I almost forgot to mention this one.
On June 15 (tomorrow for me) some Americans abroad are planning a mass call to Congress in support of Residency-Based Taxation (as opposed to the system we have now called Citizenship-Based Taxation aka the reason you must file a tax return in the US even if you live and work abroad .)
If you are unclear about RBT versus CBT have a look at this really nifty summary published by American Citizens Abroad (ACA)
So the idea behind a "Call Storm" is that you and other Americans abroad give your elected representatives in Washington, D.C. a call tomorrow and tell them what you think about CBT versus RBT (and while you're at it you can throw some FATCA fat on the fire). If enough people call then, yes, they sit up and pay attention.
You can find the contact info for your reps here and your senators here.
I am going to keep this post strictly non-partisan and not mention either political party. Certainly you don't have to be affiliated with one or the other to participate.
However, if anyone from either party happens to pass by the Flophouse with helpful information and encouraging words, feel free to post them in the comments section.
Showing posts with label citizenship-based taxation. Show all posts
Showing posts with label citizenship-based taxation. Show all posts
Wednesday, June 14, 2017
Saturday, April 29, 2017
FATCA: Post-Hearing Press Conference
No comments from me today. I am sipping my morning coffee and will let Donna-Lane and others have the floor in this press conference video that took place after the hearing. (Thank you, Donna-Lane for the link on FB.)
Friday, April 28, 2017
FATCA: Daniel and Donna-Lane Go to Washington
"The other day I was speaking of the soldiers in the fight against FATCA and citizenship-based taxation. Meet Daniel Kuettel and Donna-Lane Nelson who testified two days ago at a Sub-Committee on Government Operations hearing, Reviewing the Unintended Consequences of the Foreign Account Tax Compliance Act (FATCA). They were part of a larger delegation who went to Washington, D.C. to fight on behalf of Americans abroad.
Yes, folks, we finally got a hearing and and were well represented by Daniel, Donna, and Mark Crawford. Daniel and Donna both renounced their US citizenship because of FATCA and their compelling testimony gave voice to the millions impacted by this law. Finally, US lawmakers saw the human face of those "unintended consequeneces."
I have to agree with Rick, Donna-Lane's spouse, that there was a lot of dodging and ducking on the part of FATCA's supporters at the hearing. I would summarize their defense as "It's not that bad" and "How else are we going to catch them?" Ahem. Yes, ladies and gentlement, it is and government has other tools at their disposal to catch them that do not trample on Americans' consitutional protections. What ever happened to "innocent until proven guilty?" Probable cause? Getting a warrant before storming into someone's house or looking at their bank account activity?
There was also very credible evidence presented at the hearing that showed that the US government's efforts to find them aren't even getting a reasonable return since the costs are so high. And out of what has been disclosed, the majority (80%) of the money is penalties, fees and interest, not taxes.
In response to those who say that we need more of FATCA/CRS and damn the consequences, Edmund Burke said it far better than I ever could:
"It is the nature of tyranny and rapacity never to learn moderation from the ill-success of first oppressions; on the contrary, all oppressors, all men thinking highly of the methods dictated by their nature, attribute the frustration of their desire to the want of sufficient rigor. Then they redouble the efforts of their impotent cruelty, which producing, as they ever must produce, new disappointments, they grow irrational against the objects of their rapacity; and then rage, fury, malice, implacable because unprovoked, recruiting and reinforcing their avarice, their vices are not longer human."
I urge you to watch the video. I have included it in this post but for a much better and more comprehensive review of the hearing, please head over to the Isaac Brock Society (God bless the Brockers!) where Eric has put together a post with the video, summaries of the different speakers and lots o' links. This is also THE place to join the international conversation about FATCA and citizenship-based taxation. As I write this there are already 35 responses to Eric's post.
Donna-Lane, Daniel and Mark: You put youself on the frontlines of the American Diaspora Tax War and I thank you from the bottom of my heart for your service.
Yes, folks, we finally got a hearing and and were well represented by Daniel, Donna, and Mark Crawford. Daniel and Donna both renounced their US citizenship because of FATCA and their compelling testimony gave voice to the millions impacted by this law. Finally, US lawmakers saw the human face of those "unintended consequeneces."
I have to agree with Rick, Donna-Lane's spouse, that there was a lot of dodging and ducking on the part of FATCA's supporters at the hearing. I would summarize their defense as "It's not that bad" and "How else are we going to catch them?" Ahem. Yes, ladies and gentlement, it is and government has other tools at their disposal to catch them that do not trample on Americans' consitutional protections. What ever happened to "innocent until proven guilty?" Probable cause? Getting a warrant before storming into someone's house or looking at their bank account activity?
There was also very credible evidence presented at the hearing that showed that the US government's efforts to find them aren't even getting a reasonable return since the costs are so high. And out of what has been disclosed, the majority (80%) of the money is penalties, fees and interest, not taxes.
In response to those who say that we need more of FATCA/CRS and damn the consequences, Edmund Burke said it far better than I ever could:
"It is the nature of tyranny and rapacity never to learn moderation from the ill-success of first oppressions; on the contrary, all oppressors, all men thinking highly of the methods dictated by their nature, attribute the frustration of their desire to the want of sufficient rigor. Then they redouble the efforts of their impotent cruelty, which producing, as they ever must produce, new disappointments, they grow irrational against the objects of their rapacity; and then rage, fury, malice, implacable because unprovoked, recruiting and reinforcing their avarice, their vices are not longer human."
I urge you to watch the video. I have included it in this post but for a much better and more comprehensive review of the hearing, please head over to the Isaac Brock Society (God bless the Brockers!) where Eric has put together a post with the video, summaries of the different speakers and lots o' links. This is also THE place to join the international conversation about FATCA and citizenship-based taxation. As I write this there are already 35 responses to Eric's post.
Donna-Lane, Daniel and Mark: You put youself on the frontlines of the American Diaspora Tax War and I thank you from the bottom of my heart for your service.
Friday, April 21, 2017
Japan Has Something Worse than the FBAR
The US Foreign Bank Account Report (known as the FBAR) is an annual report that Americans and Green Card holders must file if they have more than 10,000 USD (about 9,000 Euros and about 1 million Japanese Yen) in the foreign-to-the-US-but-local-to-those-of-us-living-abroad banks . I bank at a branch of the BNP a couple of hundred meters from my house in France, but for the US this is "offshore" and must be reported as if I were banking in the Cayman Islands. It's a tedious exercise but failure to file incurs stiff penalties.
However, compared to the Japanese Overseas Assets Reporting (OAR), the FBAR is a model of simplicity. I had no idea this existed because I'm only a part-timer in Japan and it doesn't apply to me. However, it would apply to a lot of the foreigners I have met in Japan and it's worth a look. This is not an attempt to say that the FBAR is a better beast (I don't think that at all) but it gave me some idea of how the FBAR and form 8938 could evolve.
The OAR forms are here. They are in Japanese as are the instructions.
The scope of the OAR is greater than that of the FBAR. Japan wants to know all about your overseas assets: banks accounts, homes and other property, jewelry, antiques, trusts. It's basically anything with monetary value.
Who has to file? A couple of very good articles in the Japan Times by Louise George Kittaka gives the particulars without inundating you with too much information. She writes:
"In a nutshell, the OAR law applies to foreign nationals who have been in Japan more than five years within the last 10, and whose overseas assets have a combined value of ¥50 million or more. Those who fall outside this group have nothing to worry about, for now at least."
50 million Yen is about 460,000 USD and about 427,000 Euros. This is a higher threshold than both the FBAR and form 8938. However, there is more work involved because it's the agregate (combined total) of all the assets, not just the combined balances of the financial accounts. It does exclude those who came to Japan with little or no assets back in the home country. But it will hit those with a house they might be renting while they are abroad, those who have retirement accounts, and those who inherit assets in the home country while they are living in Japan: the family home in France, mother's jewelry, plus a PEA and a company retirement account or stock options might take a French in Japan over the threshold faster than she thinks. It's also not clear to me how Japan will handle currency fluctuations. Depending on how the Yen does relative to the British Pound or the Euro may mean an individual has to report one year and then falls under the threshold the next year and can skip the exercise.
“The penalty for noncompliance is ¥500,000 [about 4,000 Euros] or a year in jail, irrespective of any earnings derived. This person should definitely file, even if a tax return is not required to accompany it,” Tong advises."
However, compared to the Japanese Overseas Assets Reporting (OAR), the FBAR is a model of simplicity. I had no idea this existed because I'm only a part-timer in Japan and it doesn't apply to me. However, it would apply to a lot of the foreigners I have met in Japan and it's worth a look. This is not an attempt to say that the FBAR is a better beast (I don't think that at all) but it gave me some idea of how the FBAR and form 8938 could evolve.
The OAR forms are here. They are in Japanese as are the instructions.
The scope of the OAR is greater than that of the FBAR. Japan wants to know all about your overseas assets: banks accounts, homes and other property, jewelry, antiques, trusts. It's basically anything with monetary value.
Who has to file? A couple of very good articles in the Japan Times by Louise George Kittaka gives the particulars without inundating you with too much information. She writes:
"In a nutshell, the OAR law applies to foreign nationals who have been in Japan more than five years within the last 10, and whose overseas assets have a combined value of ¥50 million or more. Those who fall outside this group have nothing to worry about, for now at least."
50 million Yen is about 460,000 USD and about 427,000 Euros. This is a higher threshold than both the FBAR and form 8938. However, there is more work involved because it's the agregate (combined total) of all the assets, not just the combined balances of the financial accounts. It does exclude those who came to Japan with little or no assets back in the home country. But it will hit those with a house they might be renting while they are abroad, those who have retirement accounts, and those who inherit assets in the home country while they are living in Japan: the family home in France, mother's jewelry, plus a PEA and a company retirement account or stock options might take a French in Japan over the threshold faster than she thinks. It's also not clear to me how Japan will handle currency fluctuations. Depending on how the Yen does relative to the British Pound or the Euro may mean an individual has to report one year and then falls under the threshold the next year and can skip the exercise.
I see a real bonanza here for the compliance industry because it's not easy to comply. With the FBAR the American abroad just takes the bank statements and determines the highest value of each one and fills in the form. But how do you accurately report the value of a home in the UK? What is the value of mom's jewelry in Canada? Things like that make this a real headache.
Like the FBAR there are stiff fines for non-compliance. Kittaka quotes a tax expert in this article:
Looking beyond the reporting, is the income from these assets taxable in Japan if you are a resident? The answer is Yes. See the 2016 Income Tax and Special Income Tax for Reconstruction Guide for Aliens which says on page 3 "Any individual who has a domicile or owns a residence continuously for one year or more is classified as a resident. Residents,
except for those classified as “non-permanent residents” have an obligation to pay the income tax and special income tax for
reconstruction for whole domestic source income and foreign source income." (The Foreign Asset reporting guidelines are on page 16.) So if you are getting rental income in the home country or former country of citizenship, it is both reportable and taxable in Japan.
Which creates the same problem that Americans have with the FBAR. If you are a permanent resident of Japan and you start reporting on income-generating assets that you have never reported on your Japanese income tax declaration in previous years, well you've just outed yourself as a "tax evader" in Japan. What happens next? An audit? Fines? Jail time? Deportation? The US has an amnesty program called Streamlined which again is not perfect but can be used by some to get out of the trap. If Japan has something similar please let me know.
Having learned this relatively bad news, there are people asking on forums about the risk of being caught if you don't comply. How will Japan know that you inherited something in the UK, France, South Korea?
In the past I would say that it would have been very hard for Japan to track assets and income abroad. Today, well, things have changed. Concerning FATCA, the Japan/US IGA calls for Japan to report to the US and not the other way around. So FATCA is mostly a concern for Americans in Japan who have not filed in the US. However, the basic tax treaty does allow for information exchange. In fact, as of 2017 Japan has 68 of these agreements with 110 jurisdictions. It was not automatic, Japan has to make the request to the other tax authority.
