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Accidental Americans, FATCA, The GDPR And The Netherlands Decision Of July 25, 2025

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Part A – Prologue – It’s not about FATCA. It’s about U.S. citizenship taxation

U.S. citizenship taxation is a mechanism that is used by the United States to:

1. Capture the residents of OTHER countries and claim they are really U.S. residents; and

2. Impose U.S.taxation on the non-US source income actually received (or in the case of GILTI, transition tax, foreign trust rules, etc. not actually received) by those residents of other countries.

In simple terms:

U.S. citizenship based taxation is when the U.S. imposes worldwide taxation on (1) people who live in other countries and (2) on the non-U.S. source income received by those residents of other countries.

FATCA is a mechanism used by the United States to force other countries to search for and locate their own residents who are (because of a U.S. birth place) effectively the property of the United States. In practical terms, the mechanism used is the “FATCA IGA” and the countries who sign the “FATCA IGA” are partner countries. The job of the partner country is three-fold:

(i) to locate and determine which of their residents are either U.S. citizens or are suspected to be U.S. citizens

(ii) to report their financial information to the Internal Revenue Service of the United States

(iii) to deny bank services to those individuals who do not cooperate with the FATCA inquisition.

In effect, (as the court decision makes clear) the purpose and effect of FATCA is to assist with exporting U.S. citizenship taxation into other countries. In the same way that modern extradition treaties are used to export U.S. criminal law around the world, FATCA is used to export U.S. citizenship taxation around the world. The following post also argues that U.S. citizenship taxation (if it matters) is a violation of international law.

Toward An Argument That US Citizenship Taxation Violates International Law

On July 25, 2025 a Dutch court confirmed its view that the Netherland’s FATCA IGA with the United States is NOT subject to any provisions of the GDPR. In other words, U.S. citizens, who are residents of the Netherlands and call the Netherlands home do NOT have the same rights as citizens of other countries!

In paragraph 7 of its decision, the court confirms that Accidental Americans in the Netherlands are NOT afforded the same rights as other Dutch residents as follows:

Beoordeling door de rechtbank

7. De rechtbank stelt voorop dat zij begrip heeft voor de op zitting door eisers geuite gevoelens van frustratie en onvrede. Eisers hebben duidelijk gemaakt dat zij door het hebben van een dubbele nationaliteit nadelige gevolgen ondervinden als gevolg van Amerikaanse wetgeving. De rechtbank kan begrijpen dat de uitwisseling van financiële gegevens van eisers met de VS door de Belastingdienst een zekere impact kan hebben op eisers. Dat laat onverlet dat de rechtbank de beroepen moet beoordelen aan de hand van de aangevoerde beroepsgronden en de toepasselijke wet- en regelgeving (het toetsingskader).

An English translation of Paragraph 7 is:

7. The court first of all states that it understands the feelings of frustration and dissatisfaction expressed by the plaintiffs at the hearing. The plaintiffs have made it clear that they suffer adverse consequences as a result of American legislation due to their dual nationality. The court understands that the exchange of the plaintiffs’ financial data with the US by the Dutch Tax Authorities may have a certain impact on the plaintiffs. Nevertheless, the court must assess the appeals on the basis of the grounds for appeal put forward and the applicable laws and regulations (the assessment framework).

The decision of the Dutch court underscores the simple reality that U.S. citizenship is indeed a disability in the 21st Century.

Part B – A brief summary of the decision – Accidental Americans in the Netherlands do NOT have rights under Article 18 of the GDPR

In summary:

Because the Netherlands has signed a FATCA IGA with the United States, individuals described in the IGA (U.S. Citizens) have NO rights under Article 18 of the GDPR!

https://uitspraken.rechtspraak.nl/details?id=ECLI:NL:RBGEL:2025:5881

A podcast with former KLM Captain Ronald Aries, describing the circumstances leading up to the court hearing is in Appendix A of this post.

Part C – Commentary from Mr. Aries’s lawyer Ellen Timmer

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Toward An Argument That US Citizenship Taxation Violates International Law

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Introduction – Why FATCA Litigation Fails …

(Well, most of the time!)*

In September of 2024, I wrote a blog post about FATCA litigation.

