time there is no opportunity to use the U.S. transition tax paid as a tax credit against the foreign tax paid. The likely result is double taxation. . . . .”
As for background on this tax, John has noted elsewhere that “the 965 transition tax was a one time retroactive tax (going back to profits accrued since 1986) on earnings that were not subject to taxation at the time that they were earned. . . .But, (as usual) little thought was given to the fact that some CFCs were owned by individuals. No thought was given to the fact that many Americans living outside the United States had small business corporations in their country of residence.”
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Part I: Introduction – What Is The Transition Tax?
“Tell me who you are. Then I’ll tell you how the law applies to you!” I’ll also tell you whether you are a “winner” or a “loser” under this law.
At the end of 2017, Congress was enacting the TCJA. A major purpose of the TCJA was to lower U.S. corporate tax rates from 35% to 21%. This was a huge benefit to U.S. multinationals. One Congressional concern was how to find additional tax revenue in order to compensate the Treasury Department for the reduction in tax revenue which would result in lower receipts from corporations. Congress needed to find some additional tax revenue. They found this additional tax revenue by creating “new income” from the past and taxing that newly created income in the present. In fact, Congress said:
Significantly, Congress didn’t create any real income. No taxpayer actually received any income to pay tax on. The income created by Congress was not “real income”. Rather it was “deemed income”. But, this “deemed income” was intended to appear on tax returns. Real tax was payable on this “deemed” income.
Such, is the beginning of the story of the IRC 965 Transition Tax. The Transition Tax was a benefit to U.S. multinationals and destroyed the lives of individual U.S. citizens living outside the United States who organized their businesses, lives and retirement planning (as did their neighbours) through small business corporations.
This post identifies different groups impacted by the Transition Tax and the “winners” and “losers”.
Stop Extraterritorial American Taxation (SEAT) Encourages Submissions to US House Ways and Means Committee — Deadline, Wednesday, 2 August!
On 19 July 2023 the Ways & Means Tax Subcommittee held a hearing entitled “Biden’s Global Tax Surrender Harms American Workers and Our Economy.” Stop Extraterritorial American Taxation (SEAT) notes that this hearing presents an opportunity to give the House Committee on Ways & Means your feedback on both (1) specifically, the hypocrisy of their position regarding unfair taxes, and/or (2) more generally, the impact of nationality-based U.S. extraterritorial tax policies on the lives of Americans who live outside of the United States.
Send to: WMSubmission@mail.house.gov.
SEAT notes that submission guidelines are at http://waysandmeans.house.gov/wp-content/uploads/2023/07/ADVISORY_Tax-Subcommittee-July-19-2023.pdf and points out the following:
Please ATTACH your submission as a Microsoft Word document.
All submissions and supplementary materials must be submitted in a single document via email, provided in Word format and must not exceed a total of 10 pages. Please indicate the title of the hearing as the subject line in your submission. […] The name, […] address, [and] telephone numbers of [the person making the submission] must be included in the body of the email. Please exclude any personal identifiable information in the attached submission.
SEAT has submitted a statement to the Committee and encourages you to provide your own personal statement.
July 13, 2023: Supreme Court of Canada Rejects Leave to Appeal Application for Canadian FATCA IGA Legislation Lawsuit
On August 11, 2014 Plaintiffs Ginny Hillis and Gwen Deegan filed a Claim in Federal Court of Canada arguing that the U.S. FATCA law imposed on Canada violated the Charter of Rights and Freedoms of Canadians. We lost in Federal Court and later in the Federal Court of Appeal.
On January 10, 2023 our Appellant, Gwen, filed a “leave to appeal” request in the Supreme Court of Canada asking the Court to accept her application to hear the appeal. In argument Gwen asked Court to consider both Charter sections 8 and 1. Section 8 protects against “unreasonable” searches or seizures and section 1 protects rights and freedoms subject to reasonable limits.
Today, on July 13, 2023 the Supreme Court of Canada decided not to hear the appeal, thus exhausting our last opportunity to appeal in the Canadian courts.