However, Japan has signed on to something called the CRS (Common Reporting Standard). This is the OECD version of FATCA. I went looking for how this actually works and I found this FAQ by the Canadian Bankers Association. They say:
"The CRS expands upon FATCA by requiring Canadian financial institutions to identify and report to the CRA [Canada Revenue Agency] information about accounts held by persons who are resident for tax purposes in any country other than Canada or the U.S. The CRA will then exchange this information with tax authorities of the countries with which Canada has entered into an agreement."
However, Japan has signed on to something called the CRS (Common Reporting Standard). This is the OECD version of FATCA. I went looking for how this actually works and I found this FAQ by the Canadian Bankers Association. They say:
"The CRS expands upon FATCA by requiring Canadian financial institutions to identify and report to the CRA [Canada Revenue Agency] information about accounts held by persons who are resident for tax purposes in any country other than Canada or the U.S. The CRA will then exchange this information with tax authorities of the countries with which Canada has entered into an agreement."
So if you have accounts in Canada (or any other country that has signed onto CRS like France, Japan, Korea, India, UK (full list is here), your accounts are reportable to the jurisdictions (yes, you can have more than one) in which you are a tax resident. So, if you live in Japan and this is one of your residences for tax purposes then other countries will automatically report on your reportable accounts in the UK, Canada and so on. To complicate matters what is a reportable account depends on the country implementation. KPMG has this report on how Japan will implement. Assuming that your accounts in another country are reportable, Japan won't find all your assets abroad in the report, but it will give the Japanese tax authorities some idea of where to look and who to ask.
This means that your chances of getting caught not reporting foreign assets are getting much higher. Also look forward to future refinements. This is version 1.0 of the net and governments everywhere are struggling to find tax revenue in the face of changing demographics, deficits and outbound migration. They want more and more reporting, more and more information flowing on a global scale.
This means that your chances of getting caught not reporting foreign assets are getting much higher. Also look forward to future refinements. This is version 1.0 of the net and governments everywhere are struggling to find tax revenue in the face of changing demographics, deficits and outbound migration. They want more and more reporting, more and more information flowing on a global scale.
To those who argue that this is "tax justice" I would urge them to look closely at the implementation of these reporting systems to see who exactly is going to be impacted: the whales (high earners) or the minnows (mid to low income earners)? How much money will be coming in versus the cost of implementation and enforcement? How much will individuals have to pay to comply? Are we filling the national treasury or are we making the lawyers and other compliance experts rich? Are there programs for the "minnows" to get compliant without going bankrupt, getting thrown in jail or being deported? These are all legitimate questions that should be answered in full by anyone throwing around the word "justice." And I'm sure they'll get right on that now that I've brought it up.
I dream.....
Thursday, April 20, 2017
Mélenchon and the "Impôt universel"
For those of you who didn't get the memo the United States has a little special something for its compatriots living outside the US: citizenship-based taxation. This mean that US citizens and Green Card holders abroad owe a pile of paperwork (tax and foreign account declarations) to the IRS every year even if they have never lived or worked in the US and have no assets or income there.
Awareness of this is growing among the US migrant/expatriate communities around the world because of FATCA, a program that requires foreign financial institutions to send a list of their American and almost American account holders to the US. Many countries have signed agreements to hand over this information to the American government. (See my post on the France/US IGA and this review for the Flophouse on the Japan/US agreement by Inaka Nezumi.)
Read them and weep. And then grow a spine and (wo)man up. We are in this mess for the most part because of our government but also because we weren't paying attention and most of us refused to be part of any "American" organization abroad lest we be accused of living in an English-speaking ghetto. There are organizations and individuals out there fighting this: Isaac Brock Society, AARO, ACA. These are the soldiers doing the heavy lifting and taking the risks in what I call the American Diaspora Tax War. Find a way to show your support.
And to those of you who live outside your home countries and are not American citizens or Green Card holders, pay attention because some governments are looking at their deficits and eyeing the income and assets of their "rich" expats and thinking, "Maybe the Americans are on to something..."
Exhibit A this month is the French presidential candidate Jean-Luc Mélenchon. He went on a French news program a few weeks ago and extolled the virtues of an "Impôt universel." This is code for "citizenship-based taxation." Something he admitted to and he even described how it would work: a French living in another country would pay local taxes and then send his/her declaration to the French "fisc" with a little something for "la France."
Mélenchon has been rising in the polls and he stands a real chance of winning. His proposal for taxing the French diaspora is getting a lot of attention. He uses the old argument (one that Americans abroad know all too well) that this is necessary in order to combat tax evasion by the rich and it's only fair that French citizens contribute something to the home country in addition to what they pay in the host country.
«Vous êtes français ? Très bien : vous payez vos impôts où que vous soyez sur la planète.»
Awareness of this is growing among the US migrant/expatriate communities around the world because of FATCA, a program that requires foreign financial institutions to send a list of their American and almost American account holders to the US. Many countries have signed agreements to hand over this information to the American government. (See my post on the France/US IGA and this review for the Flophouse on the Japan/US agreement by Inaka Nezumi.)
Read them and weep. And then grow a spine and (wo)man up. We are in this mess for the most part because of our government but also because we weren't paying attention and most of us refused to be part of any "American" organization abroad lest we be accused of living in an English-speaking ghetto. There are organizations and individuals out there fighting this: Isaac Brock Society, AARO, ACA. These are the soldiers doing the heavy lifting and taking the risks in what I call the American Diaspora Tax War. Find a way to show your support.
And to those of you who live outside your home countries and are not American citizens or Green Card holders, pay attention because some governments are looking at their deficits and eyeing the income and assets of their "rich" expats and thinking, "Maybe the Americans are on to something..."
Exhibit A this month is the French presidential candidate Jean-Luc Mélenchon. He went on a French news program a few weeks ago and extolled the virtues of an "Impôt universel." This is code for "citizenship-based taxation." Something he admitted to and he even described how it would work: a French living in another country would pay local taxes and then send his/her declaration to the French "fisc" with a little something for "la France."
Mélenchon has been rising in the polls and he stands a real chance of winning. His proposal for taxing the French diaspora is getting a lot of attention. He uses the old argument (one that Americans abroad know all too well) that this is necessary in order to combat tax evasion by the rich and it's only fair that French citizens contribute something to the home country in addition to what they pay in the host country.
«Vous êtes français ? Très bien : vous payez vos impôts où que vous soyez sur la planète.»
"You are French? Fine. You pay your [French] taxes wherever you are on this planet."
We (Americans abroad) have heard that one before and it's a message Americans at home like a lot. It is an equally appealing argument for the French in France. It invokes solidarity, fairness, and a chance to get back at those who walked away from La République. The time to push back on this is now, mes amis. Don't let this one go unchallenged, especially at a time when populism seems to be on the rise in the home country. Email your French representatives and let them know exactly what you think of this.
Take it from me, fighting a fait accompli is much harder than killing an idea before it gets traction and votes.
(Discussion about the "universal tax" starts at 31:00)
(Discussion about the "universal tax" starts at 31:00)
Saturday, February 6, 2016
The Global Tax 50: Allison Christians
The International Tax Review has included Professor Allison Christians (H. Heward Stikeman Chair in Tax Law at McGill University) in their 2015 Global Tax 50 - a list of people and organizations that they think have the most influence in the international tax world.
Professor Christians writes extensively on any number of topics related to international taxation in a globalized world, but it was her work on the tax issues of US citizens and US persons abroad that caught my attention and made me a faithful reader of her blog Tax, Society and Culture.
If you'd like to get better acquainted with her work, she has quite a few papers up on SSRN. Here are a few titles I encourage you to read if you are interested in a very informed and very thoughtful perspective that may have you thinking a bit differently about the American Diaspora Tax War.
Uncle Sam Wants … Who? A Global Perspective on Citizenship Taxation (2016)
Paperwork and Punishment: It's Time to Fix FBAR (2014)
Drawing the Boundaries of Tax Justice (2013)
Fair Taxation as a Basic Human Right (2009)
Professor Christians writes extensively on any number of topics related to international taxation in a globalized world, but it was her work on the tax issues of US citizens and US persons abroad that caught my attention and made me a faithful reader of her blog Tax, Society and Culture.
If you'd like to get better acquainted with her work, she has quite a few papers up on SSRN. Here are a few titles I encourage you to read if you are interested in a very informed and very thoughtful perspective that may have you thinking a bit differently about the American Diaspora Tax War.
Uncle Sam Wants … Who? A Global Perspective on Citizenship Taxation (2016)
Paperwork and Punishment: It's Time to Fix FBAR (2014)
Drawing the Boundaries of Tax Justice (2013)
Fair Taxation as a Basic Human Right (2009)
Thursday, July 30, 2015
What's on the anti-FATCA Menu Today?
May I call your attention to an excellent summary of the various anti-FATCA initiatives being served by a restaurant near you?
In his post Goat Rodeo Roundup Deckard1138 notes that we've gone from empty plates to actually having a menu with choices.
Each one approaches FATCA very differently. ADCS is about fighting FATCA outside the US and attacks the implementation of the law in the Canada saying that it is incompatible with the Charter Rights of Canadian citizens. The FATCA Legal Action lawsuit was filed in the US and tackles FATCA from within the US arguing that FATCA deprives American citizens wherever they live of their rights under the US Constitution.
The third which is commonly referred to by the acronym SCE, is an effort to mitigate FATCA. It asks for an exception for US Persons holding local (foreign to the US) bank accounts in the countries where they live and work. If these US Persons are both legal residents of another country AND tax conpliant with the US, then their accounts would not be reported to the US IRS. This exception would leave FATCA itself essentially intact.
To complicate matters there is the issue of who the waiters are this evening. Each one is touting his or her Special of the Day. But some customers don't care for what they think the waiters are wearing (Red or Blue or the cloak of anti-Americanism) and they definitely don't want what they order to be taken as a reflection of their ideological, political or personal views. The uncivil polarized political landscape that characterizes the United States today is repugnant to many Americans abroad and they will resent being dragged into it.
That's what's on the menu and if Americans abroad/US Persons are a party of 7+ million people I'd say it's going to take some discussion before anyone is ready to order.
As I look at it I try to remember that I am not what I eat, and that leaving the restaurant still starving is far worse than a mild case of indigestion.
In his post Goat Rodeo Roundup Deckard1138 notes that we've gone from empty plates to actually having a menu with choices.
"The calm-before-the-storm waiting game of the last few years is now clearly giving way to frenzied activity and veritable verbal warfare across multiple organizations and web sites around the globe. The big-picture dots of this reality have not yet been fully connected into a single post and thread, so that’s why I’m starting this one."There are three main anti-FATCA initiatives:
- Alliance for the Defence of Canadian Sovereignty (lawsuit filed against FATCA in Canada)
- FATCA Legal Action (lawsuit filed against FATCA in the US)
- Same Country Exception/Safe Harbour
Each one approaches FATCA very differently. ADCS is about fighting FATCA outside the US and attacks the implementation of the law in the Canada saying that it is incompatible with the Charter Rights of Canadian citizens. The FATCA Legal Action lawsuit was filed in the US and tackles FATCA from within the US arguing that FATCA deprives American citizens wherever they live of their rights under the US Constitution.
The third which is commonly referred to by the acronym SCE, is an effort to mitigate FATCA. It asks for an exception for US Persons holding local (foreign to the US) bank accounts in the countries where they live and work. If these US Persons are both legal residents of another country AND tax conpliant with the US, then their accounts would not be reported to the US IRS. This exception would leave FATCA itself essentially intact.
