Author Archives: Admin

Should tax residency Be Based On The “Circumstances Of Your Birth” Or The “Circumstances Of Your Life”?

Panel session – US Expat Tax Conference from Deborah Hicks on Vimeo.

Should taxation be based on the “circumstances of your birth” or the “circumstances of your life”? President Obama doesn’t think (apparently) that the “circumstances of your birth” birth should determine the “outcome of your life”. Should the “circumstances of your birth” determine your tax residency?

This is a second post exploring what is the true meaning of U.S. citizenship-based taxation. In an earlier post – “Toward A Definition Of Citizenship Taxation” – I explored the contextual meaning and effect of U.S. “citizenship taxation”. The only “contextual effect” and “practical meaning” of U.S. citizenship taxation may be described as:

Therefore, the practical meaning of “citizenship taxation” is the United States imposing taxation on the non-US source income earned by people who live in other countries. To be clear: citizenship taxation means that the United States is claiming the residents of OTHER countries as US residents for tax purposes!

That’s amazing stuff! Most countries believe that they are sovereign and that includes sovereignty over matters of taxation. Yet, any country that is a party to a U.S. tax treaty has actually agreed that a subset of the treaty partner’s tax residents are ALSO U.S. tax residents! Although nobody questions the right of the United States to prescribe its own definition of tax residency, few would agree that the United States has the right to claim the residents of other countries as U.S. tax residents. Yet, this is what the U.S. citizenship taxation regime means. This U.S. extraterritorial claim of taxation is at the root of the FATCA administration problems and at the root of the the events that led to Treasury Notice 2023-11 (released on December 30, 20220).

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Report Of Members Of The PETI Committee Of The EU Parliament Of Their July 2022 FATCA Visit To Washington

Prologue

July 2022 – A FATCA Delegation Goes To Washington, DC

This post is to document a small part of the practical impact of the US citizenship taxation regime. It is a continuation of a series of posts exploring what US citizenship taxation is and how it impacts people who live outside the United States and the countries where they live.

The first post – “Toward A Definition Of Citizenship Taxation” – concluded that the only practical and contextual meaning of citizenship tax is:

Therefore, the practical meaning of “citizenship taxation” is the United States imposing taxation on the non-US source income earned by people who live in other countries. To be clear: citizenship taxation means that the United States is claiming the residents of OTHER countries as US residents for tax purposes!

The second post – “Should tax residency Be Based On The “Circumstances Of Your Birth” Or The “Circumstances Of Your Life”?

The US claim of tax residency is based on the “circumstances of their birth”. The “push back” from those impacted is based on the “circumstances of their life”.

Combining the themes of the first two posts we see that:

The United States claims the right based on and only an individual’s “circumstances of birth” to impose regulations and taxation on that individuals’s income earned outside the United States when his “circumstances of life” are such that he lives outside the United States.

Or to describe it slightly differently:

The United States claims the right based on and only an individual’s “circumstances of birth” to impose taxation on the non-US source income of people when their “circumstances of live” are that do NOT live in the United States.

Or maybe …

The United States claims the right based on and only an individual’s “circumstances of birth” to regulate, penalize and tax those individuals when they no longer live in the United States. This includes imposing tax on the non-US source income of people who do NOT live in the United States.

It is very difficult to arrive at a succinct and simple description of what tax and regulation of individuals based on a a “U.S. birthplace” means.

The effect of claiming these nonresidents as US tax residents results in a massive interference (because of the punitive US tax treatment of non-US assets and income sources) in their ability save, invest and carry on businesses in their country of residence AND their ability (because of FATCA) to access bank accounts in their country of residence.