Q. Why Does FATCA Litigation Fail? A. Because, It Focuses On The Symptom And Not The Cause

That post was discussed on an IRS Medic podcast here:

In that post, I suggested that FATCA litigation fails because it has to date focused on certain results of FATCA (privacy breaches, discrimination, etc.) No FATCA litigation (to date) has focused on the reality that U.S. “citizenship taxation” is the reason for FATCA and therefore the cause of all the FATCA related problems. The effect of FATCA and the FATCA IGAs is to enforce U.S. citizenship taxation on the world (including and PRIMARILY on individuals who are tax residents of other countries). A principal purpose of FATCA is to export U.S. tax laws into other countries. By signing the FATCA IGAs, these countries agree to assist the United States in identifying which of their country’s residents (and often citizens) are also U.S. citizens and should therefore be subject to U.S taxation. Put another way: the purpose of the FATCA IGAs is to expand the U.S. tax base into other countries.

For background on the issue of the United States claiming the residents of other countries as U.S. tax residents see:

The Issue Is Not @CitizenshipTax. The Issue Is Whether The US Can Claim The Tax Residents Of Other Countries As US Tax Residents!

The conclusion of the September 2024 post was that:

Future FATCA litigation should focus on whether it is a violation of international law for the United States to impose citizenship taxation (the reason for FATCA) on the residents of other countries (who suffer the effects of FATCA).

The purpose of this post is to continue the analysis and to explore the specific question:

Is U.S. citizenship taxation – the process of claiming nonresidents as U.S. tax residents – a violation of international law?

Is it a violation of international law for the United States to:

1. Claim the residents of other countries as U.S. tax residents; and

2. Impose U.S. taxation on the non-U.S. source income of those individuals who do NOT live in the United States?

(I am introducing and developing the argument cannot impose U.S. citizenship taxation on the tax residents of OTHER countries. The United States, has of course the sovereign right, to impose citizenship taxation on U.S. residents.)

If U.S. citizenship taxation, as applied to the residents of OTHER countries, conflicts with the norms of international law, then the foundation for FATCA (as applied to non-U.S. residents) crumbles. In theory, this would provide courts and tribunals a justification for refusing to apply FATCA obligations in relation to individuals who are tax residents of other countries and are not residents of the United States. In addition, it might cause countries to give careful consideration to the effects of the “saving clause” which is part of all U.S. tax treaties.

How U.S. Citizenship Tax, The Treaty “Saving Clause” and FATCA Create A Fiscal Prison For Dual Tax Residents

It is my hope that this post will analyze this question by identifying and outlining “some” of the relevant issues. Perhaps, this post will “begin’ a discussion about this important issue. Should U.S. citizens, because and only because of their citizenship, become “dual tax residents” simply by moving from the United States?

For each issue I will suggest an answer and provide a backup source(s) for further inquiry.

Suggested conclusion:

This post is a “thought experiment”. I believe that a credible argument can be developed that U.S. citizenship taxation – as applied to those who are tax residents of other countries – is a violation of CIL (“Customary International Law”). What follows are the “individual components” of the argument, along with commentary on each. The individual components are organized in the following outline:

Outline

Part A – Some Theoretical Concepts

1. What is US citizenship taxation? U.S. citizenship taxation defined

2. What is meant by international law?

Part B – Tax Residency And International Law

3. Is the concept of “tax residency” generally subject to the rules of international law?

4. Concepts of tax residency as expressed through tax treaties including treaty tie breakers

Part C – Can The Method Of Taxation Violate Individual Rights As Expressed In Human Rights Documents?

5. Professor William Thomas Worster – Taxation and Human Rights

6. Barriers To Emigration Under International Law

Part D – U.S. Citizenship Taxation And the Tax Sovereignty Of Other Nations

7. U.S. Citizenship Taxation As A Method To Siphon Capital From Other Nations

8. The Common Law Revenue Rule As An Expression Of Tax and Territorial Sovereignty

Part E – U.S. Tax Treaties And The “Saving Clause” – Contracting Out Of The Principles Of International Law?

9. Taxation Perspective: Is the “saving clause” an agreed upon override to the “revenue rule” and other international norms?

10. Information Perspective: Can FATCA information extraction generally be used to refuse to provide information about a country’s tax residents?