To complicate matters there is the issue of who the waiters are this evening. Each one is touting his or her Special of the Day. But some customers don't care for what they think the waiters are wearing (Red or Blue or the cloak of anti-Americanism) and they definitely don't want what they order to be taken as a reflection of their ideological, political or personal views. The uncivil polarized political landscape that characterizes the United States today is repugnant to many Americans abroad and they will resent being dragged into it.
That's what's on the menu and if Americans abroad/US Persons are a party of 7+ million people I'd say it's going to take some discussion before anyone is ready to order.
As I look at it I try to remember that I am not what I eat, and that leaving the restaurant still starving is far worse than a mild case of indigestion.
Friday, July 17, 2015
A Message from the Americans Abroad Caucus
Yesterday, representatives Carolyn B. Maloney (Democrat-New York) and Mike Honda (Democrat-California) issued a press release about their bill calling for the creation of a Commission on Americans Living Abroad.
H.R. 597 which was introduced in 2011/2012 would "establish a commission to study how Federal laws and policies affect United States citizens living in foreign countries." In the 2015 press release they say: "to study the variety of ways federal policy fails those living outside the 50 states." (Italics are mine.)
H.R. 597 which was introduced in 2011/2012 would "establish a commission to study how Federal laws and policies affect United States citizens living in foreign countries." In the 2015 press release they say: "to study the variety of ways federal policy fails those living outside the 50 states." (Italics are mine.)
Note the timing of the press release - just a few days after Republicans Overseas announced that the FATCA/FBAR Complaint and Motion for preliminary injunction has been filed in the U.S. District Court for the Southern District of Ohio at Dayton on behalf of 8.7 million overseas Americans. Democrats Abroad shot back with their own statement condemning the lawsuit.
You can read all about it at the Isaac Brock Society: The Bopp Suit Has Arrived. You can also read my take on the lawsuit and my notes from Senator Mike Lee and superlawyer James Bopp, Jr.'s Paris visit back in October: A Chance to Turn the Tide.
You can read all about it at the Isaac Brock Society: The Bopp Suit Has Arrived. You can also read my take on the lawsuit and my notes from Senator Mike Lee and superlawyer James Bopp, Jr.'s Paris visit back in October: A Chance to Turn the Tide.
According to Maloney and Honda's press release, this Commission on Americans Living Abroad, a 10-member bipartisan committee, would study and make recommendations on:
- Federal financial reporting requirements for a US citizen living in a foreign country
- Federal policies and requirements that affect an overseas citizen’s access to foreign and domestic financial institutions
- Federal requirements for a spouse, child or another family member of a US citizen living abroad to become a US citizen
- The ability of a US citizen living overseas to vote in Federal, State and local elections in the US, and the process by which they do so
- The process by which a US citizen living abroad interacts with Federal programs like Social Security and Medicare
- Methods to improve collaborations between US citizens abroad and Federal Agencies that oversee programs that serve them
I wrote about this proposed Commission in 2012 : "Representative Carolyn B. Maloney of New York has put forward a very modest proposal for a commission that would start a dialogue between us. It would cost around 3 million dollars a year, a mere drop in the bucket compared to the overall federal budget - though I suppose if we asked a U.S. military contractor to cater it, it might cost quite a bit more than that. ACA and AARO are ready with some well researched material about how citizenship-based taxation and other homeland legislation effects us, and does no good whatsoever for the homeland."
Good to see that it's back.
Wednesday, July 15, 2015
Operation Mosquito
Trust the Brockers to come up with something brilliant.
A few days ago the International Tax Bipartisan Tax Working Group Report was published. Many of us had high hopes for this report because public input was requested and Americans outside the United States responded.
In fact, out of the 347 submissions concerning international taxation sent in response to the US Senate Finance Committee's call for public input on tax reform, nearly 75% came from Americans abroad.
But the final report didn't reflect that. Instead it almost entirely focused on the tax issues of US multinational corporations. Go figure.
However, at the end of the report the authors made an interesting recommendation:
"While the co-chairs were not able to produce a comprehensive plan to overhaul the taxation
of individual Americans living overseas within the time-constraints placed on the working group,
the co-chairs urge the Chairman and Ranking Member to carefully consider the concerns
articulated in the submissions moving forward."
“If you think you are too small to make a difference, try sleeping with a mosquito.”
A few days ago the International Tax Bipartisan Tax Working Group Report was published. Many of us had high hopes for this report because public input was requested and Americans outside the United States responded.
In fact, out of the 347 submissions concerning international taxation sent in response to the US Senate Finance Committee's call for public input on tax reform, nearly 75% came from Americans abroad.
But the final report didn't reflect that. Instead it almost entirely focused on the tax issues of US multinational corporations. Go figure.
However, at the end of the report the authors made an interesting recommendation:
"While the co-chairs were not able to produce a comprehensive plan to overhaul the taxation
of individual Americans living overseas within the time-constraints placed on the working group,
the co-chairs urge the Chairman and Ranking Member to carefully consider the concerns
articulated in the submissions moving forward."
Amen to that mes chers compatriotes.
So, how can we help this along? How do we convey to them that we really REALLY want this on the agenda?
Call them.
That's right. Operation Mosquito has been launched by the folks over at the Isaac Brock Society (hat tip to ShadowRaider for the idea) and it consists of picking up the phone and leaving the Senate Finance Committee a message that goes something like this:
“Hi, my name is ___, I’m a US citizen living in ___. I’d like to urge the Senate Finance Committee to overhaul the taxation of individual Americans living abroad, as soon as possible, as the committee indicated in a report it recently released. Could you please pass this message to the rest of the committee?”
Calgary411's post gives all the details. There is a spreadsheet where you can sign up for a time you are available to call. The short script above was drafted by Calgary but you are certainly free to use your own words.
I've signed up and will be making a very early morning phone from Japan. Please join us. It's worth a shot, Might even be cathartic. Because we may be trivial and insignificant in Washington's eyes but that should not deter us from asserting ourselves. The Dalai Lama was dead right when he said:
“If you think you are too small to make a difference, try sleeping with a mosquito.”
Thursday, July 9, 2015
The International Tax Bipartisan Tax Working Group Report
Americans divided by a common language.
When Americans abroad talk international tax reform, they mean an end to citizenship-based taxation, foreign (local to us) bank account reporting, and the hated foreign account tax compliance act (FATCA) so that US citizens can be just as mobile, global and competitive as the citizens of other developed countries.
When Americans in the homeland talk international tax reform, they mean changing the US tax code so that US multinational corporations can be just as mobile, global and competitive as the corporations of other developed countries.
People versus big business.
Of the 347 submissions concerning international taxation sent in response to the US Senate Finance Committee's call for public input on tax reform, nearly 75% came from Americans abroad.
They asked, we answered. Ain't democracy grand?
Today Calgary over at the Isaac Brock Society posted the link to the International Tax Reform Working Group: Final Report.
The good news is that Americans abroad got a mention, a nod, even whole paragraphs.
US citizens living abroad: the foreign earned income exclusion (page 44)
"A U.S. citizen who earns income in a foreign country also may be taxed on that income
by the foreign country. As a practical matter, the United States generally cedes the primary right
to tax a U.S. citizen’s foreign source income to the foreign country in which the income is
derived. This concession is effected by the allowance of a credit against the U.S. income tax
imposed on foreign-source income for foreign taxes paid on that income. As described
previously, the amount of the credit for foreign income tax paid on foreign-source income
generally is limited to the amount of U.S. tax otherwise owed on that income. Accordingly, if
the amount of foreign tax paid on foreign-source income is less than the amount of U.S. tax
owed on that income, a foreign tax credit generally is allowed in an amount not exceeding the
amount of the foreign tax, and a residual U.S. tax liability remains."
Income Taxation of Individuals (page 48)
"The United States generally imposes income tax on the worldwide income of U.S.
citizens and residents. Thus, all income earned by a U.S. citizen or resident, whether from
sources inside or outside the United States, is taxable whether or not the individual lives within
the United States. All U.S. citizens and residents whose gross income for a taxable year is not
less than the sum of the personal exemption amount and the basic standard deduction are
required to file an annual U.S. individual income tax return. "
Citizenship Renunciations (page 50)
"U.S. citizens who relinquish their citizenship and U.S. residents who terminate their longterm
residency may be subject to special tax rules intended to limit any tax benefits from
expatriation. Certain persons expatriating before June 17, 2008 are subject to an alternative tax
regime for a period of 10 years if they meet certain income and net-worth thresholds or they fail
to comply with certain U.S. Federal tax obligations."
Very much a "just the facts, ma'am" style of reporting. Please note that the above paragraphs are about the rules. No mention is made of the merits or demerits of the system as it actually works (it doesn't) for Americans abroad. But the report does go into more detail about how US corporations are effected with the focus on how "the United States has become less competitive abroad because of its worldwide system of international taxation."
So, in a nutshell, the issues reported by 25% of the submissions to this committee got a hearing, while the other 75% sent in by citizens and organizations like American Citizens Abroad got a recitation of the rules. That's disheartening. That's very bad news.
This report reinforces my sense that Americans abroad and Americans in the homeland no longer speak the same language - that both sides have a context that the other doesn't understand and perhaps even a conflict of interests. US lawmakers' desire for the US to be more competitive abroad through judicious tweaking of the tax code is limited in scope to big business. The desire of the American people to be competitive and global simply doesn't merit nearly the same attention. Our problems are not their priority.
And, yet, at the end - at the very very end - of the report they did throw out a bone. A nod to the numbers and all those fine people and organizations who took the time to bring the tax issues of Americans abroad to their attention.
Overseas Americans (page 80)
"According to working group submissions, there are currently 7.6 million American citizens
living outside of the United States. Of the 347 submissions made to the international working
group, nearly three-quarters dealt with the international taxation of individuals, mainly focusing
on citizenship-based taxation, the Foreign Account Tax Compliance Act (FATCA), and the
Report of Foreign Bank and Financial Accounts (FBAR).
While the co-chairs were not able to produce a comprehensive plan to overhaul the taxation
of individual Americans living overseas within the time-constraints placed on the working group,
the co-chairs urge the Chairman and Ranking Member to carefully consider the concerns
articulated in the submissions moving forward."
Which is pretty much what we've been told every time we've gone to Washington to talk to these folks: "We'll think about it" which we might be forgiven for taking seriously back in, say, 2012, but we'd be idiots to accept once again in 2015.
And that means that we (Americans abroad) need to change our language. According to Republicans Overseas FATCA Legal Action, the anti-FATCA/FBAR lawsuit led by James Bopp, Jr. was filed in US district court on June 29 with 7 plaintiffs one of whom is Senator Rand Paul. With that in mind there is a phrase that just about every American at home and abroad knows and understands. Perhaps these words will at long last get their attention:
See you in court.
****************************************************************************
For those of you who still believe that persistence and people power stand a chance, here are the names of the politicians on the International Tax Reform Working Group who are being asked to "carefully consider" the tax issues of Americans abroad. Let them know what you think about their report and ask for concrete action on their part. It's worth a shot if you still believe that polite words and well-written pleas for mercy might work.
Senator Pat Roberts (R-KS), Senator Sherrod Brown (D-OH), Senator Michael Enzi (R-WY),
Senator Tom Carper (D-DE), Senator John Cornyn (R-TX), and Senator Mark Warner (D-VA);
Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR).
When Americans abroad talk international tax reform, they mean an end to citizenship-based taxation, foreign (local to us) bank account reporting, and the hated foreign account tax compliance act (FATCA) so that US citizens can be just as mobile, global and competitive as the citizens of other developed countries.
When Americans in the homeland talk international tax reform, they mean changing the US tax code so that US multinational corporations can be just as mobile, global and competitive as the corporations of other developed countries.
People versus big business.
Of the 347 submissions concerning international taxation sent in response to the US Senate Finance Committee's call for public input on tax reform, nearly 75% came from Americans abroad.
They asked, we answered. Ain't democracy grand?