Categories of problems caused by this US extra-territorial claim of tax residency include (but are not limited to):

1. Direct taxation of non-US source income earned by nonresidents

2. Expensive and penalty compliance requirements which interfere withe the ability to manage the financial/retirement planning options in their country of residence

3. The ability to open and maintain basic bank and investment accounts

The problem of bank account access

The European Delegation visiting Washington, DC in July of 2022 was concerned with and ONLY with access to bank and financial accounts. Significantly and disappointedly the delegation expressed no objection to the U.S. extra-territorial tax policies that “claim” European residents as tax residents of the United States.

Banking Access Problems Of European Residents Who Are US Citizens

The perception in July of 2022

On July 18 to 22 of 2022, a delegation from the PETI Committee of the European Union made a visit to Washington, DC to discuss “FATCA Concerns” with US Treasury and certain members of Congress. An excellent report on the meeting was written by Helen Burggraf in the American Expat Financial News Journal. On January 25, 2023 those members delivered a live report to the European Parliament of the visit.

The perception in January of 2023

The following video – January 25, 2023 in which the delegates report on their trip to Washington to the PETI Committee is worth watching.

https://multimedia.europarl.europa.eu/en/event_20230125-0900-COMMITTEE-PETI_vd?start=20230125080941&end=20230125111858

The members discuss:

– how they experienced the meetings

– the necessity of continuing to work on the “European FATCA” problem

– the general attitude of their American hosts towards the FATCA problem (in some cases outright denial).

I would say that the sentiment was “cautious optimism”.

(The article by Stephen Gardner referenced in the above tweet continues additional commentary.)

The video also includes the thoughts of “Prof Carlo Garbarino – Bocconi University, Milano, Italy” who prepared the following report titled: “FATCA LEGISLATION AND ITS APPLICATION AT INTERNATIONAL AND EU LEVEL: – AN UPDATE”

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John Richardson – Follow me on Twitter @Expatriationlaw

Part 7: US Supreme Court Denies Toth Cert Petition. Justice Gorsuch Invites Lower Courts To Consider Constitutionality of FBAR Penalties

Prologue – Before The Supreme Court – The Background To The Toth FBAR Case

This Is Post 7 in a series of posts describing the statutory and regulatory history of Mr. FBAR.

These posts are organized on the page “The Little Red FBAR Book“.*

Historically the strength of America has been found in its moral authority. As President Clinton once said:

“People are more impressed by the power of our example rather than the example of our power…”

The FBAR penalty imposed on Ms. Toth is an example of the legal power to impose penalty and NOT an example of the restraint on power and the application of law in a just way. I have heard it said that when a person (and by extension country) loses its character it has lost everything.

The Story Of Monica Toth – Three Perspectives

Perspective 1: The story of Ms. Toth’s encounter with Mr. FBAR as described by Justice Gorsuch in his dissent:

In the 1930s, Monica Toth’s father fled his home in Germany to escape the swell of violent antisemitism. Eventually, he found his way to South America, where he made a new life with his young family and went on to enjoy a successful business career in Buenos Aires. But perhaps owing to his early formative experiences, Ms. Toth’s father always kept a reserve of funds in a Swiss bank account. Shortly before his death, he gave Ms. Toth several million dollars, also in a Swiss bank account. He encouraged his daughter to keep the money there—just in case.

Ms. Toth, now in her eighties and an American citizen, followed her father’s advice. For several years, however, she failed to report her foreign bank account to the federal government as the law requires. 31 U. S. C. §5314. Ms. Toth insists this was an innocent mistake. She says she did not know of the reporting obligation. And when she learned of it, she says, she completed the necessary disclosures. The Internal Revenue Service saw things differently.

Pursuant to §5321, the agency charged Ms. Toth with willfully violating §5314’s reporting requirement and assessed a civil penalty of $2.1 million—half of the balance of Ms. Toth’s account—plus another $1 million in late fees and interest.

Perspective 2: The issue in the Toth case as described in a September 20, 2022 post:

The penalty imposed on Ms.Toth was dependent on a finding of “willfulness”. “Willfulness” is a question of fact to be determined by the court. In the Toth case the District court deemed Ms. Toth to be “willful” as a court imposed sanction. There was no independent evaluation of the facts to determine whether she was “willful”. Absent an independent evaluation of the facts, can there ever be a finding of willfulness necessary to support the 50% account penalty?