11. Enforcement Perspective: Should exemptions from cooperation on enforcement of tax debts extend to the disclosure of FATCA information? The cases of Canada, Netherlands, France, Sweden …

Part F – Possible Conclusions …

For those who don’t want to read the rest:

The purpose of this post has been to develop a general theory of why U.S. citizenship taxation – to the extent that it claims the tax residents of other countries as U.S. tax residents – is a violation of international law. Theory aside, there is no other country in the world that uses an attribute (citizenship), that is often an immutable characteristic (place of birth), that bears no presumptive relevance to a physical or economic connection to a country, as a sufficient condition for tax residency. In so doing, the United States is defining tax residency in terms of the “circumstances of birth”, rather than the “circumstances of life”. The only effect is to claim the residents of other countries as tax residents of the United States (even when they are residents and often citizens of those other countries).

It is respectfully submitted that, for these reasons, that citizenship taxation is a violation of CIL (“Customary International Law” and should NOT be tolerated by the international community.

In developing my argument, I have included links to previous posts. The linked posts are NOT part of this post, but are supplied for further reading on each topic.

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Is A Canadian FHSA (“First Home Savings Account”) A Reportable Account Under The Canada/US #FATCA IGA?

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August 23, 2023: An Important notice from the Canada Revenue Agency

Interim treatment of NEW First Home Savings Accounts (FHSA) under Part XVIII

The FHSAs are under consideration for being added to the list of the excluded accounts described in Annex II of the Agreement. These accounts do not need to be reviewed, identified or reported at this time.

https://www.canada.ca/en/department-finance/programs/tax-policy/tax-treaties/country/united-states-america-convention-consolidated-1980-1983-1984-1995-1997.html

What does this notice mean for U.S. citizens living in Canada?

On August 23, 2023 the Canada Revenue Agency released its latest guidelines for how financial institutions should interpret the Canada/US FATCA IGA. The guidelines are updated annually to reflect changes (which include) evolving financial products. The Canadian “FHSA” (First Home Savings Account) was introduced in 2023. My recommendation is that U.S. citizens living in Canada should have an FHSA.

The good news is that the FHSA accounts will join other accounts under Annex II which are NOT required to be reported BY FINANCIAL INSTITUTIONS under the FATCA IGAs! The FHSA should be reported by individuals on IRS Form 8938 with their tax returns when the Form 8938 is required!

In other words, U.S. citizens living in Canada can expect that FHSA accounts will NOT be reported to the Canada Revenue Agency and then the IRS.

The text from the guidelines – Section 5.6 (go directly to the bottom) – includes:
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Part 2 – Notice 2023-11: Non-US Banks May Be Forced To Sever Ties With US Citizen Clients Because Of FATCA

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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

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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.

n-23-11

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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Part 2 – Would A Move To Residency-based Taxation Solve The FATCA Problem For Americans Abroad Created By The FATCA IGAs?

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Purpose Of This Post – The “Readers Digest” Version

FATCA is administered through the FATCA IGAs (international agreements) and not through the U.S. Internal Revenue Code (domestic law of the United States). the FATCA IGAs do NOT include a provision to change the meaning of “U.S. Person”. Rather the meaning of “U.S. Person” is permanently defined as a “U.S. citizen or resident”. There is no provision in the IGA to change this definition. Therefore, the IGAs are written so that they will ALWAYS apply to U.S. citizens regardless of whether the U.S. continues citizenship taxation.

In effect, implementing FATCA through the IGAs has had the practical impact that:

– the FATCA partner country has changed its domestic laws to adopt the provisions of the FATCA IGAs which are intended to impose specific rules on “U.S. Persons” who are defined as “U.S. citizens or residents”

– those domestic laws reference the FATCA IGAs which contain no provision to change or adapt the meaning of “U.S. Person” which means that discrimination against “U.S. citizens” is permanent.

– resulting in a situation where the FATCA partner country is obligated under its own domestic law to target “U.S. citizens” for special treatment!

Note that this is irrelevant to how the United States defines tax residency! A move to residence-based taxation will not change this basic fact.

Bottom line: The United States has forced other countries to permanently discriminate against U.S. citizens. Because the discrimination is enshrined in the FATCA IGAs, the United States has effectively created an extra-territorial jail for its own citizens, forced other countries to lock U.S. citizens up and effectively thrown away the key!!

#YouCantMakeThisUp!