Today Calgary over at the Isaac Brock Society posted the link to the International Tax Reform Working Group: Final Report.
The good news is that Americans abroad got a mention, a nod, even whole paragraphs.
US citizens living abroad: the foreign earned income exclusion (page 44)
"A U.S. citizen who earns income in a foreign country also may be taxed on that income
by the foreign country. As a practical matter, the United States generally cedes the primary right
to tax a U.S. citizen’s foreign source income to the foreign country in which the income is
derived. This concession is effected by the allowance of a credit against the U.S. income tax
imposed on foreign-source income for foreign taxes paid on that income. As described
previously, the amount of the credit for foreign income tax paid on foreign-source income
generally is limited to the amount of U.S. tax otherwise owed on that income. Accordingly, if
the amount of foreign tax paid on foreign-source income is less than the amount of U.S. tax
owed on that income, a foreign tax credit generally is allowed in an amount not exceeding the
amount of the foreign tax, and a residual U.S. tax liability remains."
Income Taxation of Individuals (page 48)
"The United States generally imposes income tax on the worldwide income of U.S.
citizens and residents. Thus, all income earned by a U.S. citizen or resident, whether from
sources inside or outside the United States, is taxable whether or not the individual lives within
the United States. All U.S. citizens and residents whose gross income for a taxable year is not
less than the sum of the personal exemption amount and the basic standard deduction are
required to file an annual U.S. individual income tax return. "
Citizenship Renunciations (page 50)
"U.S. citizens who relinquish their citizenship and U.S. residents who terminate their longterm
residency may be subject to special tax rules intended to limit any tax benefits from
expatriation. Certain persons expatriating before June 17, 2008 are subject to an alternative tax
regime for a period of 10 years if they meet certain income and net-worth thresholds or they fail
to comply with certain U.S. Federal tax obligations."
Very much a "just the facts, ma'am" style of reporting. Please note that the above paragraphs are about the rules. No mention is made of the merits or demerits of the system as it actually works (it doesn't) for Americans abroad. But the report does go into more detail about how US corporations are effected with the focus on how "the United States has become less competitive abroad because of its worldwide system of international taxation."
So, in a nutshell, the issues reported by 25% of the submissions to this committee got a hearing, while the other 75% sent in by citizens and organizations like American Citizens Abroad got a recitation of the rules. That's disheartening. That's very bad news.
This report reinforces my sense that Americans abroad and Americans in the homeland no longer speak the same language - that both sides have a context that the other doesn't understand and perhaps even a conflict of interests. US lawmakers' desire for the US to be more competitive abroad through judicious tweaking of the tax code is limited in scope to big business. The desire of the American people to be competitive and global simply doesn't merit nearly the same attention. Our problems are not their priority.
And, yet, at the end - at the very very end - of the report they did throw out a bone. A nod to the numbers and all those fine people and organizations who took the time to bring the tax issues of Americans abroad to their attention.
Overseas Americans (page 80)
"According to working group submissions, there are currently 7.6 million American citizens
living outside of the United States. Of the 347 submissions made to the international working
group, nearly three-quarters dealt with the international taxation of individuals, mainly focusing
on citizenship-based taxation, the Foreign Account Tax Compliance Act (FATCA), and the
Report of Foreign Bank and Financial Accounts (FBAR).
While the co-chairs were not able to produce a comprehensive plan to overhaul the taxation
of individual Americans living overseas within the time-constraints placed on the working group,
the co-chairs urge the Chairman and Ranking Member to carefully consider the concerns
articulated in the submissions moving forward."
Which is pretty much what we've been told every time we've gone to Washington to talk to these folks: "We'll think about it" which we might be forgiven for taking seriously back in, say, 2012, but we'd be idiots to accept once again in 2015.
And that means that we (Americans abroad) need to change our language. According to Republicans Overseas FATCA Legal Action, the anti-FATCA/FBAR lawsuit led by James Bopp, Jr. was filed in US district court on June 29 with 7 plaintiffs one of whom is Senator Rand Paul. With that in mind there is a phrase that just about every American at home and abroad knows and understands. Perhaps these words will at long last get their attention:
See you in court.
****************************************************************************
For those of you who still believe that persistence and people power stand a chance, here are the names of the politicians on the International Tax Reform Working Group who are being asked to "carefully consider" the tax issues of Americans abroad. Let them know what you think about their report and ask for concrete action on their part. It's worth a shot if you still believe that polite words and well-written pleas for mercy might work.
Senator Pat Roberts (R-KS), Senator Sherrod Brown (D-OH), Senator Michael Enzi (R-WY),
Senator Tom Carper (D-DE), Senator John Cornyn (R-TX), and Senator Mark Warner (D-VA);
Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR).
Saturday, May 30, 2015
Will the Fun Ever End? Possible New US Person Reporting Requirement
Some mornings I read some delightful missive in my inbox, and then I put down my coffee, walk over to the nearest wall, and knock my head against it. Made for a very satisfying thunk back in Versailles where the walls were 1929 solid. Not nearly as effective in my modern Osaka apartment since the room dividers are covered in cheesy thick white wallpaper which cushions the blow.
But I make do.
So what had me banging my head against a wall this morning? A possible new US Person reporting requirement.
According to Allison Christians, a McGill University tax law professor and all around Fine Person (she loans me books and buys me coffee) based in Montreal, Canada, reports that the US Bureau of Economic Analysis has decided to make its bureaucratic life easier, and by extension other people's lives much harder.
Their form (and isn't there always a damn dead tree form?) Benchmark Survey of U.S. Direct Investment Abroad, the BE-10a-d, was used by the BEA to gather information about US investments outside the Land of the Free. It was voluntary; now it's required. The due date for new filers of this form is June 30, 2015 - the very same day millions of US Persons around the world must have completed their Fincen 114 reporting (aka FBARs).
Christians says that the now mandatory BE-10 filing concerns "any US Person that directly or indirectly held 10% or more of the voting securities ("US Reporter") of any non-U.S. business enterprise (a “Foreign Affiliate”). There are no de minimis exceptions: no matter how small your nonUS corporation might be (or have been-you must file for the year even if the corporation ceases to exist), you must report or face the penalty."
The penalty for non-filing is "$2,500 to $25,000 for nonfiling, plus $10,000, or a year in jail, or both, if the nonfiling was wilful."
That's the bare bones info. I imagine that most of you have just one burning question and that is: Does this filing requirement apply to US Person me, my investments, and my small non-US family business or consulting company? Once my head stopped spinning from all that wall banging, I watched this BEA video and, for the life of me, I couldn't figure it out. Christians herself is looking into it, and if it isn't obvious to a professor of tax law, then no wonder little ol' me is confused.
Just out of curiosity, were any of you Costco (or local equivalent) shoppers out there aware of this? Did anyone send you a note, give you a heads-up, cc you on the memo? Or are you reading it here for the first time?
Because, setting aside for the moment the question Is this reporting necessary? (for some reason that escapes us peons) this highlights once again that there is a serious communication gap here between the homeland and Americans abroad. Did the people at BEA think for two seconds that there might be 8 million US citizens and Green Card holders abroad (not to mentions those living in the US) potentially affected by this requirement? And if those 8 million+ people were taken into consideration, might that not change how the requirement was designed, implemented and communicated to the population concerned?
It's not just the BEA but the entire US government that needs to get a grip on globalization and the fact that it has a Domestic Abroad, a population that does not live in the US and may never ever live there. Yes, taking them into account makes things messy and harder to implement but if laws, policies and regulations are applied to these people regardless of where they live, and they run the risk of draconian fines or jail time for failure to comply, then, at minimum, government has an obligation to clarify and inform.
And don't give me that "ignorance of the law is no excuse" crapola. According to one source, US Federal law has over 23,000 pages in 50 volumes. The US tax code alone is over 7,500 pages written in the weirdest, obscurest language comprehensible only to a small, select group of scribes (some of whom charge 500 Euros an hour for the "translation"). With numbers like that ignorance isn't a choice, it's a chronic condition.
What to do? Instead of roiling in fear and frustration one option is for us to start banging on their walls instead. BEA has a contact email: be10/11@bea.gov and a phone number (202) 606-5566. Ask for clarification and be sure to get them to put it in writing that you do or do not have to file this pesky form. Let them know that you are not the only US Person abroad asking these questions and suggest that they provide additional information on their website pertinent to US Persons who do not live in the US. And then send everything to your US Congresspersons so that they are in the loop as well.
Maybe it will work and maybe it won't. It's worth a try, if for no other reason than the possibility that sending those emails might just assuage some frustration and save a wall or two.
Update: Professor Christian has updated her post and says that, as far as she can tell from the instructions, non-resident US citizens are not required to submit this form. Between you and me, I would still ask them directly and extract an answer in writing. Cover your ass? Absolutely.
But I make do.
So what had me banging my head against a wall this morning? A possible new US Person reporting requirement.
According to Allison Christians, a McGill University tax law professor and all around Fine Person (she loans me books and buys me coffee) based in Montreal, Canada, reports that the US Bureau of Economic Analysis has decided to make its bureaucratic life easier, and by extension other people's lives much harder.
Their form (and isn't there always a damn dead tree form?) Benchmark Survey of U.S. Direct Investment Abroad, the BE-10a-d, was used by the BEA to gather information about US investments outside the Land of the Free. It was voluntary; now it's required. The due date for new filers of this form is June 30, 2015 - the very same day millions of US Persons around the world must have completed their Fincen 114 reporting (aka FBARs).
Christians says that the now mandatory BE-10 filing concerns "any US Person that directly or indirectly held 10% or more of the voting securities ("US Reporter") of any non-U.S. business enterprise (a “Foreign Affiliate”). There are no de minimis exceptions: no matter how small your nonUS corporation might be (or have been-you must file for the year even if the corporation ceases to exist), you must report or face the penalty."
The penalty for non-filing is "$2,500 to $25,000 for nonfiling, plus $10,000, or a year in jail, or both, if the nonfiling was wilful."
That's the bare bones info. I imagine that most of you have just one burning question and that is: Does this filing requirement apply to US Person me, my investments, and my small non-US family business or consulting company? Once my head stopped spinning from all that wall banging, I watched this BEA video and, for the life of me, I couldn't figure it out. Christians herself is looking into it, and if it isn't obvious to a professor of tax law, then no wonder little ol' me is confused.
Just out of curiosity, were any of you Costco (or local equivalent) shoppers out there aware of this? Did anyone send you a note, give you a heads-up, cc you on the memo? Or are you reading it here for the first time?
Because, setting aside for the moment the question Is this reporting necessary? (for some reason that escapes us peons) this highlights once again that there is a serious communication gap here between the homeland and Americans abroad. Did the people at BEA think for two seconds that there might be 8 million US citizens and Green Card holders abroad (not to mentions those living in the US) potentially affected by this requirement? And if those 8 million+ people were taken into consideration, might that not change how the requirement was designed, implemented and communicated to the population concerned?
It's not just the BEA but the entire US government that needs to get a grip on globalization and the fact that it has a Domestic Abroad, a population that does not live in the US and may never ever live there. Yes, taking them into account makes things messy and harder to implement but if laws, policies and regulations are applied to these people regardless of where they live, and they run the risk of draconian fines or jail time for failure to comply, then, at minimum, government has an obligation to clarify and inform.
And don't give me that "ignorance of the law is no excuse" crapola. According to one source, US Federal law has over 23,000 pages in 50 volumes. The US tax code alone is over 7,500 pages written in the weirdest, obscurest language comprehensible only to a small, select group of scribes (some of whom charge 500 Euros an hour for the "translation"). With numbers like that ignorance isn't a choice, it's a chronic condition.