Perspective 3: The August 26, 2022 PETITION FOR A WRIT OF CERTIORARI to the Supreme Court of The United States described the issue as follows:

QUESTION PRESENTED

The Bank Secrecy Act and implementing regulations require U.S. persons to file an annual report — called an FBAR — if they have foreign bank accounts containing more than ten thousand dollars. The maximum civil penalty for willfully failing to file the report is either $100,000 or half the balance in the unreported account, whichever sum is greater. 31 U.S.C. § 5321(a)(5)(C)-(D). Using this formula, the government imposed on petitioner a civil penalty of $2,173,703.00.

The question presented is whether civil penalties imposed under 31 U.S.C. § 5321(a)(5)(C)-(D) — penalties that are avowedly deterrent and noncompensatory — are subject to the Eighth Amendment’s Excessive Fines Clause.

Eighth Amendment Cruel and Unusual Punishment

Excessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.

The indisputable facts include (but are not limited to) that, Mr. FBAR is being used to confiscate approximately two million dollars of a Swiss Bank account with a balance of approximately four million dollars. The account was owned by an 82 year old woman and was funded by money received from her father in Argentina. The account was initially funded by money that was NOT and never was subject to US taxation. The penalty was based on the penalty for failing to file an FBAR. In addition, the necessary condition of “willfulness” was based on a court sanction and NOT on an independent evaluation of the facts.

These facts resulted in Ms. Toth’s encounter with Mr. FBAR in the penalty zone!

The Supreme Court Response – January 23, 2023:

I had the opportunity to discuss the decision in a podcast with Dubai based lawyer Virgina La Torre Jeker.

On January 23, 2023 the Supreme Court of the United States (Justice Gorsuch dissenting) denied the cert petition. In other words, the court declined to consider whether Ms. Toth’s 2 million willful civil FBAR penalty, based on a 4 million Swiss bank account balance, violated the “Excessive Fines” clause of the eighth amendment. (The effect of the court’s decision to NOT hear the case means that the US government is now – through the law of FBAR – in a position to confiscate two million from Ms. Toth. But,”It’s The Law”.)

More broadly and abstractly, the refusal to grant the cert petition means that the court refused to hear the case. The court’s refusal to hear the case is NOT equivalent to a ruling that civil willful FBAR penalty is constitutional. It means only that the Supreme Court of the United States will NOT be the court (at least as of January 23, 2023) to decide the issue. In his dissent Justice Gorsuch reinforces this point (and invites lower courts to consider the issue) by writing:

For all these reasons, taking up this case would have been well worth our time. As things stand, one can only hope that other lower courts will not repeat its mistakes.

Nevertheless, the court’s refusal to hear the Toth case will likely be interpreted:

– by the IRS (and other government agencies) as a license to continue a growing penchant to impose punitive FBAR penalties in general and engage in civil forfeiture in particular

– by the public as a continuing signal that there is a clear distinction between the interpretation of law and the application of justice and never shall the twain meet

– by the legal profession that the penalties under Title 31 are a subset of civil forfeiture penalties in general

– by the international community as further confirmation that the United States is a country lacking proportionality between violations of the law and the penalties imposed

Interestingly and significantly Justice Gorsuch penned a vigorous dissent*. In this dissent he took the time to describe the facts, describe the history of penalty in the United States and to explain why the court should have agreed to hear the Toth appeal. Justice Gorsuch appeared to rely on an amicus curie brief filed by California law professor Beth A. Colgan**. Excerpts from both are included as Appendixes *A and **B to this post.

One is left with the impression that:

Justice Gorsuch is an island of justice and sanity in an ocean of unfairness, injustice and insanity.

The world eagerly awaits the Supreme Court’s decision in the Bittner FBAR case!

