October 29, 2023 By Helen Burggraf – American Expat Financial News Journal
Advocates for fairer tax treatment of American expats by their government, including both the Republicans Overseas and Democrats Abroad, are urging such expats not to hesitate in posting comments on a U.S. State Department proposal to lower the fee currently charged those seeking to renounce their U.S. citizenships, the deadline for which expires in less than three days.
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.
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:
Continue reading
Background
The Alliance For The Defence Of Canadian Sovereignty FATCA lawsuit commenced in 2014. It was an incredible initiative which was “crowd funded” by hundreds (if not thousands) of individuals. The lawsuit was commenced by courageous plaintiffs who have been the face of the lawsuit for almost ten years.
A backgrounder on the case is available here.
A backgrounder on the decision of the Federal Court of Appeal is here.
The reasons for why the lawsuit was necessary are evident in this video:
Circa 2014 – The origins of the @ADCSovereignty #FATCA lawsuit: Standing Committee on Finance Meetings re FATCA https://t.co/9fDxWSSL2r via @YouTube
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) September 22, 2022
July 13, 2023 – Supreme Court Of Canada Dismisses Application For Leave To Appeal
The order dismissing the appeal, which results in the official ending of this lawsuit is here.
On July 13, 2023 the Supreme Court Of Canada dismissed the application for leave to appeal in the @ADCSovereignty #FATCA lawsuit. Special thanks to the plaintiffs: Gwen, Kazia and Ginny who made this initiative possible. pic.twitter.com/5upUtUa9Ef
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) July 13, 2023
Here is a colourful pdf of the final order:
A series of posts describing various points in the long history of this lawsuit may be found here.
John Richardson – Follow me on Twitter @Expatriationlaw
Appendix
The difficulty in framing the narrative is exemplified in the following “Canadian Press” article and the comments to the article …
The Toronto Globe and Mail reproduced the "Canadian Press" article about the Supreme Court Dismissal of the Appeal application in the @ADCSovereignty #FATCA lawsuit. My comment … https://t.co/xpcSTpZM8t pic.twitter.com/Y8mtTJFLyr
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) July 13, 2023
Between March and May of 2023 I had three discussion/podcasts with “Vance” of MyLatinLife.com.
I have put them all in one post. They will be of interest to “Digital Nomads” and “Remote Workers” generally.
All 3 episodes from John Richardson (@ExpatriationLaw) & My Latin Life 🌴
1) https://t.co/NxVOnvfk79
2) https://t.co/swPgdvuwiH
3) https://t.co/fkiSyvYPg5— My Latin Life 🌴 (@MyLatinLife) July 6, 2023
Interview 1:
Interview 2:
Interview 3:
John Richardson – Follow me on Twitter @Expatriationlaw
Panel session – US Expat Tax Conference from Deborah Hicks on Vimeo.
Should taxation be based on the “circumstances of your birth” or the “circumstances of your life”? President Obama doesn’t think (apparently) that the “circumstances of your birth” birth should determine the “outcome of your life”. Should the “circumstances of your birth” determine your tax residency?
This is a second post exploring what is the true meaning of U.S. citizenship-based taxation. In an earlier post – “Toward A Definition Of Citizenship Taxation” – I explored the contextual meaning and effect of U.S. “citizenship taxation”. The only “contextual effect” and “practical meaning” of U.S. citizenship taxation may be described as:
Therefore, the practical meaning of “citizenship taxation” is the United States imposing taxation on the non-US source income earned by people who live in other countries. To be clear: citizenship taxation means that the United States is claiming the residents of OTHER countries as US residents for tax purposes!
That’s amazing stuff! Most countries believe that they are sovereign and that includes sovereignty over matters of taxation. Yet, any country that is a party to a U.S. tax treaty has actually agreed that a subset of the treaty partner’s tax residents are ALSO U.S. tax residents! Although nobody questions the right of the United States to prescribe its own definition of tax residency, few would agree that the United States has the right to claim the residents of other countries as U.S. tax residents. Yet, this is what the U.S. citizenship taxation regime means. This U.S. extraterritorial claim of taxation is at the root of the FATCA administration problems and at the root of the the events that led to Treasury Notice 2023-11 (released on December 30, 2022).
Prologue
July 2022 – A FATCA Delegation Goes To Washington, DC
A delegation of 🇪🇺 lawmakers from @EP_Petitions led by @YanaToom began their week in 🇺🇸 by meeting with a former Staff Director of @HSGAC's Permanent Subcommittee on Investigations and with @EUintheUS @EUAmbUS to talk about the US Foreign Account Tax Compliance Act (FATCA). pic.twitter.com/2r8H5vInre
— EPWashingtonDC (@EPWashingtonDC) July 19, 2022
"Accidental Americans", US citizens residing in the 🇪🇺, people w/ dual citizenship – all unwilling victims of injustices of #FATCA (Foreign Account Tax Compliance Act).