What to do? Instead of roiling in fear and frustration one option is for us to start banging on their walls instead. BEA has a contact email: be10/11@bea.gov and a phone number (202) 606-5566. Ask for clarification and be sure to get them to put it in writing that you do or do not have to file this pesky form. Let them know that you are not the only US Person abroad asking these questions and suggest that they provide additional information on their website pertinent to US Persons who do not live in the US. And then send everything to your US Congresspersons so that they are in the loop as well.
Maybe it will work and maybe it won't. It's worth a try, if for no other reason than the possibility that sending those emails might just assuage some frustration and save a wall or two.
Update: Professor Christian has updated her post and says that, as far as she can tell from the instructions, non-resident US citizens are not required to submit this form. Between you and me, I would still ask them directly and extract an answer in writing. Cover your ass? Absolutely.
Thursday, May 21, 2015
For Good and Evil: the Impact of Taxes
“The utopian, immanent, and continually frustrated goal of the modern state is to reduce the chaotic, disorderly, constantly changing social reality beneath it to something more closely resembling the administrative grid of its observations.”
James C. Scott
If you've been reading the Flophouse then you know that taxes are a frequent topic here. Frankly, I am less interested in the mechanics of taxation than I am in what I have heard referred to as the sociology of taxation. Underneath all tax issues, I am learning, are a host of social and psychological factors.
The Australian Tax Office (ATO) has done some fascinating research about this and Ken Devos in his book Factors Influencing Individual Taxpayer Compliance Behaviour does a fine job of summarizing their work. In particular, the discussion around "tax moral" - how taxpayers view taxes in light of their beliefs and societal norms - was illuminating. Any lawmaker or citizen who says that the feelings of the citizenry around taxes don't matter because "the law is the law" is delusional. The lower the tax moral, the lower the rate of voluntary compliance, which means less tax revenue. Not simply because people don't pay, but because more and more tax money must be diverted to administration and enforcement.
When I picked up Charles Adams' book For Good and Evil: the Impact of Taxes on the Course of Civilization, that is exactly what I was expecting - a polemic on good and evil taxes and tax systems - all the more since I had a vague impression that Mr. Adams was something of a libertarian. Whatever his ideology, he did a very good job of putting those opinions firmly in the background. A careful reading of the text will expose them, but they are not the focus of his book.
Instead Adams tells a series of stories about taxes, tax systems and strategies going back to antiquity. It is not a definitive history of taxation by any means, but it is not a bad place to begin thinking about the historical context and to see how the social, psychological and even religious context around taxation has always mattered a great deal.
How interesting to read that taxpayers in the Middle Ages had "God on their side." Unjust or excessive taxation on the part of kings was a sin and incurred the wrath of God. Conversely, a king who taxed justly and modestly would enjoy peace, prosperity and be "blessed with many sons."
New (or unheard of) taxes were particularly odious. This principle was called exactio inaudita (which we can summarize as "no new taxes") and greatly limited the raising of revenue by royalty. Europe's rulers were daunted by this until they found a population that, in their eyes, did not have God on their side - the Jewish people - and laid that burden upon them.
Taxes played a role in the spread of Islam. The jaliya was a tax on Jews, Christian and other non-believers. Since Moslems did not pay it, the fastest and easiest way to relieve one's tax burden was to convert.
Adams point out that this was very close to the Greek practice of taxing foreigners, not citizens. In ancient Athens foreigners paid a monthly tax called the metoikion. The opposite of modern citizenship-based taxation, and completely contrary to the notion that taxes are a responsibility of citizens, only non-citizens (metics) were consistently and directly taxed. Citizens themselves were only directly taxed in extraordinary emergency circumstances like war - the eisphora. Not only were these taxes canceled once the reason for them was over, "if there was any booty from the war it was used to repay or refund the eisphora."
Those who rail against international tax competition in our day should know that, far from being a new phenomenon brought on by 20th century globalization, it has a long and venerable history.
Around the 4th century B.C., says, Adams, the island of Rhodes became a thriving center of banking and commerce. Internally, it was politically stable. Externally, it successfully avoided becoming embroiled in other countries' conflicts. Rhodes was also a port of call for ships coming from the east to deliver cargo to Rome and Greece. The port charged a 2% harbor tax "based on the value of the cargo, even if the cargo remained on board." When Rhodes found itself in conflict with Rome, the Romans attacked them indirectly by creating another port in 166 B.C. on the isle of Delos which, in addition to possessing good facilities and services, was tax free. The result?
"Tax habits could be to civilization what sex habits are to personality. They are basic clues to the way a society behaves." Ideas about what is "fair" and "equitable" change - surely the Christians of the middle ages in Europe found taxing the Jews to be very fair indeed, and the Athenians had no problem exempting their citizen-selves from any direct tax obligations. What do today's most pressing tax issues tell us about the societies in which we live?
For the most part, Adams tells his stories straight without manipulative moralizing. He believes that taxes can be a force for good, are necessary for civilization, and have "built great nations and brought much good to their inhabitants."
But he also argues that there are taxes and tax systems so bad that they actually undermine the civilizations they are meant to support. Tax systems that are overly complex and ultimately unenforceable generate contempt, not revenue. Governments that approach their citizens or subjects with arrogance, and rely mostly on compulsion to fill their coffers, fare badly as avoidance and evasion become rampant. And anyone who believes that harsher laws and draconian punishments are the only proper response to widespread non-compliance should take a few moments to look at the ATO research.
And while we are speaking of punishment - if it is good, right and necessary for taxpayers to be under threat, then surely a case can be made that governments and their agents need it too in order to be properly motivated and compliant with their responsibilities to those they govern.
In ancient Egypt under the pharoah Haremhab "a tax-collecting scribe found guilty of overcharging a taxpayer was sentenced to have his nose cut off, followed by banishment to a desolate part of Arabia."
With that kind of punishment, and if we could convince the US Congress that taxing simply and coherently would "bless them with many sons", the bureaucrats and lawmakers just might find the motivation to undertake that politically dangerous but desperately-needed tax reform.
If you've been reading the Flophouse then you know that taxes are a frequent topic here. Frankly, I am less interested in the mechanics of taxation than I am in what I have heard referred to as the sociology of taxation. Underneath all tax issues, I am learning, are a host of social and psychological factors.
The Australian Tax Office (ATO) has done some fascinating research about this and Ken Devos in his book Factors Influencing Individual Taxpayer Compliance Behaviour does a fine job of summarizing their work. In particular, the discussion around "tax moral" - how taxpayers view taxes in light of their beliefs and societal norms - was illuminating. Any lawmaker or citizen who says that the feelings of the citizenry around taxes don't matter because "the law is the law" is delusional. The lower the tax moral, the lower the rate of voluntary compliance, which means less tax revenue. Not simply because people don't pay, but because more and more tax money must be diverted to administration and enforcement.
Perceptions, ethics, and social systems matter. The battle for hearts and minds and wallets is conducted in the political arena where different interests squabble over the meaning of "fair" or "equitable". For every tax or tax system there are attempts at persuasion - mostly transparent morality tales that paint the uncooperative citizens or the greedy grasping government in the blackest possible terms.
Instead Adams tells a series of stories about taxes, tax systems and strategies going back to antiquity. It is not a definitive history of taxation by any means, but it is not a bad place to begin thinking about the historical context and to see how the social, psychological and even religious context around taxation has always mattered a great deal.
How interesting to read that taxpayers in the Middle Ages had "God on their side." Unjust or excessive taxation on the part of kings was a sin and incurred the wrath of God. Conversely, a king who taxed justly and modestly would enjoy peace, prosperity and be "blessed with many sons."
New (or unheard of) taxes were particularly odious. This principle was called exactio inaudita (which we can summarize as "no new taxes") and greatly limited the raising of revenue by royalty. Europe's rulers were daunted by this until they found a population that, in their eyes, did not have God on their side - the Jewish people - and laid that burden upon them.
Taxes played a role in the spread of Islam. The jaliya was a tax on Jews, Christian and other non-believers. Since Moslems did not pay it, the fastest and easiest way to relieve one's tax burden was to convert.
Adams point out that this was very close to the Greek practice of taxing foreigners, not citizens. In ancient Athens foreigners paid a monthly tax called the metoikion. The opposite of modern citizenship-based taxation, and completely contrary to the notion that taxes are a responsibility of citizens, only non-citizens (metics) were consistently and directly taxed. Citizens themselves were only directly taxed in extraordinary emergency circumstances like war - the eisphora. Not only were these taxes canceled once the reason for them was over, "if there was any booty from the war it was used to repay or refund the eisphora."
Those who rail against international tax competition in our day should know that, far from being a new phenomenon brought on by 20th century globalization, it has a long and venerable history.
Around the 4th century B.C., says, Adams, the island of Rhodes became a thriving center of banking and commerce. Internally, it was politically stable. Externally, it successfully avoided becoming embroiled in other countries' conflicts. Rhodes was also a port of call for ships coming from the east to deliver cargo to Rome and Greece. The port charged a 2% harbor tax "based on the value of the cargo, even if the cargo remained on board." When Rhodes found itself in conflict with Rome, the Romans attacked them indirectly by creating another port in 166 B.C. on the isle of Delos which, in addition to possessing good facilities and services, was tax free. The result?
"The trade of the east immediately bypassed Rhodes and went to Delos. In one year trade declined by 85 percent. Annual tax receipts, which normally had run about 1 million silver drachmas, declined to 150,000."Which just goes to show that "harmful tax competition" has at least a 2,000 year-old pedigree.
"Tax habits could be to civilization what sex habits are to personality. They are basic clues to the way a society behaves." Ideas about what is "fair" and "equitable" change - surely the Christians of the middle ages in Europe found taxing the Jews to be very fair indeed, and the Athenians had no problem exempting their citizen-selves from any direct tax obligations. What do today's most pressing tax issues tell us about the societies in which we live?
For the most part, Adams tells his stories straight without manipulative moralizing. He believes that taxes can be a force for good, are necessary for civilization, and have "built great nations and brought much good to their inhabitants."
But he also argues that there are taxes and tax systems so bad that they actually undermine the civilizations they are meant to support. Tax systems that are overly complex and ultimately unenforceable generate contempt, not revenue. Governments that approach their citizens or subjects with arrogance, and rely mostly on compulsion to fill their coffers, fare badly as avoidance and evasion become rampant. And anyone who believes that harsher laws and draconian punishments are the only proper response to widespread non-compliance should take a few moments to look at the ATO research.
And while we are speaking of punishment - if it is good, right and necessary for taxpayers to be under threat, then surely a case can be made that governments and their agents need it too in order to be properly motivated and compliant with their responsibilities to those they govern.
In ancient Egypt under the pharoah Haremhab "a tax-collecting scribe found guilty of overcharging a taxpayer was sentenced to have his nose cut off, followed by banishment to a desolate part of Arabia."
With that kind of punishment, and if we could convince the US Congress that taxing simply and coherently would "bless them with many sons", the bureaucrats and lawmakers just might find the motivation to undertake that politically dangerous but desperately-needed tax reform.
Friday, May 15, 2015
Another Front in the Fight Against FATCA: The Alliance for the Defence of Canadian Sovereignty
"And it came to passe in those dayes, that there went out a decree from Cesar Augustus, that all the world should be taxed..."
Luke 2:1, King James Bible (1611)
Luke 2:1, King James Bible (1611)
The Foreign Account Tax Compliance Act is, in its own weird way, a kind of census. Among other things, it tells the American government where those it considers to be taxable under US law live and work and raise families.
Having tried and failed miserably at conducting an accurate census of Americans abroad, the American government looked for other ways to find those "US Persons" (a term that includes US residents and Green Card holders, as well as US citizens). Their method was delegation - an admission of failure in a sense - because FATCA requires foreign financial institutions (FFIs) to do what the US government couldn't manage to accomplish on its own: to seek out all US persons in the world (their names, addresses, and account balances).
Those of you who have already been FATCAed, know all too well what that means. Those of you who have not yet signed a W-9 or had your accounts closed, please don't feel left out, your time will come.