John Richardson – Follow me on Twitter @Expatriationlaw

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Part 3 – Notice 2023-11: Is FATCA Aimed At Resident Americans, Residents Of Other Countries Or Both?

Summary – The Reader’s Digest Version …

Although FATCA was clearly motivated by the behaviour of US citizens resident in the United States, Treasury did NOT interpret the “purpose” as being limited to prevent abuses by “residents of the United States”. Rather Treasury appears to have interpreted the purpose of FATCA (very broadly) to target residents of other countries.

Had Treasury done what it was required by statute to do (consider the purpose of IRC 1471) it might have approached its responsibilities very differently. What began as an attempt to curb the behaviour of US residents became an attack on residents of other countries who happen to be US citizens. The evidence further suggest that the FFIs most heavily impacted by FATCA are located in the high tax jurisdictions where US citizens abroad are most likely to reside. Can it reasonably be concluded that the purpose of IRC 1471 – AKA FATCA – was to attack the residents of other countries and the banks in those countries? If not, then why did Treasury target the whole world, rather than the parts of the world with conditions that facilitated tax evasion for resident Americans? Can anybody seriously make the claim that banks in Canada, the UK, Australia New Zealand and other first world democracies were attractive locations for tax evaders? Yet, this is precisely what Treasury did.

It didn’t have to be this way!

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State Department Announces Intention To Reduce Fee To Issue Certificates Of Loss Of Nationality From $2350 To $450

Introduction And General Context

On Friday January 6, 2023 the State Department announced its intention to reduce the administrative fee for issuing CLNs (“Certificates Of Loss Of Nationality”) for US citizenship relinquishments from the current $2350 to $450. Notably in 2015 the State Department increased the fee from $450 to $2350.

The precise language found in the Declaration of Assistant Secretary For Consular Affairs Reena Bitter was:

3. Under 31 U.S.C. 9701, 22 U.S.C. § 4219, and Executive Order 10718, the Department has the authority to establish fees to be charged for official services provided by U.S. embassies and consulates. The Department intends to pursue rulemaking to reduce the fee for processing CLN requests from the current amount of $2350 to the previous fee of $450, as set in 75 FR 36522 on June 28, 2010. The Department will consider any necessary changes to this fee, as appropriate, in a future rulemaking.

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The reduction was announced in conjunction with a lawsuit launched by the Association Of Accidental Americans arguing that the $2350 renunciation fee is unconstitutional. The announcement and general context is described in the article at the American Expat Finance News Journal.

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Those wishing to better understand the lawsuit might be interested in a 2020 podcast I did with the lawyer Marc Zell.

Should you delay your renunciation until the new fee is in effect?

On January 9, 2022 there was a live hearing in Washington, DC exploring issues related to the lawsuit. During the hearing the Judge questioned the State Department lawyer about the plans to reduce the fee from $2350 to $450. It is apparent that:

1. There is no clear date on which the reduced fee will take effect.

2. There is no evidence that those who paid $2350 will be entitled to any kind of refund.

In many countries the waiting list to renounce or relinquish US citizenship continues to be long. Some of those waiting are dangerously close to being “covered expatriates” (based on the net worth test). “Covered expatriates” are generally subject to the 877A expatriation tax rules.

In most cases, those seeking to renounce US citizenship are probably best to avail themselves of the opportunity to renounce regardless of the fee on their renunciation date.

John Richardson – Follow me on Twitter @Expatriationlaw

Toward A Definition Of US Citizenship Taxation

Prologue

The term “citizenship tax” is abstract and meaningless without context. What does it really mean? In this short post I attempt to describe the defining aspect of US tax residency in simple terms.

Bottom line:

The ONLY contextual meaning of taxing based on citizenship is that it allows the US to impose tax on income earned outside the United States by people who live outside the United States.

Here is why …

What exactly is “citizenship taxation”? How/why does citizenship matter? It’s not what the “treaty partner” countries think!

