Category Archives: International tax policy

Bye Bye Storify, Hello Wakelet – My "Stories" will live in this post and be moved to https://wakelet.com/@Expatriationlaw

Today is May 15, 2018. Tomorrow Storify closes forever (unless it provides a last minute_ reprieve.
Therefore, I am creating this post to “store” copies of my 6 Storify Stories.
They are being saved here in pdf format. I have also moved them over to my Wakelet account where I will continue posts of this type.
‘Will you walk into my parlour?’ – #Americansabroad and IRS “amnesty” offers in the 2009 #OVDP
Australian Greens Senator @LarissaWaters resigns because of her CANADIAN place of birth. Too bad she was born in Canada
Can the common law “revenue rule” be used to stop the enforcement of U.S. “citizenship taxation” on non-U.S. residents?
My tax professional told me my “non-U.S. mutual fund is a #PFIC! What is a #PFIC and what do I do?
Tax, culture and how the USA uses #citizenshiptaxation to impose US culture (and penalties) on other countries
The “Pax Americana” to the “Tax Americana”: How the USA is imposing a separate, punitive tax regime on “nonresidents”

Canada U.S. Tax Treaty – Article XXVIA: How the 5th Protocol Enhances protection for Canadian citizens


Introduction – The Purpose of this post
This is an addition to “The Little Red Tax Treaty Book“.
I was recently asked the following question:
I heard that the Canada U.S. Tax Treaty means that the Canada Revenue Agency will not help the United States collect a U.S. tax debt on a Canadian citizen, provided that the person was a Canadian citizen at the time the U.S. tax debt arose. But, what if the person was NOT a Canadian citizen when the U.S. tax debt arose? Will the Canada Revenue Agency help the United States collect U.S. tax debt?
My answer to the question:
On September 21, 2007 Canada and the United States signed the 5th Protocol to the Canada U.S. tax treaty (first entered into in 1980). As a result of the 5th protocol, Paragraph 8 (a) of Article XXVIA now reads:
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Part 11: Responding to the Sec. 965 “transition tax”: Letter to the Senate Finance discussing the effects of the transition tax on Americans abroad


This is the eleventh in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.
The first ten posts in my “transition tax” series were:
Part 1: Responding to The Section 965 “transition tax”: “Resistance is futile” but “Compliance is impossible”
Part 2: Responding to The Section 965 “transition tax”: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”
Part 3: Responding to the Sec. 965 “transition tax”: They hate you for (and want) your pensions!
Part 4: Responding to the Sec. 965 “transition tax”: Comparing the treatment of “Homeland Americans” to the treatment of “nonresidents”
Part 5: Responding to the Sec. 965 “transition tax”: Shades of #OVDP! April 15/18 is your last, best chance to comply!
Part 6: Responding to the Sec. 965 “transition tax”: A “reprieve” until June 15, 2018
Part 7: Responding to the Sec. 965 “transition tax”: Why the transition tax creates a fictional tax event that allows the U.S. to collect tax where it never could have before
Part 8: Responding to the Sec. 965 “transition tax”: This small business thought it was saving to invest in business expansion – Wrong, they were saving to be robbed by America!
Part 9: Responding to the Sec. 965 “transition tax”: From the “Pax Americana” to the “Tax Americana”
Part 10: Responding to the Sec. 965 “transition tax”: Individuals subject to U.S. state tax jurisdiction, the response of New York State – It’s about “reasonable cause”!
Introduction – The purpose of this post is …
Awareness of the how the “Transition Tax” is affecting residents of other countries is beginning to grow. For example, see the following editorial in the Halifax Chroncile Herald:


On April 24, 2018, the Senate Finance Committee held a hearing called “Full Committee HearingEarly Impressions of the New Tax Law“. A video of the hearing is referenced in the following tweet:


Written submissions from the public were invited.
This post includes the letter that I sent to the Senate Finance Committee describing the possible impact of the Sec. 965 “Transition Tax” on Americans abroad in general and Canadian residents in particular.
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Part 9: Responding to the Sec. 965 “transition tax”: From the "Pax Americana" to the "Tax Americana"


This is the ninth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by taxpaying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.
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Part 6: Responding to the Sec. 965 “transition tax”: A "reprieve" until June 15, 2018


