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So, you have received bank letter asking about your tax residence for CRS or FATCA – A @taxresidency primer

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Prologue: In the 21st Century, The Most Interesting Thing About A Person Is His/Her Tax Residency

Introduction – So, what’s this “tax residence” stuff about? What does “tax residence” mean?

In 2014, as people started to receive “FATCA letters” I wrote a lengthy post describing “What to do if you receive a FATCA letter“. Information exchange under the Common Reporting Standard “CRS” has begun in 2018. As a result, I am writing this post which is to explain what the CRS is and how it relates to the FATCA letter. It is important to understand that the “CRS letter is actually a combined “CRS/FATCA” letter which is more likely to be received than the original FATCA letter. I urge that those who have received a letter of this type to read this post PRIOR to seeking professional advice!!!

You are reading this post because you have received a letter from your bank that is asking you to identify the countries where you are a “tax resident” and/or whether you are a “U.S. Person”.

The purpose of this post is to help you understand:

– why you are receiving the letter
– what the letter means
– what is the meaning of “tax resident”, “tax residence” and “tax residency” (terms which are used interchangeably)
– why “tax residency” is important to you
– the significance of being a U.S. citizen or Green Card holder
– how to identify where you may be a “tax resident”

Why are you receiving this letter?

The letter is intended to fulfill the bank’s due diligence obligations under both the OECD Common Reporting Standard (all countries of “tax residence” except the United States) and FATCA (whether you are a “tax resident” of the United States).

In other words, the letter is for the purpose of satisfying bank “due diligence” under two separate reporting regimes – FATCA and the OECD Common Reporting Standard “CRS”

This is long post which is broken into the following parts:

Part A – How does FATCA differ from the “CRS”?

Part B – The Combined FATCA/CRS Letter

Part C – “Tax Residency 101”: It’s about where you should be paying your taxes

Part D – Different definitions of “tax residence” – Not all countries define “tax residence” in the same way

Part E – Oh My God! I think I might be a “tax resident” of two countries – What is a “tax treaty tie breaker”? How does a “tax treaty” tie breaker work?

Part F – A “U.S. citizen” cannot use a “tax treaty tie breaker” to break U.S. “tax residence”. How then does a “U.S. citizen” cease to be a “U.S. tax resident”?

Part G – How a “permanent resident” of the U.S. – AKA “Green Card Holder” – ceases to be a U.S. tax resident

Part H – Are you, or have you ever been a U.S. citizen or Green card holder? Sometimes it’s not what it seems.

Part I – “Relinquishments of U.S. citizenship and loss of U.S. citizenship for tax purposes

Part J – Beware! You don’t sever “Tax Residency” From Canada or the United States without being subject to massive “Exit/Departure Taxes!” – You may have to buy your freedom!

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Part 1: Tax Treaties, determining "tax residence" and new OECD Common Reporting Standard ("CRS")

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The above tweet references an article from Stikeman Elliot which includes:

For CRS purposes, the term “reportable person” generally refers to a natural person or entity that is resident in a reportable jurisdiction (excluding Canada and the United States) under the tax laws of that jurisdiction, or an estate of an individual who was a resident of a reportable jurisdiction under the tax laws of that jurisdiction immediately before death, other than: (i) a corporation the stock of which is regularly traded on one or more established securities markets; (ii) any corporation that is a related entity of a corporation described in clause (i); (iii) a governmental entity; (iv) an international organization; (v) a central bank; or (vi) a financial institution.  See definitional subsection ITA 270 (1).

This morning I received an email that included the following question:

My friend lives and works in country A, and has bank accounts in Country B. He is a permanent resident of Canada. Will the banks in either Country A or Country B, report his accounts to the Canada Revenue Agency? Country A (where he resides) has no income tax system. This is common in Gulf Countries. Country A has not signed on to Common Reporting Standard. Country B (a European country) has signed on to the Common Reporting Standard.

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