Part 1 – Why have many U.S. citizens abroad relinquished their U.S. citizenship?
FATCA was passed into law as part of the HIRE Act on March 18, 2010. The implementation began in 2014 in the form of FATCA IGAs (“Inter-Governmental Agreements”). The implementation of FATCA and the IGAs was NOT free from controversy. I – John Richardson – was a witness at a Canadian House of Commons Hearing about FATCA in 2014. The complete text of my 2014 statement is here.
FATCA has caused enormous problems for U.S. citizens living outside the United States. These problems have led to an increasing number of U.S. citizens renouncing U.S. citizenship.
The problems caused by FATCA. leading to citizenship renunciation, fall into at least three distinct categories.
First, many U.S. citizens living outside the United States have difficulty maintaining access to regular bank and financial accounts. This has caused great disruption and inconvenience in their lives. Many people have renounced their U.S. citizenship in order to have the access to the bank and financial accounts needed to live their daily lives.
Second, along with FATCA came an awareness of U.S. citizenship taxation. Prior to FATCA citizenship taxation was neither well known nor enforced. By causing an awareness of citizenship taxation, more U.S. citizens abroad have entered the U.S. tax system. The consequence of entering the U.S. tax system has caused difficulties for many Americans abroad. These difficulties include double taxation, U.S. taxation of retirement planning accounts (example TFSA in Canada). Generally, this has disadvantaged U.S. citizens abroad in their country of residence. It caused many U.S. citizens abroad to relinquish/renounce their U.S. citizenship.
Third, as discussed in Helen Burggraf’s American Expat Finance News Journal, FATCA facilitated the expansion of the U.S. tax base into other countries.
The combination of these circumstances has incentivized (and in some cased forced) many U.S. citizens abroad to relinquish/renounce their U.S. citizenship.
Part 2 – The legal test for relinquishment/renunciation