Introduction
This is the sixth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.
This post will draw on the lessons/discussion from the first five posts. The specific purpose of this post is to argue that what the United States calls “taxation” (presumably because it is found in the Internal Revenue Code), as applied to “nonresidents” is actually a separate tax regime that:
1. Imposes different tax rules on “nonresidents” (certain individuals who live outside the United States); and
2. Those rules for “nonresidents” are designed to operate primarily as “confiscations of non-U.S. assets.
The Internal Revenue Code of the United States is based on three principles:
Principle 1: A hatred for all things foreign
Principle 2: A hatred of all forms of deferral (except IRAs, 401Ks and other U.S. sanctioned forms of deferral)
Principle 3: Attempts of prevent “leakage” of “U.S. person” owned assets from the U.S. tax system.
The interaction of these three principles creates a complex, penalty laden, “anti-deferral regime”, that specifically targets income and assets earned in other countries and located in other countries.
The time has come for countries who have U.S. tax treaties that contain the “savings clause” and which have signed to FATCA IGAs to “wake up” to this reality.
To put it simply: What the U.S. calls “taxation” is actually the “confiscation” of assets located in other countries. The “transition tax” is a timely and exceptionally brazen example of how this confiscation works.
The first five posts in my “transition tax” series were:
Part 1: Responding to The Section 965 “transition tax”: “Resistance is futile” but “Compliance is impossible”
Part 2: Responding to The Section 965 “transition tax”: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”
Part 3: Responding to the Sec. 965 “transition tax”: They hate you for (and want) your pensions!
Part 4: Responding to the Sec. 965 “transition tax”: Comparing the treatment of “Homeland Americans” to the treatment of “nonresidents”
Part 5: Responding to the Sec. 965 “transition tax”: Shades of #OVDP! April 15/18 is your last, best chance to comply!
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If you want to be a shareholder in our Canadian business then you must renounce U.S. citizenship

The unified message from all should be that: The United States should stop imposing “worldwide taxation” on people who have “tax residency” in other countries and do NOT live in the United States! This is a message that all advocates of tax reform can support. As recently explained in a post from “ACA”, the mechanism (RBT vs TTFI) used to achieve this change is less important.


It is no secret that Congressman George Holding is working on a proposal to end the U.S. practice of imposing “worldwide taxation” on those who have “tax residency” in other countries. If successful, this would be a positive change for the United States, U.S. citizens who choose to live outside the United States and the residents of other (including “accidental Americans”) countries. None of these should be burdened by the extra-territorial application of U.S. tax laws!
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Part 4: Responding to the Sec. 965 “transition tax”: Comparing the treatment of "Homeland Americans" to the treatment of "nonresidents"


Attorney Monte Silver has organized a worldwide petition to prevent the application of the “transition tax” and GILTI to “tax residents” of other countries. Please support him by participating. You will find his petition and further information here:
https://www.democratsabroad.org/remedy_repatriation_gilti_taxes
And now, back to our regularly scheduled programming.
Introduction
This is the fourth in my series of posts about the Sec. 965 Transition Tax and whether/how it applies to the small business corporations owned by tax paying residents of other countries (who may also have U.S. citizenship). These small business corporations are in no way “foreign”. They are certainly “local” to the resident of another country who just happens to have the misfortune of being a U.S. citizen.
The first three posts were:
Part 1: Responding to The Section 965 “transition tax”: “Resistance is futile” but “Compliance is impossible”
Part 2: Responding to The Section 965 “transition tax”: Is “resistance futile”? The possible use of the Canada U.S. tax treaty to defeat the “transition tax”
Part 3: Responding to the Sec. 965 “transition tax”: They hate you for (and want) your pensions!
Last night I was discussing the “transition tax” with an “individual” who is impacted by the tax AND is a Homeland American. He is a “tax resident” of ONLY the United States. For Homeland Americans who are subject to ONLY the U.S. tax system the “transition tax” is NOT a bad thing. For “non-residents” it is a terrible thing, which may destroy their retirements. The reason is that “nonresidents” are subject to both U.S. taxation and taxation in their countries of residence. The “transition tax” is an extremely egregious example of the terrible effects of the U.S. practice of imposing “worldwide taxation” on the residents of other countries. I hope that “the transition tax” will be the “straw that breaks the Camel’s back” and ends the U.S. practice of imposing taxation on people who don’t live in the United States.
After the discussion, I summarized our conversation in the following letter to him. Here is the letter.
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Part 2: Responding to The Section 965 "transition tax": Is "resistance futile"? The possible use of the Canada U.S. tax treaty to defeat the "transition tax"

Beginning with the conclusion (for those who don’t want to read the post) …

For the reasons given in this post, I believe that there are grounds to argue that the imposition of the Sec. 965 “transition tax” on Canadian resident/citizens DOES violate the Canada U.S. tax treaty. It is my hope that this post will generate some badly needed discussion on this issue.
If you are an individual who believes you may be impacted by the “transition tax”, you should consider raising this issue with the Competent Authority. I would be happy to explore this with you.