1. Like all countries the United States imposes worldwide taxation on its residents. Individuals living in the United States will meet the “substantial presence” requirements and are therefore taxable on their worldwide income. Citizenship is irrelevant.

2. Like all countries the United States imposes taxation on income sourced in the United States. Generally the United States will have the first right of taxation and has the ability to withhold tax. Citizenship is irrelevant.

3. Like no other country (OK, sort of Eritrea) the United States imposes taxation on the non-US source income of people who do not live in the United States and do live in other countries. The US usually claims this right because those people were “Born In The USA” (making them US citizens). Therefore, the US imposes worldwide taxation on people who live in other countries. Citizenship is relevant because it is why the US claims the right to tax people who don’t live in the US and are residents of other countries.

4. Therefore, the practical meaning of “citizenship taxation” is the United States imposing taxation on the non-US source income earned by people who live in other countries. To be clear: citizenship taxation means that the United States is claiming the residents of OTHER countries as US residents for tax purposes!

5. This means that: Every country in the world who signs a tax treaty with the United States that includes a “saving clause” is agreeing that the United States has the right to tax income earned in the treaty partner country by residents of the treaty partner country. It is obvious that countries signing these treaties have no idea what they are signing. The problem has been further illuminated by the recent US Croatia tax treaty that allows the United States to imposes taxation on Croation residents who ARE and WERE US citizens.

So, US citizenship taxation means that the US can tax the non-US source income of residents of other countries!

John Richardson – Follow me on Twitter @Expatriationlaw

Part 2 – Notice 2023-11: Non-US Banks May Be Forced To Sever Ties With US Citizen Clients Because Of FATCA

Introduction – The Readers’ Digest Version

This is Part 2 of a series of posts discussing the world of FATCA and how IRS Notice 2023-11 is likely to impact it. In Part 1 I described how Notice 2023-11 imposes significant additional obligations on both non-US banks and the IGA Model 1 governments. (This post will be best understood by first reading Part 1 and understanding the additional compliance burdens imposed on non-US banks as a result of Notice 2023-11.) The purpose of this post (Part 2) is to suggest that the overall context of FATCA, the FATCA IGAs and US citizenship taxation will incentivize non-US banks to purge US citizen clients. It is reasonable to conclude, that US citizen clients are a clear and present danger to their businesses.

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Part 1 – Notice 2023-11: The Carrot, The Stick And Heightened FATCA Enforcement On Overseas Americans

Welcome To 2023 – A Year Of Heightened FATCA Enforcement

On December 30, 2022 US Treasury released Notice 2023-11. The broad purpose of the Notice is to prescribe conditions that would allow non-US banks to temporarily avoid a designation of “significant non-compliance” under the FATCA IGAs. It is important to note that Notice 2023-11 is NOT simply a “stay of execution”. It is a “stay of execution” that is conditional on both non-US banks and their governments participating in a significant escalation of FATCA enforcement on US citizens who live outside the United States.

The purpose of this post is to comment on and analyze the provisions of Notice 2023-13 which strongly incentivize non-US banks to purge themselves of existing US citizen clients. In Part 2 I will explain why I believe that non-US banks may be forced to close the accounts of all their US citizen customers.

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Prologue And Summary Of The Issue

Through a combination of FATCA (“Foreign Account Tax Compliance Act”) found Chapter 4 of the Internal Revenue Code and the FATCA IGAs (the mechanism for countries to comply with FATCA) the United States has created conditions where US citizen customers are a burden and risk to non-US banks. These provisions have created conditions that threaten punitive financial sanctions on non-US banks who cannot notify the IRS of a US citizen’s Social Security Number. Generally this is because the US citizen has lived abroad for many years and does NOT have a SSN. This situation has created worry for the banks and for their US citizen customers. The fact that the US citizen does NOT have a SSN is NOT relevant to the reporting obligation imposed on the bank. To be clear: The FATCA IGAs mean that non-US banks can easily be in “significant non-compliance” for the failure to comply with something that is impossible to comply with.