Americans abroad organizations like AARO, ACA, Democrats abroad and Republicans Overseas are fighting FATCA and you can read about their efforts here.
But I would be remiss if I did not mention other efforts which are equally important. The one I have been following (and cheering on) is the other lawsuit filed in Canada by the Alliance for the Defense of Canadian Sovereignty (ADCS).
This is a grassroots initiative that pushes back against FATCA in Canada. ADCS argues that the Canadian legislation that implements the FATCA intergovernmental agreement with the United States "violates the Canadian Constitution, Canada’s Charter of Rights and Freedoms, the principles of Canadian sovereignty and democracy, and the fundamental rights of all Canadians."
By signing an agreement to turn over the private information of Canadian citizens to a foreign government (the United States) the Canadian government is violating, they say, the rights of those whom the US is unilaterally claiming as taxable US Persons, but who consider themselves to be Canadians first and foremost. They reject utterly the idea that another country can simply demand that Canada provide the private information of individuals who have some connection to the United States, however nebulous it may be.
The plaintiffs in the case are two Canadian women "who have never held a U.S. passport or developed any meaningful relationship with the U.S." but who are, nonetheless, considered to be US citizens by virtue of being born in the US." They never consented to that citizenship and see no reason why it should be foisted on them now just because the US says so.
There are citizens in just about every country in the world right now who are in exactly the same position as the two plaintiffs: people who thought they were "just French" living in France or "just Thai " living in Thailand. Many are finding out that they are indeed US Persons when they receive a note from their local banks informing them that they appear to be US citizens under US law.
I could not think of a worse way (or a worse source) for someone to learn that he or she might be a US citizen. I find this not just shameful on the part of the US, but an extreme and worrisome delegation of sovereign power. Foreign financial institutions should not be in any way arbiters of US citizenship or status, or be tasked with implementing a US extraterritorial national census of any sort for any purpose whatsoever.
Among the different fronts against FATCA, this is a very worthy effort because it asks a nation-state like Canada to take a stand: Are these people claimed by the US really Canadian citizens with all the right enumerated in the Charter? Or has the Canadian government downgraded them to semi-citizenship status based on the claims of a foreign power?
Funded entirely by small donors, ADCS has miraculously raised enough money so far to hire very competent legal counsel, and on August 14, 2014 they filed their suit in Canadian Federal Court. I back them 100% and have contributed even though I am not an "Accidental American" or even a dual.
You can support ADCS by making a donation here. They are excellent transparent communicators and you can follow the progress of the lawsuit on their website, at the Isaac Brock Society, or at Maple Sandbox.
And finally I invite you to watch this superb video which they prepared after testifying last year before the House of Commons Finance Committee.
Saturday, May 2, 2015
John Oliver's Defense of the IRS
It was with mixed feelings that I watched John Oliver's defense of the US Internal Revenue Service on his show Last Week Tonight.
For those of you who don't know him, Oliver is a British comedian who had the good fortune to land in a country - the United States - where the political system is so screwed up that it sits up and begs for political satire. As a US citizen living abroad I've stopped following too closely the US political scene because it is predictably pathetic. And it is not just the crazy Republicans either; the Democrats are a few bricks shy of a load, too.
None of this lunacy will be healed any time soon (and, alas, I know of no medicine for what ails us) , which means that John Oliver possesses something that millions of US citizens would love to have: job security. And he will never run out of topics as long as he lives in the "Land of the Free" because even in good times the US is a big messy democracy, something that H.L. Mencken enjoyed so much because: "It is incomparably idiotic, and hence incomparably amusing."
His defense of the IRS is amusing but not his best work. The song at the end is sappy and silly and not particularly funny. His attempts to tug at our heartstrings, however, is. They do a necessary job, he says, for which they are hated. Yes, that's true. In fact it's true of just about any country on this planet. When Oliver describes the venom Americans spit at their tax authorities, he's not giving us a shining example of Americans exceptionalism - he's just showing that Americans are no different from anyone else in the world where it's simply a reality that nobody loves the local "fisc".
Oliver's point, however, about the IRS budget cuts was right on the money. But he missed a fabulous opportunity to explain something important to the American people. It's not just the budget cuts that are causing turmoil in that agency, it's also the expansion of the IRS scope and responsibilities. Congress, in its great wisdom (or complete insanity) handed them both the Affordable Care Act (Obamacare) and something called the Foreign Account Tax Compliance Act (FATCA).
The IRS Commissioner John Koskinen and Nina Olson, the National Taxpayer Advocate, have fired back pointing out to both Congress and the American people of something that every competent project manager understands: you don't expand scope and cut budget at the same time.
A truly funny aspect of all this is that FATCA was supposed to be all gain and no pain. Hell, it was written so that all of the cost would be borne by those foreign financial institutions. Foreign countries didn't find that amusing at all and agreements were reached that require American banks to do similar reporting to countries outside the United States.
But the bill on the US side goes beyond the banks: Koskinen drew a straight line for Congress between FATCA implementation and those "courtesy disconnects" and long lines at IRS offices that Americans in the homeland are suffering.. We must implement these things on your orders, he said, and with lower budgets something has to give. That something is customer service.
So Americans in the homeland - the ones who can't afford professional tax help - are paying for FATCA, albeit in an indirect way. I think it's worth mentioning because it is rather ironic, isn't it?
That a law to catch "rich tax evaders" instead causes direct harm to working Americans everywhere.
And the faute (and it is a faute lourde) should be laid exactly where it belongs - with the not so funny repercussions of a dysfunctional political system.
For those of you who don't know him, Oliver is a British comedian who had the good fortune to land in a country - the United States - where the political system is so screwed up that it sits up and begs for political satire. As a US citizen living abroad I've stopped following too closely the US political scene because it is predictably pathetic. And it is not just the crazy Republicans either; the Democrats are a few bricks shy of a load, too.
None of this lunacy will be healed any time soon (and, alas, I know of no medicine for what ails us) , which means that John Oliver possesses something that millions of US citizens would love to have: job security. And he will never run out of topics as long as he lives in the "Land of the Free" because even in good times the US is a big messy democracy, something that H.L. Mencken enjoyed so much because: "It is incomparably idiotic, and hence incomparably amusing."
His defense of the IRS is amusing but not his best work. The song at the end is sappy and silly and not particularly funny. His attempts to tug at our heartstrings, however, is. They do a necessary job, he says, for which they are hated. Yes, that's true. In fact it's true of just about any country on this planet. When Oliver describes the venom Americans spit at their tax authorities, he's not giving us a shining example of Americans exceptionalism - he's just showing that Americans are no different from anyone else in the world where it's simply a reality that nobody loves the local "fisc".
Oliver's point, however, about the IRS budget cuts was right on the money. But he missed a fabulous opportunity to explain something important to the American people. It's not just the budget cuts that are causing turmoil in that agency, it's also the expansion of the IRS scope and responsibilities. Congress, in its great wisdom (or complete insanity) handed them both the Affordable Care Act (Obamacare) and something called the Foreign Account Tax Compliance Act (FATCA).
The IRS Commissioner John Koskinen and Nina Olson, the National Taxpayer Advocate, have fired back pointing out to both Congress and the American people of something that every competent project manager understands: you don't expand scope and cut budget at the same time.
A truly funny aspect of all this is that FATCA was supposed to be all gain and no pain. Hell, it was written so that all of the cost would be borne by those foreign financial institutions. Foreign countries didn't find that amusing at all and agreements were reached that require American banks to do similar reporting to countries outside the United States.
But the bill on the US side goes beyond the banks: Koskinen drew a straight line for Congress between FATCA implementation and those "courtesy disconnects" and long lines at IRS offices that Americans in the homeland are suffering.. We must implement these things on your orders, he said, and with lower budgets something has to give. That something is customer service.
So Americans in the homeland - the ones who can't afford professional tax help - are paying for FATCA, albeit in an indirect way. I think it's worth mentioning because it is rather ironic, isn't it?
That a law to catch "rich tax evaders" instead causes direct harm to working Americans everywhere.
And the faute (and it is a faute lourde) should be laid exactly where it belongs - with the not so funny repercussions of a dysfunctional political system.
Wednesday, April 29, 2015
The Hill: Tax Justice for Americans Abroad
In response to those articles touting FATCA as "Tax Justice", the incomparable Lynne Swanson of Maple Sandbox and I wrote an op-ed that has just been published in The Hill's Congress Blog.
Tormented Americans Abroad Need Tax Justice Too
If you have been following the fight against FATCA and CBT at the Isaac Brock Society, on Facebook or here at the Flophouse, the arguments in our article will not be new to you. But we need to keep making them in as many places as we can - especially in Washington, D.C. - so that our side of the matter is heard loud and clear.
Please add your thoughts by commenting on the article. And please pass the link along to other Americans abroad who might be interested in reading and commenting as well.
We may live abroad but we are just as much the "American People" as any homelander. 7 million strong, we are larger than many US states. Time to assert and use what is rightfully ours: a voice.
Tormented Americans Abroad Need Tax Justice Too
If you have been following the fight against FATCA and CBT at the Isaac Brock Society, on Facebook or here at the Flophouse, the arguments in our article will not be new to you. But we need to keep making them in as many places as we can - especially in Washington, D.C. - so that our side of the matter is heard loud and clear.
Please add your thoughts by commenting on the article. And please pass the link along to other Americans abroad who might be interested in reading and commenting as well.
We may live abroad but we are just as much the "American People" as any homelander. 7 million strong, we are larger than many US states. Time to assert and use what is rightfully ours: a voice.
Tuesday, April 21, 2015
Doing Something about FATCA: Same Country Exception, Repeal, and Legal Action
Stephen Mopsick has reposted an article by Charles Bruce of American Citizens Abroad (ACA) proposing that the US "Treasury Department should promulgate rules permitting individuals to elect, if they wish, to have their local financial accounts, in effect, exempted from FATCA."
This proposal is not new and is known under different names: "Same Country Exception" or "Safe Harbour Exemption." Here is what the different Americans abroad organizations have to say about it:
American Citizens Abroad
This proposal is not new and is known under different names: "Same Country Exception" or "Safe Harbour Exemption." Here is what the different Americans abroad organizations have to say about it:
American Citizens Abroad
"ACA, Inc. proposes a FATCA Same-Country Exception for accounts of US taxpayers resident abroad. If implemented, this would help alleviate the problem of financial services lock-out currently being experienced by Americans resident overseas. In a letter to the Treasury Department (Oct. 2013), ACA, Inc. has asked that this rule be applied for bank accounts held by American citizens in their country of residence."Association of Americans Resident Overseas-Federation of American Women's Clubs Overseas
"Short of repeal, the same country exception, also called “safe harbor” in Washington, has been AARO’s position concerning FATCA. The idea is that we are bona fide residents of another country than the US and the accounts in that country are our domestic accounts. We would like the US to consider them as domestic accounts and not foreign accounts. To do this would require regulatory change in Washington, which, given the frigid relationship alluded to before, will not happen without congressional mandate. It would also require the banks where we live to agree to it.Democrats Abroad:
"When a safe harbor exemption is applied to FATCA, the law would treat the financial accounts of Americans abroad in their country of residence the same way as it treats the US accounts of Americans residing in the US. In brief, foreign financial institutions would be exempt from filing FATCA reports on the accounts of US-tax compliant Americans residing legally in the same country. A FATCA safe harbor exemption would only exempt accounts held in the country in which the account holder is legally resident."
All of the Americans abroad organizations (with one exception) support it as the solution most likely to be accepted and implemented by the US government. As much as Americans abroad would like to see FATCA disappear, these organizations argue that this is not realistic and that FATCA won't be going away any time soon. That is the consensus and, separately or together, all of them have lobbied Washington for several years now in support of this idea.