Our members in @EP_Petitions went to Washington DC to work towards solving this & answer our petitioners. pic.twitter.com/ZJBI4Oaf2W— S&D Group (@TheProgressives) July 22, 2022
This post is to document a small part of the practical impact of the US citizenship taxation regime. It is a continuation of a series of posts exploring what US citizenship taxation is and how it impacts people who live outside the United States and the countries where they live.
The first post – “Toward A Definition Of Citizenship Taxation” – concluded that the only practical and contextual meaning of citizenship tax is:
Therefore, the practical meaning of “citizenship taxation” is the United States imposing taxation on the non-US source income earned by people who live in other countries. To be clear: citizenship taxation means that the United States is claiming the residents of OTHER countries as US residents for tax purposes!
The second post – “Should tax residency Be Based On The “Circumstances Of Your Birth” Or The “Circumstances Of Your Life”?”
The US claim of tax residency is based on the “circumstances of their birth”. The “push back” from those impacted is based on the “circumstances of their life”.
Combining the themes of the first two posts we see that:
The United States claims the right based on and only an individual’s “circumstances of birth” to impose regulations and taxation on that individuals’s income earned outside the United States when his “circumstances of life” are such that he lives outside the United States.
Or to describe it slightly differently:
The United States claims the right based on and only an individual’s “circumstances of birth” to impose taxation on the non-US source income of people when their “circumstances of live” are that do NOT live in the United States.
Or maybe …
The United States claims the right based on and only an individual’s “circumstances of birth” to regulate, penalize and tax those individuals when they no longer live in the United States. This includes imposing tax on the non-US source income of people who do NOT live in the United States.
It is very difficult to arrive at a succinct and simple description of what tax and regulation of individuals based on a a “U.S. birthplace” means.
The effect of claiming these nonresidents as US tax residents results in a massive interference (because of the punitive US tax treatment of non-US assets and income sources) in their ability save, invest and carry on businesses in their country of residence AND their ability (because of FATCA) to access bank accounts in their country of residence.
Categories of problems caused by this US extra-territorial claim of tax residency include (but are not limited to):
1. Direct taxation of non-US source income earned by nonresidents
2. Expensive and penalty compliance requirements which interfere withe the ability to manage the financial/retirement planning options in their country of residence
3. The ability to open and maintain basic bank and investment accounts
The problem of bank account access
The European Delegation visiting Washington, DC in July of 2022 was concerned with and ONLY with access to bank and financial accounts. Significantly and disappointedly the delegation expressed no objection to the U.S. extra-territorial tax policies that “claim” European residents as tax residents of the United States.
Banking Access Problems Of European Residents Who Are US Citizens
A delegation of the PETI Committee went to Washington DC from 18 to 22 July, to raise awareness and discuss the impact of the US Foreign Account Tax Compliance Act (#FATCA) on EU citizens and to have exchanges of views with US politicians https://t.co/isypZwbu5Z via @Europarl_EN
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) January 27, 2023
The perception in July of 2022
On July 18 to 22 of 2022, a delegation from the PETI Committee of the European Union made a visit to Washington, DC to discuss “FATCA Concerns” with US Treasury and certain members of Congress. An excellent report on the meeting was written by Helen Burggraf in the American Expat Financial News Journal. On January 25, 2023 those members delivered a live report to the European Parliament of the visit.
The perception in January of 2023
The following video – January 25, 2023 in which the delegates report on their trip to Washington to the PETI Committee is worth watching.
The members discuss:
– how they experienced the meetings
– the necessity of continuing to work on the “European FATCA” problem
– the general attitude of their American hosts towards the FATCA problem (in some cases outright denial).
I would say that the sentiment was “cautious optimism”.
Very interesting … The people quoted i this article are the delegates who attended the July 2022 meeting in Washington, DC with certain Congressmen and Treasury Officials. https://t.co/4JYqwKMDtb
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) January 26, 2023
(The article by Stephen Gardner referenced in the above tweet continues additional commentary.)
The video also includes the thoughts of “Prof Carlo Garbarino – Bocconi University, Milano, Italy” who prepared the following report titled: “FATCA LEGISLATION AND ITS APPLICATION AT INTERNATIONAL AND EU LEVEL: – AN UPDATE”
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Summary – The Reader’s Digest Version …
In 2011 Canada's Finance Minister Jim Flaherty recognized that FATCA was being applied to target people with @taxresidency OUTSIDE the USA. He stated the obvious: "Canada is not a tax haven!" Raising the question: why were CDN residents targeted by FATCA?https://t.co/KrN3Bs8CmV
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) January 16, 2023
Although FATCA was clearly motivated by the behaviour of US citizens resident in the United States, Treasury did NOT interpret the “purpose” as being limited to prevent abuses by “residents of the United States”. Rather Treasury appears to have interpreted the purpose of FATCA (very broadly) to target residents of other countries.