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Introduction And Background On FATCA

FATCA has created many difficulties for Americans abroad. It has caused great anxiety, created an awareness of US citizenship taxation, expanded the US tax base into other countries and resulted in a growing number of Americans renouncing US citizenship. Because the US employs citizenship taxation, FATCA has created a situation where information flows from a country where Americans abroad live (for example Canada) to a country where they do not live (the United States). Any suggestion that FATCA and the CRS (“Common Reporting Standard”) are some how equivalent is wrong. Many of the differences between FATCA and the CRS are explained here. Finally, neither the FATCA IGAs nor FATCA as defined in the Internal Revenue Code (Chapter 4) impose any obligation of reciprocity on the United States. This has had the consequence of (1) the United States not providing information about accounts held by the tax residents of those countries in the United States while (2) demanding information about the accounts held by US citizens in those other countries. In other words: the combination of the US FATCA law coupled with the US refusal to adopt the CRS has supercharged the United States as a significant tax haven! All of this has had a considerable and life altering impact on US citizens who live, work and engage in retirement/financial planning outside the United States.

FATCA And Citizenship Taxation

There has been considerable discussion about how FATCA interacts with US citizenship taxation and what can be done to mitigate the effects of FATCA on the community of Americans abroad. There is an obvious correlation between the enactment of FATCA and renunciations of US citizenship. What is the solution? If the United States severed “citizenship” from its definition of tax residency (abolishing citizenship taxation) would that solve the FATCA problem for Americans abroad?

Severing citizenship from US tax residency – how would FATCA continue to apply to Americans abroad?

In Part 1 I considered the question of whether a move from citizenship taxation to residence based taxation would end the FATCA problems for Americans abroad under the Internal Revenue Code. I concluded that severing citizenship from tax residency would solve the FATCA problem for Americans abroad in the Internal Revenue Code. The problem is that FATCA is NOT administered through the Internal Revenue Code. FATCA is administered through the FATCA IGAs (“Inter-governmental Agreements”). It’s important to understand that implementing FATCA through the FATCA IGAs has meant that:

1. The FATCA IGAs (agreed to by both the United States and the partner country) have replaced the Internal Revenue Code (a US law made by and only by the United States) as the vehicle through which FATCA is implemented; and

2. The partner country has enacted the terms of the FATCA IGA as the domestic law of that country.

To put it simply, the use of the FATCA to implement FATCA has meant that other countries (at the request of the United States) have adopted laws for the express purpose of identifying US citizens, reporting their financial accounts to the IRS and ultimately discriminating against US citizens by not allowing them access to financial services! In 2008, Candidate Obama defined his vision as “Change You Can Believe In”. He neglected to say that the change included the United States forcing other countries to change their domestic laws to punish US citizens who live in their country!

In this post – Part 2 – I consider whether a move to residence taxation would end the FATCA problem for Americans abroad as it is defined in the FATCA IGAs. I conclude that it would NOT end the FATCA nightmare caused by the FATCA IGAs.

Therefore, a move to residence taxation would NOT end the FATCA nightmare for Americans abroad.

This issue is explored in the following four parts:

Part A: A Move To Residence-based Taxation Under The Internal Revenue Code Would End The Application Of FATCA To Americans Abroad Under The Internal Revenue Code
Part B: A Move To Residence-based Taxation Under The Internal Revenue Code Would NOT End The Application Of FATCA To Americans Abroad Under The FATCA IGAs
Part C: The FATCA IGAs Have Been Legislated As Domestic Law In The FATCA Partner Countries
Part D: What Amendments To The IGAs Would Be Required If The U.S. Severed Citizenship From Tax Residency?

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Federal Court Of Appeal Upholds Trial Decision Ruling Canada/US FATCA IGA Is Constitutional

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Circa 2014

In June of 2014 the plaintiffs in the ADCS (“Alliance For The Defence Of Canadian Sovereignty”) lawsuit launched their legal challenge to the constitutionality of the Canada US FATCA IGA. The proceedings have gone through a Federal Court hearing in 2015, a second Federal Court hearing in 2019 and the Federal Court Of Appeal hearing in 2022. It has been a “long haul” and the plaintiffs (Ginny, Gwen and Kazia) – true unsung heroes in life – deserve the thanks of all Canadians.

On September 21, 2022 the Federal Court of Appeal dismissed the appeal from the trial decision (which ruled against the plaintiffs).

In other words, the US FATCA law continues to be endorsed by the Canadian courts as being the law of Canada too.

Every human being is a minority somewhere. US citizens living outside the United States are a minority wherever they live. Furthermore, because of FATCA (the tool to enforce citizenship taxation) they will ALWAYS have fewer rights than others in their country of residence. What is astounding is that the United States is ensuring that it’s own citizens are subject to discrimination! Such are the effects of citizenship taxation.