There is one organization that is taking a different stance and that is Republicans Overseas. They want to repeal FATCA and the Republican National Committee passed a resolution in 2014 to that effect.
"RESOLVED, The Republican National Committee hereby presents this Resolution to each Member of Congress and urges the U.S. Congress to repeal FATCA, to defend the livelihood and increase the competitiveness of Americans overseas, to remove inappropriate invasions of Americans citizens’ privacy, and to allow those U.S. citizens who renounced their citizenship due to FATCA to regain their U.S. citizenship..."
The Republicans have also launched a lawsuit - FATCA Legal Action - against FATCA (Flophouse post here). They say that FATCA is not only detrimental to Americans abroad but it also violates their consitutional rights.
US citizens living outside the United States, these are the proposals, actions, initiatives on the table right now. This is what these organizations are asking (or fighting) the US government for on your behalf and in your name - "We represent the interests of the 7 million Americans abroad...." That means YOU and YOUR interests.
I urge you to take a few minutes to follow the links above with an open mind - please don't let preconceived notions about "women's clubs", "Republicans', or "Democrats" get in the way.
Read each organization's proposal carefully so that you understand what they mean by "Same Country Exception", "Safe Harbor", "Repeal FATCA" and "FATCA Legal Action". If there is something you don't understand, ask. If there is something you don't agree with, say so.
And once you have done your due diligence and made up your mind, there is one last question to ask:
What can I do to help?
Friday, April 10, 2015
FATCA/CRS: Promises, Promises
These days countries all around the world are agreeing to Automatic Information Exchange systems to share taxpayer information with each other. The United States kick-started the trend with FATCA (the Foreign Account Tax Compliance Act), and early last year the OECD unveiled the CRS (Common Reporting Standard).
No nation-state gives up sovereignty unless there is a perceived gain. The larger context, and the way Automatic Information Exchange has been sold to electorates, is the worldwide War on Tax Evasion.
It's a simple message that resonates with voters everywhere: If we sign up for these systems, politicians promise, we will catch the traitorous tax-evading 1% , Not only will that bring in lots and lots of cash, but we will have struck a mighty blow on behalf of justice and fairness. Who could possibly argue with that? (Citizens who have something to hide is the usual response.)
People should know better than to believe the promises of politicians. George Orwell put it beautifully when he said, "Political language... is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind."
So where is the wind? The fact that the information to be exchanged under FATCA and the CRS is not about taxes owed, it's about chunks of money sitting out there in the world with names and nationalities attached to them. If X has 50,000 Euros sitting in an account in Y country, it does not automatically mean that he or she owes taxes on that money, or that the account was not reported to the relevant authorities.
The CRS asks for the following information: Name, address, taxpayer identification number, date and place of birth, account numbers, account balances, the total gross amount of interest, dividends or other income, and mortgage payments.
No nation-state gives up sovereignty unless there is a perceived gain. The larger context, and the way Automatic Information Exchange has been sold to electorates, is the worldwide War on Tax Evasion.
It's a simple message that resonates with voters everywhere: If we sign up for these systems, politicians promise, we will catch the traitorous tax-evading 1% , Not only will that bring in lots and lots of cash, but we will have struck a mighty blow on behalf of justice and fairness. Who could possibly argue with that? (Citizens who have something to hide is the usual response.)
People should know better than to believe the promises of politicians. George Orwell put it beautifully when he said, "Political language... is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind."
So where is the wind? The fact that the information to be exchanged under FATCA and the CRS is not about taxes owed, it's about chunks of money sitting out there in the world with names and nationalities attached to them. If X has 50,000 Euros sitting in an account in Y country, it does not automatically mean that he or she owes taxes on that money, or that the account was not reported to the relevant authorities.
The CRS asks for the following information: Name, address, taxpayer identification number, date and place of birth, account numbers, account balances, the total gross amount of interest, dividends or other income, and mortgage payments.
There is no field in CRS (or FATCA) that says, "Tax compliant/Not tax compliant." From these raw data it is simply not possible to draw a straight line from an existing account to a tax evader. The information provided must be checked against tax records, and double-checked with the individual's citizenship and residency records to determine if the person really is eligible for an audit by a country's tax authorities.
The exchange of information by itself is no guarantee that tax money will be flowing like water into a country's coffers from abroad. It is perfectly possible that a country will receive information from another country, and, after investigation, discover that most of the high-value accounts have (with the help of international tax attorneys) been reported and all taxes paid, and the only accounts left on the table are ones that are low-value and won't yield much revenue.
Everyone should understand this: countries have no idea right now how many reportable accounts are out there, how much money is in them, and how much of that money is taxable. They are making promises based on guesses.
But there other ways that this information exchange systems can be used that have nothing to do with tax evasion in a globalized world. Two that come to mind are:
Tracking migrants and controlling global mobility: In principle, with a unique international identification number, people become trackable wherever they or their money go in the world. A US Person moves from Sacramento, California to Shanghai, China to Paris, France and every time he opens a bank account, there he is with a local address. That's not a bug; it's a feature.
Many countries like the US do not have a reliable means of tracking where their citizens go, and what they do, when they leave the home country. FATCA/CRS serves as a kind of extraterritorial census and a way for governments to track emigrants. Or where they suspect that some homeland citizens have connections to other countries (not always ones they like), these agreements give governments yet another way to keep an eye on them. With that in mind, it might be very interesting for the French government to know that someone in France has a house and a mortgage in Algeria. Or that a citizen has authority over the accounts of an NGO in Latin America or Africa.
Taxing the diaspora: Most countries in the world have residence-based tax systems. What that means is that only residents of their country get chased for taxes either in that country itself,or passive or active income earned abroad. The US is unique in that it has a citizenship-based tax system which means a US citizen is taxed on his income wherever he lives. If he lives in Japan, he must file tax returns locally and with the United States on whatever he made in both countries.
There are countries that dream of doing the same thing. Imagine all those French in California. Or all the Chinese in Canada. Or the Japanese communities in France. So far, citizenship-based taxation US-style has been something of a bust because there has never been a reliable system for tracking Americans abroad, much less what they were doing or earning.
So we could look at FATCA/CRS as an experiment: Has the US finally found an efficient enforcement mechanism for their citizenship-based tax system?
International migrants everywhere should be very concerned if the answer turns out to be "yes". Because if CBT works, then there is every incentive for states to say to their diasporas, "You may have emigrated, but as long as we claim you, you will share your fortune by paying taxes to the home country in addition to the ones you pay locally."
Everyone is shouting so loudly about tax evasion that it's hard to think clearly over the din. So many vague promises on one hand, and so little evidence on the other. One way to cut through the self-righteous rhetoric is to ask some simple questions: What are the success criteria for an Automatic Information Exchange system? How much tax money will each country recover if FATCA and CRS "work"? Not back-of-the-envelope guesstimates, but hard data and real numbers backed by serious studies.
So, is it the money or the information that make FATCA and CRS attractive?
Both.
Politicians' promises of money, money, money may be so much hot air; but the information itself is solid gold.
The exchange of information by itself is no guarantee that tax money will be flowing like water into a country's coffers from abroad. It is perfectly possible that a country will receive information from another country, and, after investigation, discover that most of the high-value accounts have (with the help of international tax attorneys) been reported and all taxes paid, and the only accounts left on the table are ones that are low-value and won't yield much revenue.
Everyone should understand this: countries have no idea right now how many reportable accounts are out there, how much money is in them, and how much of that money is taxable. They are making promises based on guesses.
But there other ways that this information exchange systems can be used that have nothing to do with tax evasion in a globalized world. Two that come to mind are:
Tracking migrants and controlling global mobility: In principle, with a unique international identification number, people become trackable wherever they or their money go in the world. A US Person moves from Sacramento, California to Shanghai, China to Paris, France and every time he opens a bank account, there he is with a local address. That's not a bug; it's a feature.
Many countries like the US do not have a reliable means of tracking where their citizens go, and what they do, when they leave the home country. FATCA/CRS serves as a kind of extraterritorial census and a way for governments to track emigrants. Or where they suspect that some homeland citizens have connections to other countries (not always ones they like), these agreements give governments yet another way to keep an eye on them. With that in mind, it might be very interesting for the French government to know that someone in France has a house and a mortgage in Algeria. Or that a citizen has authority over the accounts of an NGO in Latin America or Africa.
Taxing the diaspora: Most countries in the world have residence-based tax systems. What that means is that only residents of their country get chased for taxes either in that country itself,or passive or active income earned abroad. The US is unique in that it has a citizenship-based tax system which means a US citizen is taxed on his income wherever he lives. If he lives in Japan, he must file tax returns locally and with the United States on whatever he made in both countries.
There are countries that dream of doing the same thing. Imagine all those French in California. Or all the Chinese in Canada. Or the Japanese communities in France. So far, citizenship-based taxation US-style has been something of a bust because there has never been a reliable system for tracking Americans abroad, much less what they were doing or earning.
So we could look at FATCA/CRS as an experiment: Has the US finally found an efficient enforcement mechanism for their citizenship-based tax system?
International migrants everywhere should be very concerned if the answer turns out to be "yes". Because if CBT works, then there is every incentive for states to say to their diasporas, "You may have emigrated, but as long as we claim you, you will share your fortune by paying taxes to the home country in addition to the ones you pay locally."
Everyone is shouting so loudly about tax evasion that it's hard to think clearly over the din. So many vague promises on one hand, and so little evidence on the other. One way to cut through the self-righteous rhetoric is to ask some simple questions: What are the success criteria for an Automatic Information Exchange system? How much tax money will each country recover if FATCA and CRS "work"? Not back-of-the-envelope guesstimates, but hard data and real numbers backed by serious studies.
So, is it the money or the information that make FATCA and CRS attractive?
Both.
Politicians' promises of money, money, money may be so much hot air; but the information itself is solid gold.
Thursday, April 2, 2015
FATCA/CBT: Who Paid the Penalties?
This CNN Money article, You've never seen IRS penalties like these, is enough to stop your heart if you are an immigrant in the US, or a US citizen living outside it.
Was it an April Fool's joke? Only a homeland American could ask that. US citizens abroad knew right away that it was dead serious.
But how is it possible, a homelander might ask, that someone working and living in London or Budapest could owe up to $240,000 in penalties on a $20,000 local bank account? Especially if the person owed no tax to the United States and it was just a matter of paperwork he didn't know he had to file. Doesn't that seem a bit, well, outrageous?
Good, we agree.
It's possible because it's the law of the land. Yes, the IRS has the discretion to lower the penalties by taking the whole picture into consideration. But asking for and getting mitigation usually requires costly legal assistance. A taxpayer really is guilty until proven innocent here.
Furthermore, there is evidence from the past that the lower the income (or the amount in the account), the higher the penalties. Don't take my word for this, take Nina Olson's. She's the IRS National Taxpayer Advocate and she's been raising a red flag about this for several years now. Here is what she said in her 2014 Report to Congress (Page 86, MSP #7):
But how is it possible, a homelander might ask, that someone working and living in London or Budapest could owe up to $240,000 in penalties on a $20,000 local bank account? Especially if the person owed no tax to the United States and it was just a matter of paperwork he didn't know he had to file. Doesn't that seem a bit, well, outrageous?
Good, we agree.
It's possible because it's the law of the land. Yes, the IRS has the discretion to lower the penalties by taking the whole picture into consideration. But asking for and getting mitigation usually requires costly legal assistance. A taxpayer really is guilty until proven innocent here.
Furthermore, there is evidence from the past that the lower the income (or the amount in the account), the higher the penalties. Don't take my word for this, take Nina Olson's. She's the IRS National Taxpayer Advocate and she's been raising a red flag about this for several years now. Here is what she said in her 2014 Report to Congress (Page 86, MSP #7):
"Under the 2009 OVD program, however, the median offshore penalty paid by those with the smallest accounts was nearly six times the median unreported tax, as compared to about three times the unreported tax for those with the largest accounts, as shown on the figure below. Moreover, unrepresented taxpayers paid proportionately more regardless of the size of their accounts, as shown below."
