Tag Archives: FATCA Canada

Part 15: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – @RepealFATCA on: Why the Canadian banks supported the #FATCA IGA


Jim Jatras of RepealFATCA.com has been a long time opponent of FATCA. He has also been one of the best (if not the best) educators on what FATCA is really about. He spoke at the original “FATCA Forum“, (organized and sponsored by Canada’s Progressive Canadian Party) in 2012. He recently granted an extensive FATCA interview with U.S. tax law firm IRSMedic. Mr. Jatras has an unusually broad understand of FATCA, the American political process and how FATCA could ultimately be defeated.


The above tweet references a letter to the Toronto Star that includes:

Canada’s capitulation to this expensive, invasive and anti-sovereign demand is unnecessary. Canada has many tools to resist FATCA, from World Trade Organization and legal challenges to reciprocal, dollar-for-dollar withholding of payments to U.S. institutions. A “no” from Canada could itself doom FATCA in light of growing U.S. domestic opposition. A FATCA repeal bill has been introduced by Senator Rand Paul, a leading 2016 presidential prospect. The Republican Party, which recently approved a resolution advocating FATCA repeal, will continue to control the House and likely will capture the Senate this year.

What follows are two of his best interviews.
Jim Jatras – 2016


Jim Jatras – 2012


 
 

Part 11: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – But reciprocity?

Introduction and Synopsis …
The United States has entered into FATCA IGAs with a number of countries (including Canada). Regardless of what Government Officials say (and what the IGAs say) about “Review, Identify and Report”, there is NO meaningful “reciprocity” in the FATCA IGAs. The degree of “reciprocity” was discussed was recently discussed in the following post at Forbes (providing an unusally frank evaluation):


There are at least six different aspects of the IGAs that demonstrate a lack of reciprocity.
They include:

1. Human Targets – The United States defines “US Persons” in a far broader way than other countries define their “tax residents”. This is largely the result of U.S. “citizenship-based taxation”. Only the United States claims the right to impose taxation on (1) residents of other nations and (2) on income earned in those other nations.

2. The nature of the information exchanged
– The United States wants far more information (everything) than it is obligated to provide (nothing) under the FATCA IGAs.
3. Due Diligence – The U.S is not required to actively search for the tax residents of other nations. Other nations are required to actively search for “U.S. persons”. But, it is far more than seeking evidence of “USness” in individuals (“Are you or have you even been an American citizen?). Other nations are also required to search for evidence of “USness” in entities (see point 5 below).
4. Penalties – Other nations are subject to penalties for failure to comply with the (“Review, Identify and Report”) provisions of the IGA. The United States is NOT subject to penalties. (If you don’t comply, you are subject to penalties. If we don’t comply: “Too Bad”.)
5. The FATCA Entity Hunt – The United States does NOT and WILL NOT provide information on the beneficial ownership of “entities” (Delaware, Wyoming and Nevada are in the business of providing the secrecy that enables tax evasion). Other countries are required to search for evidence of “USness” in the ownership of entities created under the laws of their countries.
6. The requirement to change domestic laws – The United States is requiring other nations to change their domestic laws to “hunt” for people based “citizenship, national origin” and “place of birth”. The U.S. Treasury may not have the jurisdiction to order state banks to provide information about “foreign accounts”. In other words: You do what we cannot do! As might be expected, the question of jurisdiction is the subject of a lawsuit in the United States courts. In fairness, it is important to note that the “Alliance For The Defence Of Canadian Sovereignty” has brought a lawsuit against the Government of Canada, questioning whether the FATCA IGA is legal under Canada’s Constitution.
That’s the gist of it. If you want to understand why, I invite you to read on.
It’s about reciprocity …


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Tax Haven or Tax Heaven 4: Why bother "poaching capital" as a Tax Haven, if you can steal the capital using citizenship-based taxation?

Involuntary “poaching” of capital – “citizenship-based taxation”
U.S. citizenship-based taxation ALSO results in the direct “poaching of capital” from other nations! A thoughtful post describing the cost of U.S. “poaching” to Canada is here.


 
Through “citizenship-based taxation” the United States has turned U.S. citizens residing in other nations into “Weapons of Capital Extraction”. By imposing direct taxation on U.S. persons in other nations, the United States transfers the capital of other nations to the U.S. Treasury.
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Converting the RRSP to the RRIF constitutes opening a new account and #FATCA enquiry


This is a problem that I have dealt with a couple of times (at least) in the last few months. Sooner or later your contributions (no later than the year you turn 71) must cease. At that point your RRSP savings must be converted to income. A RRIF is a popular way to convert that RRSP to income.
Remember that by creating a RRIF you are opening a new account. Interestingly some banks are treating the opening of the RRIF account as grounds to subject the retiree to the complete “due diligence” FATCA inquisition. This is strange. Annex II of the FATCA IGA clearly specifies that RRIFs are NOT subject to FATCA reporting.
U.S. citizenship creates planning problems to be solved!
 