The advancement and protection of the rights of minority groups is always a marathon and not a sprint. It requires the relentless dedication to the goal of achieving justice. At this moment I would like to recognize and thank Patricia Moon, Carol Tapanila and Stephen Kish for their tremendous efforts, personal sacrifices and focus on this cause.

It’s also important and appropriate to recognize the support of the hundreds of anonymous people who contributed financially (in some cases their pension payments) and in other cases their encouragement that this legal challenge was necessary.

The next decision is whether to seek leave to appeal to the Supreme Court Of Canada.

I will write more about this in the next few days. What follows is a copy of the decision.

A-370-19_20220921_R_E_O_OTT_20220921132516

Those wishing to better understand the history, purpose and progression of this lawsuit might go here:

https://adcsovereignty.wordpress.com/the-summary-trial-book-of-posts/

John Richardson Follow me on Twitter @Expatriationlaw

August 29 Letter From US Treasury To Dutch Government Reinforces Commitment To Impose US Citizenship Tax On Dutch Residents

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________________________________________________________________

The world as of September 2022 … The following tweet (which generated a very lively discussion) references a letter sent by US Treasury to the Dutch Government.

The letter includes statements that bear on:

– the Dutch banks and their FATCA obligations

– FATCA

– Citizenship taxation

– the US commitment to imposing US taxation on Dutch residents who happen to be US citizens.

The main point of the letter seems to be to give the Dutch banks a “Blessing From Their US Overlords” that a notice of FATCA non-compliance will not presumptively follow from allowing US citizens (who live in the Netherlands) to have basic depository accounts (to receive pay and pay bills).

But, let’s get real. Under no conceivable interpretation of the FATCA IGA could the fact of having US citizen customers (with or without SSNs) cause the Dutch banks be in noncompliance with their FATCA obligations.

The Dutch banks simply do NOT want to deal with US citizen clients.

This sentiment is entirely reasonable and is a natural consequence of US regulatory overreach. The letter from Treasury is asking that the Dutch banks accept the worst of both worlds. First, to allow Dutch residents, who happen to be US citizens, to have a bank account at a bank of their choosing. Second, to behave in a way that is contrary to the business interests of the bank (as having US citizen customers certainly is). The arrogance displayed in Treasury’s letter is sufficient reason to be wary of having US citizen clients period.

The FATCA IGAs don’t require the Dutch banks to close “US Accounts”

1. As per the clear terms of the US/Netherlands FATCA IGA, Dutch banks are perfectly free to exempt all “depository accounts” with balances of less than $50,000 USD from FATCA obligations.

2. Even if the Dutch banks were in breach of FATCA obligations, the breach is of no consequence unless US Treasury (A) notifies the Netherlands of that non-compliance and (B) gives them 18 months to cure the noncompliance. (It’s perfectly obvious that Treasury can simply issue a proclamation that residents of the Netherlands are exempt from FATCA. But, history indicates they are not willing to do this!) In other words: FATCA noncompliance is not the problem. It’s Treasury’s reaction to FATCA noncompliance that is the problem.

Therefore, it’s clear the reluctance to have US citizen customers is not principally motivated by a concern of FATCA noncompliance. It’s because the US Government has ensured that US citizens are “toxic (taxic) carbon life forms” and it’s better to avoid them. The “toxicity” (taxicity) is caused by US citizenship taxation – specifically the US attempt to impose worldwide taxation on US citizen Dutch residents who live and pay tax in the Netherlands. In other words: the problem is caused by US citizenship taxation and not by FATCA.

Note that the following updated sentence reflects a change from the original sentence to reflect the comment below

Nevertheless, the threat of bank account closures and the need to respond to the immediate harmful effects of US citizenship taxation (including FATCA), have caused many Americans abroad including accidental Americans in the Netherlands, France and elsewhere to concentrate on the effects of citizenship taxation (FATCA) rather than on citizenship taxation itself. (See the comment below …)

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Be Careful Of Faulty Logic Claiming FATCA And The CRS Are Similar: Seven Ways They Are Not

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Prologue

For those more interested in logic than in FATCA, you will find a discussion of the logical fallacy here.

Introduction

Last week I participated in a group discussion about FATCA and its effect on Accidental Americans. It’s difficult to have a discussion about FATCA that doesn’t include the CRS (“Common Reporting Standard”). Neither FATCA nor the CRS is well understood. That said, an introduction of the CRS into a discussion about FATCA detracts from a consideration of how FATCA impacts Accidental Americans (and others). Furthermore, there is a generalized assumption that the CRS is a positive development. Associating FATCA with the CRS enhances the “illusion” that FATCA is also a positive development.