Had Treasury done what it was required by statute to do (consider the purpose of IRC 1471) it might have approached its responsibilities very differently. What began as an attempt to curb the behaviour of US residents became an attack on residents of other countries who happen to be US citizens. The evidence further suggest that the FFIs most heavily impacted by FATCA are located in the high tax jurisdictions where US citizens abroad are most likely to reside. Can it reasonably be concluded that the purpose of IRC 1471 – AKA FATCA – was to attack the residents of other countries and the banks in those countries? If not, then why did Treasury target the whole world, rather than the parts of the world with conditions that facilitated tax evasion for resident Americans? Can anybody seriously make the claim that banks in Canada, the UK, Australia New Zealand and other first world democracies were attractive locations for tax evaders? Yet, this is precisely what Treasury did.
It didn’t have to be this way!
Introduction – The Readers’ Digest Version
Why non-US banks, US citizens living outside the USA and the countries where they live can expect heightened FATCA enforcement in 2023: "The Carrot, The Stick And #FATCA Enforcement On #AmericansAbroad (Part 1 – Notice 2023-11)" |https://t.co/6UDsVYIxMK
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) January 5, 2023
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.
Welcome To 2023 – A Year Of Heightened FATCA Enforcement
Notice 2023-11: Temp relief provided to banks under Model 1 #FATCA IGAs who can't provide SSN numbers of #Americansabroad ("preexisting accounts only") if the gov joins banks in taking specific steps to educate individuals about FATCA + @citizenshiptax. https://t.co/8DpSSmha46
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) December 31, 2022
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.
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.
The Readers Digest Version: A Tweet By Tweet Explanation
Prologue – Argentina December 5, 2022
The State Department website featured the following announcement:
On December 5, Ambassador Marc Stanley and Argentine Minister of Economy Sergio Massa signed an Intergovernmental Agreement (IGA) to facilitate implementation of the U.S. Foreign Account Tax Compliance Act (FATCA). The IGA advances the shared objective of improving international tax compliance. The United States enters into bilateral FATCA IGAs with foreign jurisdictions to provide for the implementation of FATCA through domestic reporting and automatic exchange of information.
This IGA will enable the reciprocal exchange of certain financial account information between the United States and Argentina, while ensuring appropriate data protection. The United States enacted FATCA in 2010 to combat offshore tax evasion. There are currently 113 FATCA IGAs in effect between the United States and foreign jurisdictions.
Note the inclusion of the word “reciprocal”. Describing an agreement as reciprocal does not make it reciprocal. The US Argentina FATCA IGA is a reminder of how one-sided and unequal these FATCA IGAs really are. The reason for the inequality is that the United States imposes “citizenship taxation” and Argentina (like the rest of the world) imposes “residence taxation”. Therefore, the terms of the FATCA IGAs reflect the attempts of the United States to use its system of “citizenship taxation” to claim the residents of OTHER countries as US tax residents.
Detailing The Inequality Of The US Argentina FATCA IGA
Excellent article by @HelenBurggraf explaining that the new Argentina IGA (like previous #FATCA IGAs) is NOT reciprocal. An earlier and lengthy expose explaining in detail why #FATCA IGAs are NOT and likely will never be reciprocal agreements is here … https://t.co/UtB3eeOt1l https://t.co/FtKdoUhlo3
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) December 29, 2022
or read the Threadreaderapp version here.
In the spirit of bringing an exciting end to 2022, the United States and Argentina have entered into a FATCA Intergovernmental Agreement. The Model 1 FATCA IGAs are not and were never intended to impose reciprocal exchange of information obligations on the United States. Not only does the US get far more than it gives, but the definition of “reportable accounts” reflects the difference between a US tax system based on citizenship and an Argentine tax system that is based on “residence”. One result is that under the FATCA IGAs information flows from a country (Argentina) where the US citizens are likely to live to a country (the United States) where the US citizens reported on do NOT likely live. On the other hand, the agreement clearly states that the US will send information (what little it is obligated to send) from a country where the person does NOT live (the United States) to a country where they do live (Argentina). An important effect of the FATCA IGAs is they assist the United States in claiming the tax residents of other countries (in this case Argentina) as US tax residents as well. This is one of many respects in which the FATCA (“Foreign Account Tax Compliance Act”) is different from the CRS (“Common Reporting Standard”).
To put it simply: the FATCA IGAs have the effect of expanding the US tax system into the FATCA partner country (in this case Argentina).
Summary …
For the “Bare Necessities” click on the following tweet …
Those interested in a more detailed discussion of why the FATCA IGAs are not reciprocal are invited to read the discussion here.
John Richardson – Follow me on Twitter @Expatriationlaw