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“Bear Necessities”: Argentina US #FATCA IGA Confirms No Obligation Of Reciprocity On US

The Readers Digest Version: A Tweet By Tweet Explanation

Prologue – Argentina December 5, 2022

The State Department website featured the following announcement:

On December 5, Ambassador Marc Stanley and Argentine Minister of Economy Sergio Massa signed an Intergovernmental Agreement (IGA) to facilitate implementation of the U.S. Foreign Account Tax Compliance Act (FATCA). The IGA advances the shared objective of improving international tax compliance. The United States enters into bilateral FATCA IGAs with foreign jurisdictions to provide for the implementation of FATCA through domestic reporting and automatic exchange of information.

This IGA will enable the reciprocal exchange of certain financial account information between the United States and Argentina, while ensuring appropriate data protection. The United States enacted FATCA in 2010 to combat offshore tax evasion. There are currently 113 FATCA IGAs in effect between the United States and foreign jurisdictions.

Note the inclusion of the word “reciprocal”. Describing an agreement as reciprocal does not make it reciprocal. The US Argentina FATCA IGA is a reminder of how one-sided and unequal these FATCA IGAs really are. The reason for the inequality is that the United States imposes “citizenship taxation” and Argentina (like the rest of the world) imposes “residence taxation”. Therefore, the terms of the FATCA IGAs reflect the attempts of the United States to use its system of “citizenship taxation” to claim the residents of OTHER countries as US tax residents.

Detailing The Inequality Of The US Argentina FATCA IGA

or read the Threadreaderapp version here.

In the spirit of bringing an exciting end to 2022, the United States and Argentina have entered into a FATCA Intergovernmental Agreement. The Model 1 FATCA IGAs are not and were never intended to impose reciprocal exchange of information obligations on the United States. Not only does the US get far more than it gives, but the definition of “reportable accounts” reflects the difference between a US tax system based on citizenship and an Argentine tax system that is based on “residence”. One result is that under the FATCA IGAs information flows from a country (Argentina) where the US citizens are likely to live to a country (the United States) where the US citizens reported on do NOT likely live. On the other hand, the agreement clearly states that the US will send information (what little it is obligated to send) from a country where the person does NOT live (the United States) to a country where they do live (Argentina). An important effect of the FATCA IGAs is they assist the United States in claiming the tax residents of other countries (in this case Argentina) as US tax residents as well. This is one of many respects in which the FATCA (“Foreign Account Tax Compliance Act”) is different from the CRS (“Common Reporting Standard”).

To put it simply: the FATCA IGAs have the effect of expanding the US tax system into the FATCA partner country (in this case Argentina).

Summary …

For the “Bare Necessities” click on the following tweet …

Those interested in a more detailed discussion of why the FATCA IGAs are not reciprocal are invited to read the discussion here.

John Richardson – Follow me on Twitter @Expatriationlaw

Croatia Agrees To Allow The US To Impose Tax, Forms And Penalties On Its US Citizen Residents

Big News – December 2022

On December 7, 2022 a US Treasury Press Release included:

December 7, 2022
WASHINGTON — In a ceremony held at the U.S. Department of State today, Under Secretary of State for Economic Growth, Energy and the Environment Jose W. Fernandez and Croatia’s Minister of Finance Dr. Marko Primorac signed a comprehensive income tax treaty between the United States and Croatia. The new tax treaty is the first of its kind between the United States and Croatia.

“I am honored to sign the U.S.-Croatia income tax treaty with you today, Finance Minister Primorac,” said Under Secretary Fernandez. “We look forward to taking this monumental step towards further strengthening trade and commercial ties between the United States and Croatia.”