In part, the discussion assumed that:

– FATCA (U.S. “Foreign Account Tax Compliance Act”) and the OECD CRS (“Common Reporting Standard“) were similar kinds of information exchange agreements; and

– To attack/criticize FATCA would be to criticize and have the effect of weakening the CRS.

These are absurd claims which are based on faulty logic. The faulty logic is that because FATCA and the CRS overlap in one aspect that they are functionally equivalent in intent, effect, purpose and other aspects. The argument appears to be based on the following reasoning:

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The FATCA IGAs Do Not Impose An Obligation Of Reciprocity On The United States

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Introduction – The Question

Over the past few months, in unrelated contexts, I have heard the question asked:

Is FATCA reciprocal?

For example the Judges hearing the appeal in the ADCS FATCA Canada lawsuit asked (clearly assuming that it did) whether the FATCA IGAs imposed reciprocal obligations on the United States. Surely it must, they assumed. Recently the head of a FATCA fact finding mission asked in a meeting of individuals the same question. In neither case was a clear “yes or no” answer provided. Some participants were adamant that there WAS reciprocity. Others were adamant that there was no reciprocity. Some simply didn’t know. This post is an attempt to analyze the facts as they pertain to FATCA, consider whether the FATCA IGAs prescribe reciprocity of obligation and ultimately explain why there is NO meaningful reciprocity of obligation.

Some Important FATCAoids

The 2010 Statute

FATCA was signed into law by President Obama on March 18, 2010. The general provisions are found in Chapter 4 – Sections 1471 – 1474 of the Internal Revenue Code. The statute is coercive and is a US demand, under threat of sanction, that non-U.S. banks deliver information, about the bank accounts of residents of their country, to U.S. Treasury. The statute contemplates a one way flow of information to the United States without ANY reciprocity from the United States. (Any discussion of “reciprocity” must take place within the context of the FATCA IGAs.)

The 2014 Implementation Of FATCA Via The IGAs

The implementation of FATCA (via the FATCA IGAs) began (in many countries) on July 1, 2014. Because the statute does NOT (IRC 1471 – 1474) obligate the United States to provide any information to other countries, any obligation of reciprocity must be found in the IGAs.

Do Bilateral Obligations Mean Reciprocity?

Non-U.S. countries are required – pursuant to the FATCA IGAs – to transfer information about the holders of local financial accounts in their country to the United States of America. Notably the vast majority of account information transferred to the United States is information about accounts held by tax residents of the transferor country. In other words: pursuant to the FATCA IGAs, account information is transferred about accounts located in a country where the account holder actually lives to a country where the account holder does NOT actually live! To put this in context, imagine the following scenario:

You have a neighbour in a Canadian small town, who earns his income in Canada and pays tax on that income to Canada. That income is deposited into a bank account at a branch located in his community. That neighbour may be having his bank account information transferred to the United States. How could this be you ask? Surely this must be a mistake? The answer is “No it is not a mistake”. It’s the result of Canada enacting a U.S. law (“FATCA”) on Canadian soil. Pursuant to that FATCA law (described in numerous CBC articles), the transfer of account information is required because your neighbour was either born in the United States or was born in Canada to a U.S. citizen parent. So what you ask? Surely the circumstances of a person’s birth shouldn’t mean that a country where they don’t live has access to their banking information in the country where they do live? Wrong again. It’s about tax residency and about the U.S. unique definition of tax residency. You see, the United States defines any U.S. citizen as a tax resident of the United States (regardless of where that citizen lives). By defining “tax residency” in terms of citizenship, the United States is claiming that the tax residents of other countries are U.S. tax residents. U.S. citizens are subject to all (tax, forms and penalty) the provisions of the U.S. Internal Revenue Code. But wait you ask! My neighbour lives in Canada, pays tax in Canada and is a tax resident of Canada! (In fact the FATCA IGAs allow the United States – by tying the definition of U.S. citizen to a definition in the Internal Revenue Code – to define ANY individual in Canada as a U.S. tax resident.) Yes, it’s true. Pursuant to the FATCA IGAs the United States is claiming Canadian tax residents as U.S. tax residents. This means that the United States is claiming the right to impose U.S. taxation on the Canadian employment income, earned by residents of Canada, which is already taxed in Canada. Yes it’s true.

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