"Under the 2011 OVD program, the median offshore penalty for those with the smallest accounts rose to eight times the unreported tax, up from about six times the unreported tax under the 2009 program, as shown above and below. Unrepresented taxpayers continued to pay proportionately more except for those with the smallest accounts, as shown on the figure below. Moreover, for the middle 80 percent of taxpayers, the offshore penalty percentage increased by about 85 percent between the 2009 and 2011 programs (from 381 to 706 percent) while the median account balance declined by about 70 percent (from $607,875 to $183,993). Thus, the offshore penalty became increasingly more disproportionate for those with small accounts who were most likely to have been benign actors."Thanks to Nina Olson, Americans abroad and immigrants in the US now have the Streamlined Program which is a much simpler process than OVD and meant for those "benign actors" - people who made an honest mistake and didn't know they were supposed to file.
Two comments about this program:
Lack of Trust: Because outrageous and disproportionate penalties were applied in the recent past to middle and low income Americans abroad, people are afraid. There were just too many horror stories and Americans abroad read them and panicked. If there is even a hint that people are getting screwed in the Streamlined program, there will be a collective scream and, I think, skyrocketing renunciation rates.
Communication Gap: How is it that so many Americans abroad didn't know they had to file and report bank accounts in the first place? This post on How We Got Here explains what happened.
The IRS needs to do international outreach about Streamlined and they need to do it now.
Because there are still US Persons out there who don't know about the rules or who don't understand that these rules apply to them. "I'm an English teacher/au pair/freelance programmer and I don't make much money. All those filing and reporting requirements and amnesty programs have nothing to do with me."
Oh, my friends, how I wish that were true.
Tuesday, March 31, 2015
Now We Are "Endorsing Tax Evasion"?
A few days ago Ms. Rebecca Wilkins, executive director of the Financial Accountability and Corporate Transparency Coalition, wrote an ill-considered and insulting editorial in support of the Foreign Account Tax Compliance Act which was published in The Hill, a blog for politicians and their staffers in Washington, D.C.
She really put her foot in it and she's still smelling her shoe - angry comments and emails are flying at her from all around the world pointing out the unintended consequences of this very broadly written extra-territorial law.
Her claim that being against FATCA is akin to endorsing tax evasion is about as silly as me claiming that she is for FATCA because she's a shill for the compliance industry (FATCATS of another sort).
I will put this as plainly as I can, Ms. Wilkins, FATCA is a very bad law with a slew of unintended consequences. It is not a well-designed net, it is a fine-meshed trawl that indiscriminately hauls in the minnows and the plankton along with the whales, leaving devastation in its wake.
Somehow it escaped the notice of Congress, President Obama, and now you, Ms. Wilkins, that there are 7 million Americans working and living abroad, most of whom work as teachers, translators, and artists. FATCA makes no distinction between "wealthy Americans [who] hide their assets and use offshore accounts to evade tax" and English teachers in Eastern Europe or France or Korea holding basic savings and checking accounts and the local equivalent of an IRA in the country where they actually live.
FATCA falls on the just and the unjust alike (but the unjust have better lawyers). Right now it's everyone's foreign-to-the-US-but-local-to-them checking, savings and retirement accounts abroad that are in peril because of FATCA. The choices that Americans abroad are having to make as a result are ghastly: your house or your US citizenship; your retirement savings or your US citizenship; your marriage or your US citizenship.
This is why Americans abroad, Ms. Wilkins, get a little testy when you write something that extols the virtues of FATCA and say that anyone who is against it is in cahoots with the criminals. Those are fighting words these days. Opposition to the law has united Americans abroad all over the world and you are hearing their voices from Canada and China, France and Finland, Vietnam and Venezuela. These minnows are not "for tax evasion", they just want the country they have been loyal to to fix the mess you and other homeland zealots created.
They are asking for something you should understand very well because you say you are for it too:
Justice.
She really put her foot in it and she's still smelling her shoe - angry comments and emails are flying at her from all around the world pointing out the unintended consequences of this very broadly written extra-territorial law.
Her claim that being against FATCA is akin to endorsing tax evasion is about as silly as me claiming that she is for FATCA because she's a shill for the compliance industry (FATCATS of another sort).
I will put this as plainly as I can, Ms. Wilkins, FATCA is a very bad law with a slew of unintended consequences. It is not a well-designed net, it is a fine-meshed trawl that indiscriminately hauls in the minnows and the plankton along with the whales, leaving devastation in its wake.
Somehow it escaped the notice of Congress, President Obama, and now you, Ms. Wilkins, that there are 7 million Americans working and living abroad, most of whom work as teachers, translators, and artists. FATCA makes no distinction between "wealthy Americans [who] hide their assets and use offshore accounts to evade tax" and English teachers in Eastern Europe or France or Korea holding basic savings and checking accounts and the local equivalent of an IRA in the country where they actually live.
FATCA falls on the just and the unjust alike (but the unjust have better lawyers). Right now it's everyone's foreign-to-the-US-but-local-to-them checking, savings and retirement accounts abroad that are in peril because of FATCA. The choices that Americans abroad are having to make as a result are ghastly: your house or your US citizenship; your retirement savings or your US citizenship; your marriage or your US citizenship.
This is why Americans abroad, Ms. Wilkins, get a little testy when you write something that extols the virtues of FATCA and say that anyone who is against it is in cahoots with the criminals. Those are fighting words these days. Opposition to the law has united Americans abroad all over the world and you are hearing their voices from Canada and China, France and Finland, Vietnam and Venezuela. These minnows are not "for tax evasion", they just want the country they have been loyal to to fix the mess you and other homeland zealots created.
They are asking for something you should understand very well because you say you are for it too:
Justice.
Tuesday, March 24, 2015
FATCA: Silence, Supplicants, and Scaffolds
The American Diaspora Tax War continues. Nearly five years after President Obama signed the HIRE Act and the now infamous Foreign Account Tax Compliance Act (FATCA) into law, Americans abroad still struggle to be heard in the homeland and still suffer the negative unintended consequences of this nasty little piece of extra-territorial legislation. The most serious repercussion is discrimination on the basis of national origin. Banks outside the US are denying basic banking services to individuals for no other reason than their US nationality or some connection to the United States .
Americans in the homeland argue that Americans abroad ought to be paying taxes to the land of the free because we are said to be under the protection of the mighty United States in our host countries. We are still waiting to see what that "protection" consists of. When banks can post notes on the Internet that say "We do not offer our services to US citizens" and the US government does not respond, how are we to interpret the silence? Without descending into utter paranoia, one conclusion is that we are citizens not worth defending. This conjecture does not inspire us to that unflinching loyalty we are expected to demonstrate in our words and by our conduct living abroad.
But conjecture is all we have. We read tea-leaves and consult oracles. If this goes on much longer we'll be sacrificing small animals and making predictions from the entrails.
A few weeks ago yet another group of supplicants went forth and walked the halls of Washington. This annual pilgrimage by Americans abroad organizations is called Overseas Americans Week - a Je vous ai compris affair where the politicians make polite noises and get to feel all international meeting people who live (imagine that!) outside the United States. What do we get out of it? More cryptic messages from the heart of the beast, Something about how they can't do anything until they have more information? How interesting. That's what they said last year.
At least Senator Elizabeth Warren was more forthcoming in her reply to Donna Lane Nelson. She gets points for honesty. Yes, the letter says, it is a pity that FATCA is causing problems for US Persons, but it's worth it. For her a potential 100 billion in tax revenue trumps 7 million Americans abroad hands down. And that should be all any American abroad who votes in her state needs to know.
And if that elusive 100 billion in lost tax revenue turns out to be a chimera? A wild ass guess thrown out in a meeting in Washington, D.C. years ago that has been repeated so many times it has become gospel truth? We must admit that it makes for a fabulous sound bite, but where are the studies that prove that this number is true? Where is the hard data that makes this number credible? And yet Warren takes them at their word (Treasury says so, so it must be true) and pronounces FATCA a necessary tool in the fight against overseas tax evasion.
But Warren won't take the word of her constituents abroad in this matter and the US government wants Americans abroad to get cracking and prove they are being discriminated against with hard data: something that it absolves itself from providing to citizens. Frankly all anyone needs to do to find "No US citizens need apply" banks around the world is Google.
What happens next if the coffers are still empty and all the US government has managed to do with their revolutionary system of information exchange is to alienate millions of American citizens around the world and lose many of them to other countries? That is just as likely a scenario as the one that giddily promises homeland Americans that America's fiscal future and way of life will be saved if some unknown unquantifiable population out there in the world gets frisked by foreign financial institutions.
Or, put more eloquently by Edgar Quinet: "How long will you go repeating this strange nonsense that all the scaffolds were necessary to save the Revolution, which was not saved?"
********************************************
And here is Mark Twain over at the Isaac Brock Society with a link that traces the provenance of that 70/100/150 billion figure that everyone's throwing around: The Source of the Standard Offshore Lie. A must read.
Americans in the homeland argue that Americans abroad ought to be paying taxes to the land of the free because we are said to be under the protection of the mighty United States in our host countries. We are still waiting to see what that "protection" consists of. When banks can post notes on the Internet that say "We do not offer our services to US citizens" and the US government does not respond, how are we to interpret the silence? Without descending into utter paranoia, one conclusion is that we are citizens not worth defending. This conjecture does not inspire us to that unflinching loyalty we are expected to demonstrate in our words and by our conduct living abroad.
But conjecture is all we have. We read tea-leaves and consult oracles. If this goes on much longer we'll be sacrificing small animals and making predictions from the entrails.
A few weeks ago yet another group of supplicants went forth and walked the halls of Washington. This annual pilgrimage by Americans abroad organizations is called Overseas Americans Week - a Je vous ai compris affair where the politicians make polite noises and get to feel all international meeting people who live (imagine that!) outside the United States. What do we get out of it? More cryptic messages from the heart of the beast, Something about how they can't do anything until they have more information? How interesting. That's what they said last year.
At least Senator Elizabeth Warren was more forthcoming in her reply to Donna Lane Nelson. She gets points for honesty. Yes, the letter says, it is a pity that FATCA is causing problems for US Persons, but it's worth it. For her a potential 100 billion in tax revenue trumps 7 million Americans abroad hands down. And that should be all any American abroad who votes in her state needs to know.
And if that elusive 100 billion in lost tax revenue turns out to be a chimera? A wild ass guess thrown out in a meeting in Washington, D.C. years ago that has been repeated so many times it has become gospel truth? We must admit that it makes for a fabulous sound bite, but where are the studies that prove that this number is true? Where is the hard data that makes this number credible? And yet Warren takes them at their word (Treasury says so, so it must be true) and pronounces FATCA a necessary tool in the fight against overseas tax evasion.
But Warren won't take the word of her constituents abroad in this matter and the US government wants Americans abroad to get cracking and prove they are being discriminated against with hard data: something that it absolves itself from providing to citizens. Frankly all anyone needs to do to find "No US citizens need apply" banks around the world is Google.
What happens next if the coffers are still empty and all the US government has managed to do with their revolutionary system of information exchange is to alienate millions of American citizens around the world and lose many of them to other countries? That is just as likely a scenario as the one that giddily promises homeland Americans that America's fiscal future and way of life will be saved if some unknown unquantifiable population out there in the world gets frisked by foreign financial institutions.
Or, put more eloquently by Edgar Quinet: "How long will you go repeating this strange nonsense that all the scaffolds were necessary to save the Revolution, which was not saved?"
********************************************
And here is Mark Twain over at the Isaac Brock Society with a link that traces the provenance of that 70/100/150 billion figure that everyone's throwing around: The Source of the Standard Offshore Lie. A must read.
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