 

Distributions from Canadian RRSPs are subject to #Obamacare surtax while distributions from US plans exempt

Yes, you read right.
By way of background, Obamacare was financed in part by the 3.8% Net Investment Income Tax (“NIIT”). At the risk of oversimplification, this is a tax on passive income. What those Canadians who are also “U.S. persons” need to know includes:
1. The NIIT is an instance of pure double taxation. It is believed by most practitioners that this tax CANNOT be offset by the usual foreign tax credit rules. (But, then again – maybe the NIIT is really a Social Security Tax and therefore NOT payable under the Canada U.S. Social Security Totalization Agreement.)
2. Assuming that the NIIT is NOT a “Social Security Tax”: As is described in the following article by Toronto tax lawyer Sunita Dooby, distributions from Canadian RRSPs and RRIFs ARE subject to the NIIT. That said, comparable U.S. plans (401K and IRAs) are NOT subject to this tax.
In summary Ms. Doobay notes that:

Qualified pension plans are NIIT­ exempt under Code section 1411(c) (5), which exempts any distribution from a qualified plan and arrangement set out in Code section 401(a). RRSPs and RRIFs are not qualified plans or arrangements for these purposes.


Ms. Doobay’s article is referenced in the above tweet.
So, what does this mean? Well, Canadians are required to pay for the Health Care of Americans when similarly situated Americans are not required to pay for their health care.
While I’m at it, here is another interesting article from Ms. Doobay referenced in the following tweet:


Talk about freeloading and extracting capital from other nations …

Prologue: What God Hath Wrought – The #FATCA Inquisition (Review, Identify and Report on “U.S. Persons”) – #Americansabroad and forced renunciation of US citizenship

U.S. Citizenship Abroad in a FATCA and FBAR World

FATCA has inflicted pain on the world. The pain has been most acutely felt by those with a U.S. place of birth. The following report is shocking in its brutality.


Listen to the pain and anguish of the woman interviewed who can’t have a bank account simply because she is a “U.S. person”. Listen to the language she uses. Jen is proud to be an American, feels that she is being forced to renounce U.S. citizenship, and considers the current U.S. government to be a “bunch of extortionists”. She is clearly suffering extreme pain and anguish. Listen to the French citizen and resident, who doesn’t speak English and is claimed by the United States to be a “U.S. person”. Then listen to the unnamed “Voice of the Obama Administration”, which says:

“The U.S. Treasury Department has worked tirelessly to address many of these problems and most have been resolved. All you have to do is look to see how many countries have agreed to the law and how many financial institutions have signed on to the law.”

Clearly the voice of the Obama administration is either a liar or is delusional.

How we got there – A brief backgrounder on “how many countries have agreed to the law and how many financial institutions have signed on to the law”

FATCAHunt2
As you know the U.S. Government is hunting for those they consider to be “U.S. persons”. The hunt is taking place outside the United States. The hunt is intended to identify the residents and citizens of other nations that the U.S. chooses to define as “U.S. persons”. The vast majority of those deemed to be “U.S. persons”, are deemed so because they were born in the United States. To put it simply: The United States exercises taxing jurisdiction based on reasons that include “place of birth”. The fact that somebody is a citizen and resident of another nation is irrelevant. If you were born in the United States, then you are subject to U.S. law and control wherever you may reside. The only defense is to have “relinquished U.S. citizenship”. Relinquishment is a broad term that includes “renunciation”. President Obama promised “change you can believe in”. President Obama delivered. The most enduring legacy of the Obama presidency will be that he has made a “Certificate of Loss of U.S. Nationality” (“CLN”) the most sought after document in the world today.
Furthermore, the United States and the United States alone decides who is a U.S. citizen.
See comments about the BBC Interview here and here.
Some of the interesting comments include:

Great job Keith. Hearing Jen (?) speak was very powerful. Even with understanding what is going on with this mess, to hear her speak just opened the wound a little wider if possible.
How they cannot see how absolutely disgusting CBT/FATCA is and how “exceptionally” abusive they are I will never understand. This mess has taught me what hatred feels like, something I could have well lived without.

and

Made my blood pressure boil hearing Treasury quoted as saying the rest of the world wants FATCA – Mythster Stack is a &%#*}#!!!!

and

Giving up US citizenship is not an alternative. It is a last resort solution. Cutting off one’s arm to escape the trap. One doesn’t get rid of a problem by getting rid of the victims of the problem. The only real solution to this problem is for the US to adopt residence as a standard for taxation, the same as every other country in the world. Only then will non-resident US citizens be placed on an equal footing with other non-resident citizens from other countries and no longer have to suffer the consequences of discrimination.