Need some background on the Sec. 965 “U.S. transition tax”?
The following tweet references a 7 part video series about the Internal Revenue Code Sec. 965 “Transition Tax” created by John Richardson and Dr. Karen Alpert.


(Video 6 gives examples of what various approaches to “Transition Tax Compliance” might look like.)
A reminder of what the possible imposition of the “transition tax” would mean to certain Canadian residents

Interesting article that demonstrates the impact of the U.S. tax policy of (1) exporting the Internal Revenue Code to other countries and (2) using the Internal Revenue Code to impose direct taxation on the “tax residents” of those other countries.
Some thoughts on this:
1. Different countries have different “cultures” of financial planning and carrying on businesses. The U.S. tax culture is such that an individual carrying on a business through a corporation is considered to be a “presumptive tax cheat”. This is NOT so in other countries. For example, in Canada (and other countries), it is normal for people to use small business corporations to both carry on business and create private pension plans. So, the first point that must be understood is that (if this tax applies) it is in effect a “tax” (actually it’s confiscation) of private pension plans!!! That’s what it actually is. The suggestion in one of the comments that these corporations were created to somehow avoid “self-employment” tax (although possibly true in countries that don’t have totalization agreements) is generally incorrect. I suspect that the largest number of people affected by this are in Canada and the U.K. which are countries which do have “totalization agreements”.
2. None of the people interviewed, made the point (or at least it was not reported) that this “tax” as applied to individuals is actually higher than the “tax” as applied to corporations. In the case of individuals the tax would be about 17.5% and not the 15.5% for corporations. (And individuals do not get the benefit of a transition to “territorial taxation”.)
3. As Mr. Bruce notes people will not easily be able to pay this. There is no realization event whatsoever. It’s just: (“Hey, we see there is some money there, let’s take it). Because there is no realization event, this should be viewed as an “asset confiscation” and not as a “tax”.
4. Understand that this is a pool of capital that was NEVER subject to U.S. taxation on the past. Therefore, if this is a tax at all, it should be viewed as a “retroactive tax”.
5. Under general principles of law, common sense and morality (does any of this matter?) the retained earnings of non-U.S. corporations are first subject to taxation by the country of incorporation. The U.S. “transition tax” is the creation of a “fictitious taxable event” which results in a preemptive “tax strike” against the tax base of other countries. If this is allowed under tax treaties, it’s only because when the treaties were signed, nobody could have imagined anything this outrageous.
6. It is obvious that this was NEVER INTENDED TO APPLY TO Americans abroad. Furthermore, no individual would even imagine that this could apply to them without “Education provided by the tax compliance industry”. Those in the industry should figure out how to argue that this was never intended to apply to Americans abroad, that there is no suggestion from the IRS that this applies to Americans abroad, that there is no legislative history suggesting that this applies to Americans abroad, and that this should not be applied to Americans abroad.
7. Finally, the title of this article refers to “Americans abroad”. This is a gross misstatement of the reality. The problem is that these (so called) “Americans abroad” are primarily the citizens and “tax residents” of other countries – that just happen to have been born in the United States. They have no connection to the USA. Are these citizen/residents of other countries (many who don’t even identify as Americans) expected to simply “turn over” their retirement plans to the IRS???? Come on!

Some of these thoughts are explored in an earlier post: “U.S. Tax Reform and the “nonresident corporation owner”: Does the Section 965 “transition tax apply”?
And now, on to our “regularly scheduled programming”: The possible use of the U.S. Canada Tax Treaty to as a defense to the U.S. “transition tax”

In Part 1 of this series, I wrote: “Responding to the Section 965 “transition tax”: “Resistance is futile and compliance is impossible“. I ended that post with a reminder that the imposition of Section 965 “transition tax” on Canadian residents has (at least) four characteristics:

1.The U.S. Transition Tax is a U.S. tax on the “undistributed earnings” of a Canadian corporation; and
2. Absent deliberate and expensive mitigation provisions, the U.S. transition tax contemplates the “double taxation” of Canadian residents who hold U.S. citizenship.
3. The “transition tax” is a preemptive “tax strike” against a corporation in Canada. Historically Canada would have the first right of taxation over Canadian companies.
4. The U.S. Transition Tax creates a “fictitious” taxable event. It is not triggered by any action on the part of the shareholder.