Given the Supreme Court decision, the Alliance for the Defence of Canadian Sovereignty (ADCS) has decided to abandon its efforts to end the Canadian legislation enabling the U.S. FATCA law — and will dissolve our non-profit corporation.
The ADCS Board thanks many for past support which made this lawsuit possible: the brave plaintiffs and appellants Gwen, Ginny, and Kazia, the Isaac Brock Society, and the hundreds of people who, since 2014, contributed financially and in other cases their encouragement that this legal challenge was necessary.
Thank you all for your support,
Alliance for the Defence of Canadian Sovereignty
Update on Belgian FACTA IGA Litigation
Fabien Lehagre of l’Association des Américains accidentels has provided an update on the Belgian FATCA IGA case, which includes:
“The Belgian State has appealed the Belgian data protection authority (DPA) decision ordering the prohibition for the Belgian tax authority to process personal data of accidental Americans in the context of FATCA and to transfer the data to the IRS, the US tax authority. An introductory hearing took place at the Brussels Court of appeal yesterday [29 June 2023]. The Court of appeal decided to suspend the effects of the Belgian DPA decision. . . . ”
Fabien notes that, “this prohibition . . . is now suspended by the Brussels Court of Appeal [pending the appeal decision]. The main reasons for doing so are to avoid the risk of damaging Belgium’s international reputation towards the United States and the diplomatic relationship with the United States as well as the difficulties for FIs who can no longer meet their FATCA obligations.”
Key Dates:
24 May 2023. Decision. Press Release. “The Belgian Data protection authority today declared unlawful, and decided to prohibit, the transfers of personal data of Belgian ‘Accidental Americans’ by the Belgian Federal Public Service Finance (FPS Finance) to the US tax authorities under the intergovernmental FATCA agreement.”
30 Jun 2023 From Fabien’s Update. “The Belgian financial institutions (FI) must, in principle, transfer FATCA relevant data to the Belgian tax authority for the fiscal year 2022. As the Belgian DPA prohibited the Belgian tax authority to process these data, this also means that the FIs cannot transfer the data to the Belgian tax authority as reception of these data by the latter also constitutes a form of prohibited processing.”
30 Sep 2023. “Belgian tax authority is supposed to transfer the data to the IRS.”
15 Nov 2023. “Pleadings on the merits are scheduled for 15 November 2023.”
Ottawa Brock Dinner, Tuesday, 20 June
Several of us are getting together to celebrate Travis’ new CLN with dinner at The Keg, 75 York Street, Ottawa, on Tuesday, June 20th, 6 pm. Good food and drink and, important for us, it’s a good place for conversation, quiet and comfortable. We’re currently expecting nine people. All Brockers are welcome, whether local or visiting Ottawa from out-of-town. On that latter note, we’re pleased that John Richardson of Toronto will be attending.
Hope you can join us! Please RSVP by leaving a comment or emailing pacifica.isaacbrocksociety@gmail.com
Belgium’s Data Protection Authority rules data sharing under FATCA IGA is prohibited under EU’s General Data Protection Regulation
“The Belgian Data protection authority today declared unlawful, and decided to prohibit, the transfers of personal data of Belgian “Accidental Americans” by the Belgian Federal Public Service Finance (FPS Finance) to the US tax authorities under the intergovernmental FATCA agreement. According to the Belgian DPA, the data processing carried out under this agreement does not comply with all the principles of the GDPR, including the rules on data transfers outside the EU. It also asks the FPS Finance to alert the competent legislator of the shortcomings identified by the DPA.
. . . .
“Hielke Hijmans, Chairman of the Litigation Chamber: ‘Tomorrow we celebrate the 5th year of application of the GDPR. Article 96 cannot be intended to allow that international agreements remain contrary to the GDPR over time. The exception provided for international agreements concluded before the implementation of the GDPR does not exempt EU member states from (re)negotiating an agreement to make it GDPR compliant.’
“The Litigation Chamber also finds that the FATCA agreement does not contain appropriate safeguards to ensure that exported personal data is afforded a similar level of protection as data within the EU.