Q. Is a CLN necessary to relinquish US citizenship for tax purposes? A. It depends on the date of relinquishment

In a recent post, I discussed your “Taxabililty Freedom Day“. This is the day when you cease to be a taxable U.S. person. From that day you begin life free of the U.S. tax system. That post discussed the role of Form 8854 (noting that between June 3, 2004 and June 16, 2008 one had to file Form 8854 to no longer be a U.S. tax citizen). During the period between June 3, 2004 and June 16, 2008:

IF [you relinquished U.S. citizenship under the Immigration and Nationality Act)] THEN
[You continued to be treated as a “U.S. person” for tax purposes UNDER THE INTERNAL REVENUE CODE until you gave “notice” of your “relinquishment” to a government agency.] For this period part of the “notice” was filing Form 8854 with the Internal Revenue Service. In other words, there was no way to cease to be a “U.S. person” for tax purposes until you had notified the IRS.
In order to STOP being a “U.S. citizen for tax purposes” Form 8854 had to be filed with the IRS. Without filing Form 8854, you simply continued to be treated as a “U.S. citizen” for tax purposes.

The purpose of this post is to discuss the relation between the U.S. Certificate of Loss of Nationality (“CLN”) and loss of U.S. citizenship for tax purposes. This is an anxiety inducing and  confusing area. If you don’t want to read the analysis go straight to the bottom which provides the following answer to the question:

Is a CLN required in order to cease to be a U.S. citizen for either immigration or tax purposes?
Putting it all together – is a CLN necessary for relinquishment of U.S. citizenship?

  1. Prior to June 3, 2004 – NO for either immigration or tax purposes
  2. June 3, 2004 – June 16, 2008 – NO for either immigration or tax purposes.
  3. After June 16, 2008 – No for immigration purposes – Yes for tax purposes. A CLN  is necessary as a confirmation of having met the “notice requirement” to end U.S. citizenship for tax purposes.

Therefore, a CLN (for practical purposes) is necessary for relinquishment of U.S. citizenship, for tax purposes,  for expatriating acts after June 16, 2008.
And finally, a disclaimer …
These issues are complex. They are not well understood. There is some disagreement in the legal and accounting professions about these issues. I am not your lawyer. Nothing on this site is  legal advice. Get yourself competent counsel.

The rest of the post is explanation which is tedious and technical. You are welcome to it if you want.
 
___________________________________________________________________
 


The above tweet references the following insightful comment at the Isaac Brock Society.
The comment appeared on a post discussing the new $2350 fee that applies to (non-renunciation) “relinquishments” of U.S. citizenship. Those who are entitled to “back dated” relinquishments should still attempt to seek “non-renunciation relinquishments“.

@Eido, @Allison Christians, You (Eido) state “they are now charging the same amount of money for relinquishing U.S. nationality as they are for renouncing it” and “This means that it costs ALL American nationals thousands of dollars to change their nationality.”
Let me punch some holes in what you wrote as it will improve the arguments that we from the “Borg Collective” will make.
I have argued on this board that a CLN is NOT a requirement to lose ones US Nationality if an appropriate action was taken in accordance with 8 US Code. I relinquished a decade ago, do not have a CLN but do have documentation from the US Government recognizing my relinquishment and that I am no longer a USC. That said, I do believe a CLN can be a pretty handy piece of paper to have in ones pocket!!
I would argue that this regulation further supports my argument that a CLN is not in fact required to have lost US Citizenship hence the reason I believe the above quotes by the author are incorrect.
The State Department is now acutely aware of the Expatriation Act 1868 and cites the act in 7 FAM 1200, “That any declaration, instruction, opinion, order, or decision of any officers of this government which denies, restricts, impairs, or questions the right of expatriation, is hereby declared inconsistent with the fundamental principles of this government.”
http://www.state.gov/documents/organization/120536.pdf
So how do you complete the circle between the left hand and the right hand? It is very clear that charging $2,350 to relinquish ones USC clearly runs foul to the Expatriation Act 1868 which the State Department clearly acknowledges!!
What is State charging for? They are not charging for “relinquishing” they are charging for “Documentation for Loss of Nationality.” They are charging those persons that want the State Department to issue them a piece of paper just as they charge for issuing an affidavit or notarial service.
They also state “In the past, individuals seldom requested Certificates of Loss of Nationality from the Department to document relinquishment.”
This is important for several reasons. First, it highlights in writing for those giving an FI a reasonable explanation as to why they do not have a CLN is simply that prior to the date of this notice “individuals seldom requested Certificates of Loss of Nationality.”
Second, it is not a fee for the act of relinquishment rather it is a fee to “document” same. There is a major difference between an action and documenting said action.
Now here is where Allison is on to something in stating “certainly relative to resisting the tax jurisdiction.”
I think Allison understands my above argument or if not will understand it now, but a CLN is a requirement dependent on relinquishment date to escape “tax jurisdiction.”
Effectively the IRS is now requiring the payment of an administrative fee of $2,350, circuitously through State, in order for a person to file a Form 8854 because a CLN date is required as part of that form!!
Is this action a good thing? Yes, I believe that the USG has provided another path forward for our cause. They have now confirmed in writing that CLNs were “seldom requested” which means most people that relinquished will NOT have a CLN!!! So when a FI asks a person for their CLN they can provide a reasonable explanation with their own written proof along with the State Departments own written word that such documents were “seldom requested.” The proof of not getting such a document now is the cost!!!
I do believe that State has perfected their argument on this matter but I also believe that they still need to be challenged based on the argument that this does violate the Expatriation Act 1868 and the UN Declaration. Such a challenge may force them to either back down on the fee which is good or it forces them to admit in stronger terms that the CLN is an “optional” document to have and that is good too! Arguing the case with State is a win/win for our cause.
The “bonus” in all this is that charging a fee to get a CLN, I think flies in the face with tax expatriation and Form 8854. I think if State lawyers had talked with Treasury lawyers they would not have gone down this route. It also muddies the water on the IGA agreements that were signed because many were signed when a CLN was free for to “document” a relinquishment.
OK Brockers fire back at me because iron strengthens iron. I know my argument sounds like a cheap lawyer talking but lessons were learned from the Summary Trial and the Bopp injunction. I believe that State was very careful in their choice of words.