The purpose of this post is to argue that the Canada U.S. tax treaty may be a defense to the application of the Section 965 “Transition Tax”
Part A – Exploring  what a “Subpart F” inclusion really is
Part B – The Canada U.S. Tax Treaty: Relevant provisions

Part C – Impact of the “Savings Clause”
Part D – The Interpretation of the tax treaty: WHO interprets the treaty and HOW is the treaty to be interpreted
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Republicans Overseas asks for hearings on how the @USTransitiontax unfairly impacts Americans abroad

I have previously written about the confiscatory effect of the “transition tax” on small business owners living outside the United States here and here. This is a “tax” – based on the Subpart F regime – on certain shareholders of “controlled foreign corporations“. For Canadians this “tax” represents a U.S. partial confiscation of their pensions. Interestingly the recent “Tax Cuts and Jobs Act” has significantly increased both the number of “United States Shareholders” and the number of “Controlled foreign corporations”.
All of this is taking place in the context of more countries enacting CFC (“Controlled Foreign Corporation”) rules. For example, Russia recently enacted its own “Controlled foreign corporation rules. In general the worldwide climate toward corporations is becoming more and more hostile.
The advocacy of Republicans Overseas is a welcome development. It is hoped that the leadership of Republicans Overseas will encourage other groups that claim to represent non-U.S. residents to join the fight against “non-resident taxation”.
Their official announcement is here and a copy of their submission is here.
To read a copy of their submission …
RO-Transition-Tax-Overview
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Tax, culture and how the USA uses #citizenshiptaxation to impose US culture (and penalties) on other countries

Civilizations and countries define themselves in part by their tax policies
In 1993 Samuel Huntington wrote “The Clash Of Civilizations“. His basic thesis is captured in the following paragraph from Foreign Affairs Magazine.

World politics is entering a new phase, and intellectuals have not hesitated to proliferate visions of what it will be-the end of history, the return of traditional rivalries between nation states, and the decline of the nation state from the conflicting pulls of tribalism and globalism, among others. Each of these visions catches aspects of the emerging reality. Yet they all miss a crucial, indeed a central, aspect of what global politics is likely to be in the coming years.
It is my hypothesis that the fundamental source of conflict in this new world will not be primarily ideological or primarily economic. The great divisions among humankind and the dominating source of conflict will be cultural. Nation states will remain the most powerful actors in world affairs, but the principal conflicts of global politics will occur between nations and groups of different civilizations. The clash of civilizations will dominate global politics. The fault lines between civilizations will be the battle lines of the future.

Tax policy and the possible “clash of civilizations”
To what extent does the insistence of the USA on imposing the Internal Revenue Code (“citizenship-based taxation”) on the citizen/residents of other countries, foreshadow a “clash of civilizations”?


This post was motivated by the article by Virginia La Torre Jeker which is referenced in the above tweet. It is an excellent discussion of how the Internal Revenue Code might (or might not) accommodate the reality of Sharia law. The post raises many questions and alerts practitioners to the challenges of applying the Internal Revenue Code to the lives of people whose culture is largely outside the United States. The post raises many “technical issues”. I expect there will further discussion of this issue on Virginia’s blog.
Taxation does NOT exist in a cultural vacuum. A country’s tax system reflects the counry’s cultural values. As the tax historian Charles Adams has noted, the rise and fall of civilizations can be linked to its tax policies. To impose the Internal Revenue Code on people who live outside the United States is to export U.S. cultural values and impose those values on other nations. The United States claims the right to impose the Internal Revenue Code on U.S. citizens who live outside the United States. The reality is that there are millions of people with no connection to the United States (other than a place of birth). U.S. citizenship is acquired automatically if one has the fortune (or misfortune depending on your point of view) of having been (as Bruce would sing) “Born In The USA!
FATCA and the tax compliance industry are working hard to identify those who may be U.S. citizens and do NOT live in the United States. What the United States views as a good source of tax revenue should be seen more broadly. Leaving aside basic issues of fairness, to impose U.S. taxation (according to U.S. rules/cultural values) on the residents of other countries, is sure to create problems. As part of tax reform, the United States must stop imposing the Internal Revenue Code on people who are NOT residents of the United States!
The following “Storification” is an attempt to explain the problem from an “outside the USA” perspective …
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