"It is thought that Ireland wants any agreed approach to FATCA to be based on domestic tax reporting legislation and an automatic exchange of information under existing bilateral tax treaties.
As the IFIA has pointed out, Ireland is negotiating the possible adoption of a model global agreement, which would not alter or amend the obligation to identify or report certain information under FATCA, but would outline an alternative pathway for reporting FATCA information.
..."The fact inter-governmental arrangements are likely to be based on a model agreement means that any framework under which bilateral exchange of information agreements operate should be done on a consistent basis, rather than under individual agreements which might be operated on a disjointed basis.”I am beginning to believe Steve Dean when he tells me that getting in on the FATCA deal is not at all about about exchanging more information.
Let's just be clear. FATCA is weird and annoying (and even offensive to some) because it is government-to-taxpayer regulation, in which the US is exerting the jurisdiction to regulate the practices of foreign banks. Tax treaty info exchange is government-to-government agreement in which the governments agree to collect information on their own, and then share some of it with each other under pre-arranged deals. Automatic info exchange is a deal in which they turn over info regularly; info by request only if you ask nicely and with sufficient detail. Rand Paul apparently thinks that is also offensive, enough to deny the executive branch the Senate's advice and consent, but I think and hope he's an outlier.
When you see the story start out talking about FATCA and end up talking about tax treaties, you are witnessing the struggle over who gets to regulate who in our global economy.
I will have to show you some letters US born Canadians have to sent their MP's on this subject. These are many people of middle and moderate income who pay there Canadians taxes honestly year in and year out but who are now willing to walk over coals to stop FATCA. I know one of the most prominent human rights lawyers in Canada a individual named Joseph Arvay of Vancouver(whenever they do lists of the top 100 hundred lawyers in Canada Arvay is always in the top 10) is involved in representing some "US Person" Canadians. I linked below to some pictures of anti FATCA info session held my NDP MP Megan Leslie. Now do the pictures below look like a crowd of tax evaders?
The real danger I think for people who believe in greater information between governments such as myself and yourself is FATCA will turn a significant group of middle income law abiding taxpayers into allies of those of who are involved or sympathetic toward "real" "hardcore" tax evasion. I don't see to whose benefit that is. One thing I find curious is if FATCA is such a done deal why hasn't Canada, Australia, or New Zealand signed on.
I could write on and on about the legal conflicts with FATCA in Canada however if you search around there is already a website completely devoted to stopping FATCA in Canada where I blog and post regularily.
For those who follow FATCA issues in Canada here is the famous letter CDN Finance Minister Jim Flaherty wrote to several US newspapers on the issue.ReplyDelete
As to your actual post I believe the position of Ireland is effetively the position the same as that of Canada, Australia, and New Zealand however I don't know how much automatic information exchange occurs between the US and Ireland as under US law at least until January 1st 2013 the US IRS only collects and shares information on non resident alien depositors who reside in Canada(All the hyprocracy up to now). My assumption is at present Ireland would be demanding some type of recipriocity which the US can't currently meet.ReplyDelete
Tim, love the photo, it should have "Reasonable Persons" as the caption. That's a little inside baseball for a few of my tax students, but at the same time, it is to say, what is reasonable depends a lot on who you've decided is the arbiter of reason. Now please don't get me wrong, I don't disagree with you at all that FATCA is problematic and it indeed lumps, as much of law does, the honest broker with the bad actor. As with a lot of tax law, the costs of compliance to the honest broker are often all out of proportion especially as compared to the costs to the bad actor, who ends up winning too much of the time; moreover, you're quite right that the more you treat the honest broker like a bad actor, the more you worry that you're pushing the one to become the other. That's all true and it's all disturbing and a problem for administrative law in general. My response is getting too long, so breaking it up to a second response...see next comment.ReplyDelete
My point here is that in the discussion/debate about the appropriateness of FATCA, the discussion turns too quickly to government-to-government info sharing as the solution or the work-around, and does not try to wrestle honestly with what FATCA is trying to do. And what FATCA is trying to do is controversial but it is also conceptually intriguing to me as a scholar of international tax law. That is because one interpretation of what FATCA is trying to do is to attempt to exert jurisdiction based on a conception of nexus which is different and uncomfortable and bothersome to many people, many of whom are reasonable, and even some who are framing it as a rights issue.
But if you want to go down that rabbit hole (and believe me when I say I do), you've got to deal with the nature of rights and the interaction of rights (natural, human, other?) with the organization of society, a difficult task. I worked on it a bit in an article called "Sovereignty, Taxation, and the Social Contract." And I have barely scratched the surface after working on the issues for a couple of years since. Not too many people have done too much with the intersection of tax and human rights in the US--more in Europe and there too often within the narrow confines of constitutionally defined rights, perhaps such as the ones you're describing as the source of the legal conflicts for FATCA in Canada. I have no problem with this line of argument, that is, that governments have come up with a list of legal rights and FATCA might violate them, so if you think government should be protecting them and isn't, then it's appropriate for the citizens to go to the mat. Sign me up as ok with that. Yes, this lumps the tea party with occupy wall street so I have to be ok whether I think there is actually a rule being violated or not. That's democracy for you, and I like it.