“The Litigation Chamber concludes that the transfers of data of Americans residing in Belgium to an authority located in a country outside the EU (which cannot offer an adequate level of data protection) are unlawful. For this reason, the Belgian DPA prohibits the FPS Finance from processing the complainants’ data and asks it to alert the competent legislator of this prohibition and of the shortcomings found”.
. . . .
The DPA has given the Tax Authority three months to confirm its compliance. The TA can also appeal the ruling.
Thanks to Ron Henderson for posting news of this decision on our Media thread.
Further reading:
American Citizens Abroad statement on the recent Belgian Data Protection Authority ruling on FATCA
Belgium stops ‘unlawful’ sharing of Accidental American’s data, Isabel Gottlieb, Bloomberg Tax.
Cook v. Tait: More About The Meaning Of Citizenship Than About The Scope Of Taxation
John Richardson examines the US Supreme Court’s Cook v. Tait decision, a seminal case in US citizenship law, and the role it had in the “weaponization of citizenship”:
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Introduction And Purpose
The focus of this blog has always been on citizenship, taxation and citizenship taxation. Although taxation has always been perceived as a necessary burden, citizenship has sometimes been a benefit and sometimes been a burden. James Dale Davidson, writing in “The Sovereign Individual”, expressed the view that in the 20th Century US citizenship was generally a benefit. In the 21st (digital) century US citizenship based taxation has transformed US citizenship into a burden. The numbers of people renouncing US citizenship are a testament to this new reality.
The Weaponization Of US Citizenship – Two Methods
The history of US citizenship as documented in Amanda Frost’s “You Are NOT American”, is an epic story of the “weaponization of citizenship”. I highly recommend Professor Frost’s book – “You Are NOT American” to those interested in the evolution of US citizenship.
Method 1: Weaponization By Claiming The Individual Does NOT Meet The Requirements Of Citizenship
Regardless of the benefits or burdens of US citizenship, it is clear that the United States has a long history of “weaponizing US citizenship”. Professor Amanda Frost in her superb book “You Are NOT American” provides many examples of how the United States has used the concept and status of citizenship to either punish or reward individuals. Generally, Professor Frost describes a history where the use (or misuse) of America’s “nationality laws” has created hardships for people. Citizenship is a part of who people are. It’s part of their personal identity. Citizenship (presumptively) gives people a place or country they can call home. Citizenship (presumptively) gives people a place where they can live without fear of removal. Citizenship matters and the loss of citizenship can be a frightening and destabilizing event in the lives of an individual. It was not until 1967 that the United States Supreme Court in Afroyim ruled that US citizenship was conferred by the Constitution, belonged to the individual and could not (at least if born or naturalized in the US) be taken by the Government. (Of course that is of little comfort to those who can’t prove their US citizenship.)
Method 2: Weaponization By Claiming The Individual Does Meet The Requirements Of Citizenship
A minority of countries in the world confer citizenship based on and only on birth in the country.
Only two countries in the world impose worldwide taxation based on and only on the fact of citizenship.
The United States is the ONLY country that does both!
FATCA assisted the United States in exporting US taxation into other countries and on to the individuals who live in and are tax residents of those countries. In short: the accusation of being a US citizen living outside the United States subjected one to the “disabilities” and “criminalization” imposed by the US extra-territorial tax regime.
Bonjour: Different US Tax Treaties Provide Different US Taxation For Different Groups Of Americans Abroad
The US tax treaties have been discussed on Brock, most frequently those the US has with Canada and Australia but not so much about the others. In this article, John Richardson examines facets of the France-US Tax Treaty.
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Introduction, purpose And summary
It is clear that US citizens, who are tax resident of countries outside the United States are generally subjected to a more punitive system of taxation than US residents. That said, the U.S. has different tax treaties with different countries. Some treaties (example Australia) make living outside the United States very difficult. Other tax treaties (Canada and the UK) make living outside the United States easier in a relative sense. The relative difficulty is somewhat dependent on the extent to which the treaty contains provisions for U.S. citizens who are “resident” in the treaty partner country. These treaties are an additional recognition of U.S. citizenship taxation.