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Aug. 4,5/15 – #CdnFATCATrial – "Tweet by Tweet" account of the live courtroom proceeding

The role of social media


Yes, the Library of Congress archives Tweets.

An element of our mission at the Library of Congress is to collect the story of America and to acquire collections that will have research value. So when the Library had the opportunity to acquire an archive from the popular social media service Twitter, we decided this was a collection that should be here. …
Twitter is a new kind of collection for the Library of Congress but an important one to its mission. As society turns to social media as a primary method of communication and creative expression, social media is supplementing, and in some cases supplanting, letters, journals, serial publications and other sources routinely collected by research libraries.

The FATCA Canada lawsuit – A Twitter Report
On August 4 and 5, 2015 the first lawsuit against a Government for signing a FATCA IGA with the United States. The defendant was the Government of Canada. The tragedy is that Canada was the country that had the best chance to be the “FATCA Terminator”. Instead Canada became a “FATCA Enabler”. Those who were live observers of the trial “tweeted” their thoughts to those who could not attend. The live tweets appeared as comments at the Isaac Brock Society. The comments were then made into individual tweets.
Here are the tweets describing this historical event.


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How the logic of the quantifiers: "All", "Some", and "Not All" apply to Canadian mutual funds


What is a PFIC?
The acronym “PFIC” stands for “Passive Foreign Investment Corporation”. For your reading pleasure, I refer you to:
S. 1297 of the Internal Revenue Code which defines what a PFIC is; and
S. 1291 of the Internal Revenue Code which describes the “default taxation” of a PFIC.
Assuming that all Canadian mutual funds are PFICs, the results are horrific. I have written about this problem in two separate submissions to the U.S  Senate Finance Committee.
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Part 7 – Why 2015 is a good year for many #Americansabroad to relinquish US citizenship – It's the "Exchange Rate"

The purpose of my series of posts on the S. 877A “Exit Tax” has been to explain how the tax actually works. I have provided actual examples. The results have been enlightening and have demonstrated how arbitrary the results have been. In “Part 5” of this series you will find the actual examples and draft tax returns. I provided examples of how much the S. 877A “Exit Tax” could be. The examples were based on one consistent set of financial circumstances and demonstrated how that one set of financial circumstances would apply to five different people. We learned that there were wide variations in the amount of the “Exit Tax” payable. A person who was a “dual citizen” from birth may have paid on “Exit Tax” of $0.00. A person who was born ONLY a U.S. citizen might have paid as much as $365,000. (All amounts are in U.S. dollars.) But, wait the person was born a dual Canadian citizen, but was living in the UK when he renounced would pay an “Exit Tax” of $365,000.
Refreshing your memory
exittaxexamples
and
exit-tax
 
These visual reminders strongly suggest that …


As one commenter observed:

I find this to be a very important study. The inclusion of sample completed Forms 8854 and 1040s is really helpful to understanding how the exit tax can affect people differently. The unfairness of the exit tax under 877A and its dependence on accidents of birth, over which a person has no control, is breathtaking. The article makes a convincing case for calling the exit tax “evil”.

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