Category Archives: Passport Revocation

Breaking Down The Revenue Rule: Proposed US Japan Tax Treaty enhances ability of US to enforce taxation on #Americansabroad in Japan

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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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Under the Starry Flag by @SalyerLucy shows how the history of citizenship struggles repeat themselves: The USA of the 21st Century is like Britain in the 19th Century

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Under the Starry Flag – exploring the historical context of the 1867 Expatriation Act


In 2018 Professor Lucy Salyer of the University of New Hampshire published “Under the Starry Flag” – a book largely about the 1868 Expatriation Act. The book describes a period in American history where Britain treated its “subjects” as having perpetual loyalty to the British Crown. To put it simply: One could NOT emigrate to America and expatriate. No matter what one did, those who were born British Subjects were destined to die British Subjects.
The above tweet links to an interview of Professor Lucy Salyer conducted on February 9, 2019. The interview is about Professor Salyer’s new book “Under the Starry Flag”. It is a fascinating (brilliantly researched) work. The publisher describes the book as:

The riveting story of forty Irish Americans who set off to fight for Irish independence, only to be arrested by Queen Victoria’s authorities and accused of treason: a tale of idealism and justice with profound implications for future conceptions of citizenship and immigration.
In 1867 forty Irish American freedom fighters, outfitted with guns and ammunition, sailed to Ireland to join the effort to end British rule. Yet they never got a chance to fight. British authorities arrested them for treason as soon as they landed, sparking an international conflict that dragged the United States and Britain to the brink of war. Under the Starry Flag recounts this gripping legal saga, a prelude to today’s immigration battles.
The Fenians, as the freedom fighters were called, claimed American citizenship. British authorities disagreed, insisting that naturalized Irish Americans remained British subjects. Following in the wake of the Civil War, the Fenian crisis dramatized anew the idea of citizenship as an inalienable right, as natural as freedom of speech and religion. The captivating trial of these men illustrated the stakes of extending those rights to arrivals from far-flung lands. The case of the Fenians, Lucy E. Salyer shows, led to landmark treaties and laws acknowledging the right of exit. The U.S. Congress passed the Expatriation Act of 1868, which guarantees the right to renounce one’s citizenship, in the same month it granted citizenship to former American slaves.
The small ruckus created by these impassioned Irish Americans provoked a human rights revolution that is not, even now, fully realized. Placing Reconstruction-era debates over citizenship within a global context, Under the Starry Flag raises important questions about citizenship and immigration.

In the 19th Century Britain regarded its subjects as subjects for life. Many Americans abroad will appreciate how the book applies to their lives in the 21st century. To put it simply: Americans abroad are treated as primarily Americans citizens – even though they are often citizens and residents of other countries. The FATCA IGAs are the most obvious example of this reality. (Shades of the British – History does have a way of repeating itself.) Renunciation is desirable, difficult, expensive (and for those who are in the U.S. tax system – inevitable). For many Americans abroad:

“All Roads Lead To Renunciation.”

Furthermore, dual citizens (for example the accidental Americans in France) are beginning to request that their countries of citizenship/residence intervene and assist their citizens in breaking ties with the United States. History does repeat itself.
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Passport Revocation: The new weapon in the US war on Americans abroad

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Circa 2015:

The logical progression continues …

I just got off the phone with someone who has just received a letter from the IRS stating that:

1. He had a “seriously delinquent” tax debt; and

2. That notice of the “seriously delinquent” tax debt was being forwarded to the State Department.

In 2016 I did a presentation on this topic just a few months after the law came into force. You may view the presentation here:

FastAct2

It is clear that the letters from the IRS have started to go out. The purpose of this post is to explain in simple terms what this means for Americans abroad.

To put it simply:

1. If you have received the notice and you do NOT have a current U.S. passport then:

The State Department cannot issue you a passport.

2. If you have received the notice and you DO have a current U.S. passport then:
The State Department may revoke your passport but is not required to revoke your passport.

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US Passport application links Citizenship (State Dept) to Taxation (Treasury) to enforce "Taxation based Citizenship"

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Yesterday I was forwarded an email which originated from the U.S. Consulate in Toronto. The purpose of the email (included at the end of this post) was to give notice of  U.S. tax obligations for U.S. citizens living outside the United States. In other words, the State Department is assisting the IRS by notifying Americans abroad of their U.S. tax filing obligations. Put another way, this email represents:
“Tax Education Outreach” from the IRS delivered by the State Department”
I do NOT recall this in previous years. That said, this email notification is extremely significant. It means that the IRS can argue that those who received this email may well have had notice that they were required to file U.S. tax returns. Over time, this will increase awareness of U.S. tax filing obligations. The greater the increase in awareness of U.S. tax filing obligations, the harder it will be to claim ignorance of those obligations. (This is in addition to the “Educational Outreach” coming in the form of FATCA letters from your local bank and your friendly journalists. In both cases, you are being asked to consider the question of: “Are you or have you even been an American citizen?“) Although, this is NOT an immediate problem, it seems logical that sooner or later it will become more difficult for Americans abroad to claim ignorance of their U.S. tax filing obligations. This may have implications for coming into U.S. tax compliance.
 
Q. Who would have received this email from the U.S. consulate?
A. Anybody who is on the U.S. Consulate email list.
Q. Who would be on the U.S. Consulate email list?
A. It would include almost anybody who has applied for a U.S. passport.
To put it simply:
One who applies for a U.S. passport is now putting oneself in a position where one will be told about U.S. tax filing obligations. Since most Americans abroad need a U.S. passport, it stands to reason that those who apply for a U.S. passport are creating a situation where they will be told about U.S. “taxation based citizenship”. You can see where this is going.
This appears to be the next step in the progression that includes …
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