Tag Archives: Revenue rule

The common law "revenue rule": From whence it came to where it's going

Introduction – What is the Revenue Rule?


The “Revenue Rule” can be overridden by statute of by treaty. The United States is attempting to override the “Revenue Rule” through changes to tax treaties. Because the United States imposes worldwide taxation on the residents of other countries, the United States would be advantaged overriding the “Revenue Rule”.
Putting the “Revenue Rule” in historical context. Does the Revenue Rule still matter?
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Breaking Down The Revenue Rule: Proposed US Japan Tax Treaty enhances ability of US to enforce taxation on #Americansabroad in Japan

Prologue – Tax Enforcement And The Revenue Rule


The common law revenue rule was designed so that one country will not enforce tax debts owed to another country. There is general agreement that the “revenue rule” is gradually disappearing. Specifically, the United States has negotiated tax treaties with at least five countries (Canada, Denmark, France, Sweden and the Netherlands) which abrogate the revenue rule. To learn more about the Revenue Rule, see the “Appendix” below.
I have previously suggested how the “assistance in collection provisions” facilitate U.S. citizenship-based taxation. My 2016 comment on “assistance in collection provisions” suggested that U.S. citizenship-based taxation gives the United States strong incentives to end the revenue rule. Specifically …

My point is this:
The “assistance in collection” mechanism in these five treaties can and will be used to allow the United States to enforce direct taxation on those who are “tax residents” of other nations AND on the economies of those other nations.
Given the U.S. practice of “citizenship-based taxation” I can’t understand why any country would enter into an “assistance in collection” treaty with the United States. Interestingly the Canada U.S. Tax Treaty does create an exemption for those who were Canadian citizens at the time tax debt arose. The Denmark U.S. Tax Treaty has a similar provision exempting citizens of Denmark.
Conclusion: It is quite clear that tax treaties which include “assistance in collection provisions” (abrogating the Revenue Rule) are overwhelmingly to the benefit of the United States. Only the United States (and the nation of Eritrea) impose taxation based on citizenship (and therefore impose taxation on the residents of other nations). These five treaties allow the United States to extend its tax base into the economies of other nations.

Present Day – June 25, 2019

The following tax treaty protocols were approved by the Senate Foreign Relations Committee:
The Protocol Amending the Convention between the United States of America and the Kingdom of Spain for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and its Protocol, signed at Madrid on February 22, 1990 (Treaty Doc. 113-4).
The Protocol Amending the Convention between the United States of America and the Swiss Confederation for the Avoidance of Double Taxation with Respect to Taxes on Income, signed at Washington on October 2, 1996, signed on September 23, 2009, at Washington, as corrected by an exchange of notes effected November 16, 2010 and a related agreement effected by an exchange of notes on September 23, 2009 (Treaty Doc. 112-1).
The Protocol Amending the Convention between the Government of the United States of America and the Government of Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and a related agreement entered into by an exchange of notes (together the “proposed Protocol”), both signed on January 24, 2013, at Washington, together with correcting notes exchanged March 9 and March 29, 2013 (Treaty Doc. 114-1).
The Protocol Amending the Convention between the Government of the United States of America and the Government of the Grand Duchy of Luxembourg for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital, signed on May 20, 2009, at Luxembourg (the “proposed Protocol”) and a related agreement effected by the exchange of notes also signed on May 20, 2009 (Treaty Doc. 111-8).

Each of these four treaty protocols has updated information exchange and/or collection provisions. The proposal in the treaty with Japan is most interesting and most worrying.
The Japan protocol includes a provision for assistance in collection that is somewhat more expansive than is contained in similar treaties (Canada, Sweden, Denmark, France and Netherlands). Japan does NOT normally allow dual citizenship. Therefore the collection provision in ARTICLE 27 the collection provision could possibly be used as a mechanism to force Japan to enforce U.S. taxation on U.S. citizens who are resident in Japan!!
Time will tell.
The new ARTICLES 26 and 27 of the U.S. Japan Tax Treaty (if approved by the Senate) will be:
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How can the IRS enforce US tax debts in foreign countries? Does renunciation of citizenship matter?

For years people have asked the question: Can the United States enforce U.S. tax debts in foreign countries? If this is possible, how would this work. I sometimes answer questions on Quora. My answer to this question (comments invited) is here:
Read John Richardson's answer to Can the IRS confiscate non US-based assets for taxes owed after someone renounces their citizenship? on Quora

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”