If a U.S citizen contemplating a move abroad asked the following question:
Q. How will I be taxed if I move outside the United States and live as a tax resident of another country?
The answer will be:
A. I don’t really know. It depends what country you are considering moving to.
Not only are US citizens living outside the United States taxed more punitively than U.S. citizens living inside the United States, but their taxation by the United States depends on the country they move to! (In addition, both income tax treaties and estate tax treaties may contain provisions that affect the way U.S. citizens may be taxed by the treaty partner country!)
The curious case of the U.S. France Tax Treaty and U.S. Citizens resident in France
In 1994 the United States and France entered into a new tax treaty. The 1994 treaty replaced the previous treaties. Generally, the 1994 treaty continued the “spirit” of the earlier treaties. Of particular note in the introduction to the 1994 treaty is the paragraph:
The new Convention preserves the special French tax benefits for U.S. citizens residing in France and for French residents who are partners of U.S. partnerships.
https://www.irs.gov/pub/irs-trty/france.pdf
(Note also that the 1994 Treaty has been revised by various protocols in 2004 and 2009.)
Much of what follows is rather technical. Therefore, I will begin with a summary of the main points gleaned from an analysis of the U.S. France Tax Treaty. What are those “special French tax benefits for U.S. citizens residing in France”?
Afroyim v. Rusk – A New Perspective: Do The Specific Rules Of US Citizenship Taxation Result In The Forcible Destruction Of US citizenship?
The Supreme Court decision in Afroyim v. Rusk was a key decision in the evolution of US citizenship law, leading to the current policy that, in order to lose one’s citizenship when performing a potentially relinquishing act, one must have the intent to lose it when so doing. Previously, a person performing such an act could lose their citizenship regardless of intent. In this decision, the Court refers to depriving a person of their US citizenship involuntarily as “forcible destruction of citizenship.” John Richardson discusses the Afroyim decision and questions whether the punitive taxation of US citizens abroad also results in the “forcible destruction of citizenship.” (posted with permission)
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Prologue
The United States of America is the ONLY country in the world that both:
1. Confers citizenship by birth inside the country; AND
2. Imposes worldwide taxation and regulation based on citizenship.
Therefore, it is reasonable to conclude that:
US citizenship is the world’s only true “taxation-based citizenship”.
Afroyim – Should extending constitutional status to US citizenship be understood as a new gift or exacerbating an old curse?
US Citizenship Stripping Before 1967 – The Significance Of Afroyim
The US government was stripping US citizens of their citizenship if they committed various “expatriating” acts. This was codified in statutes that mandated that certain kinds of conduct would result in the loss of US citizenship. At various times the expatriating conduct included (but was not limited to): naturalizing as a citizen of another country, voting in a foreign election, serving in the armed forces of a foreign country and even marrying a non-citizen.
US Citizenship Stripping After 1967 – Afroyim
The 1967 US Supreme Court decision in Afroyim clarified that Congress lacked the power to strip US citizens (who were born or naturalized in the United States) of their citizenship. The Afroyim ruling clarified that:
1. US citizenship belonged to the citizen and could be lost by the citizen only if the citizen voluntarily relinquished US citizenship by voluntarily committing an expatriating act with the intention of relinquishing US citizenship; and
2. Congress cannot enact laws or engage in practices that result in the forcible destruction of citizenship.
How this happened
1967 – Beys Afroyim Visits The Supreme Court Of The United States
On May 29, 1967 the Supreme Court of the United States delivered its judgment in Afroyim v. Rusk. It is inconceivable that Mr. Afroyim, his lawyers, the Supreme Court justices or the public could have foreseen the monumental consequences of the decision. Although citizenship taxation was never mentioned in the ruling, the truth is that Justice Black’s majority decision in Afroyim planted the seed which grew into the FATCA and citizenship taxation problems leading to the renunciations of today.