“The Treasury Department is pleased to conclude this new tax treaty with Croatia. It is the first comprehensive tax treaty that the United States has signed in over ten years and reflects our current tax treaty policies and is a milestone in the Treasury’s efforts to expand the U.S. tax treaty network. We appreciate the collaboration Croatia showed throughout the negotiations,” said Lily Batchelder, Assistant Secretary (Tax Policy).

The new tax treaty closely follows the U.S. Model income tax treaty. Key aspects of the new treaty include:

Elimination of withholding taxes on cross-border payments of dividends paid to pension funds and on payments of interest;

Reductions in withholding taxes on cross-border payments of dividends other than those paid to a pension fund, as well as royalties;

Modern anti-abuse provisions intended to prevent instances of non-taxation of income as well as treaty shopping;

Robust dispute resolution mechanisms including mandatory binding arbitration; and
Standard provisions for the exchange of information to help the revenue authorities of both nations carry out their duties as tax administrators.

The new tax treaty will enter into force after the United States and Croatia have notified each other that they have completed their requisite domestic procedures, which in the case of the United States refers to the advice and consent to ratification by the U.S. Senate.

The text of the treaty document can be found at: https://home.treasury.gov/system/files/131/Treaty-Croatia-12-7-2022.pdf

Treaty-Croatia-12-7-2022

Of particular note in Treasury’s announcement is:

“The Treasury Department is pleased to conclude this new tax treaty with Croatia. It is the first comprehensive tax treaty that the United States has signed in over ten years and reflects our current tax treaty policies and is a milestone in the Treasury’s efforts to expand the U.S. tax treaty network. We appreciate the collaboration Croatia showed throughout the negotiations,” said Lily Batchelder, Assistant Secretary (Tax Policy).

The new tax treaty closely follows the U.S. Model income tax treaty.

Treasury’s announcement focuses on the mutually beneficial aspects of the US Croatia tax treaty. Notably Treasury’s announcement fails to comment on the inclusion of the enhanced “saving clausewhich is identical to the following provision in the 2016 US Model tax treaty.

4. Except to the extent provided in paragraph 5 of this Article, this Convention shall not affect the taxation by a Contracting State of its residents (as determined under Article 4 (Resident)) and its citizens. Notwithstanding the other provisions of this Convention, a former citizen or former long-term resident of a Contracting State may be taxed in accordance with the laws of that Contracting State.

5. The provisions of paragraph 4 of this Article shall not affect:
a) the benefits conferred by a Contracting State under paragraph 3 of Article 7 (Business Profits), paragraph 2 of Article 9 (Associated Enterprises), paragraph 7 of Article 13 (Gains), subparagraph (b) of paragraph 1, paragraphs 2, 3 and 6 of Article 17 (Pensions, Social Security, Annuities, Alimony and Child Support), paragraph 3 of Article 18 (Contributions to Pension Funds), and Articles 23 (Relief From Double Taxation), 24 (Non-Discrimination) and 25 (Mutual Agreement Procedure); and
b) the benefits conferred by a Contracting State under paragraph 1 of Article 18 (Contributions to Pension Funds), and Articles 19 (Government Service), 20 (Students and Trainees) and 27 (Members of Diplomatic Missions and Consular Posts), upon individuals who are neither citizens of, nor have been admitted for permanent residence in, that Contracting State.

This represents a significant expansion of the “saving clause” to allow the US to impose US taxation NOT only on its” residents (as determined under Article 4 (Resident)) and its citizens” but also on “a former citizen or former long-term resident” which may are permitted to be subjected to any relevant future provisions of the Internal Revenue Code.

From the perspective of Croatia, the “saving clause” found in Paragraph 4 of Article 1 means:

4. Except to the extent provided in paragraph 5 of this Article, this Treaty shall not affect the taxation by the United States of its residents (as determined under Article 4 (Resident)) and residents of Croatia who happen to be US citizens. Notwithstanding the other provisions of this Convention, a former US citizen or former long-term US Green Card holder who is a resident of Croatia may be taxed by the United States according to the Internal Revenue Code.

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