However if you want to think systematically about what the state can or cannot do to people as a matter of human rights, you've mostly got to get out of the tax law literature and get into the rights based literature and it is vast because the issues here are really complex. They involve a heady mix of social, cultural, philosophical, practical, psychological, and institutional factors. Writers dealing with the nature of the state and what it means to say that humans have rights, like Seyla Benhabib, Martha Nussbaum, Amartya Sen, Kwame Appiah, and on and on and on. The literature on what citizenship means is mind-blowing on its own--you can start with Peter Spiro on Beyond Citizenship and you won't emerge for some time. Most of these thinkers don't bring themselves to talk about international taxation too much, but all of the issues we are talking about are embedded in what those folks are trying to work out, and it's very clear that no amount of writing down legal rights and contesting them in the public sphere solves these fundamental questions.
All that said, I wish you well in your quest to stop FATCA because (1) I like your approach to the issues and the kinds of questions you ask and (2) I affirm your right to pursue your intellectual passion, which I would do even if I didn't like your approach or your questions. Even more, I absolutely encourage you in your endeavor because your efforts serve as a laboratory for me to study all of these things I am talking about.
In some way Canadians are lucky in terms of stronger consumer protections unlike in Europe where the banks are simply just closing the accounts of local resident US Persons essentially so they are compliant under FATCA(The five country agreement might alleviate this situation but that remains to be seen). I suspect here in Canada the banks would much like to do that too but are blocked by are consumer protection law. Basically Canada has an oligopoly of five major banks as s condition of the banks being allowed to have that they are required to provide unconditional universal service to all legal Canadian residents.ReplyDelete
Now when you get into the nitty gritty of FATCA on the US side and what is called ABBS(Access to Basic Banking Services) in Canada there is a way in theory to comply with both. Effectively any prospective bank customer in Canada that simply wants to open an account under Canadian law without providing any info to the IRS can do so and become a "recalcitrant" account holder under US law in terms of receiving any US source payment(FDAP). The problem is that US banks and Canadian banks in the context of the billions of dollars in transaction that flow between Canada and the US everyday would have to develop systems for Canadian institutions to alert their counterpart US withholding agents of which payments were destined to a "recalcitrant" account holder and advise the US withholding agent to apply thirty percent withholding(Under Canadian law the Canadian institution cannot actually collect foreign taxes). The IT systems to implement this though are absolutely a nightmare. The other problem is in coming up with FATCA the US basically assumed everyone would fully comply in terms of both institutions and account holders. Now US domestic institution/withholding agents who were told in the beginning not to worry are peeing their pants at the though they might have to engage in substantial withholding on all sorts of payment types that haven't even been defined. For example I have asked several US tax lawyers to answer this question of which no one can give me a direct answer. Lets say I own a small retail business in Canada that accepts credit cards. I don't want to share my account information with the IRS so insist under Canadian law to be a recalcitrant account holder subject to withholding of my US source income(of which I at least think I don't have any to begin with). One day an American tourist walks into to my store and buys some things with a US issued credit card. When the transaction clears into my merchant account is going to be hit by FATCA withholding. What do the terms of my merchant account agreement have to say about this etc.
There is another issue that very few people are mentioning but is very real. Prior to 1986 people who were US Citizens who naturalized as Canadian citizens were deemed to have lost their American citizenship. In fact according to some accounts they were told quite explicitly by US Consular personal prior to taking the Canadian oath of citizenship that they would lose their US citizenship upon doing so(To give a timeline most of these people became Canadians in the 1970s Vietnam era so there is/was a definite political element to it which simply pours oil on the present day FATCA fire(I hear the terms spiritual draft dodger a lot). However, under FATCA in theory being born in the United States requires one provide a certificate of loss of nationality. Almost none of the people in this group and its quite considerable have CLN's(To a man and a woman they all feel it is pretty repulsive as Canadian citizens to be required to show a CLN to their bank anyways)and the process of actually getting a CLN through the US State Dept is pretty difficult both for the person involved and the fact State really doesn't have the resources to provide them in a timely manner(If you apply right now they might get to you in two years). The other issue is a rather high number of people in this category joined the Public Service of Canada or the provinces after becoming Canadian citizens. One person I know of held diplomatic rank at a Canadian Embassy in Europe and later worked in a policy level position in BC Premier's Office another worked for Health Canada for four decades(In general under "present" US law these are not things that imply an intention to remain a US Citizen. To join the Public Service of Canada you have to swear an oath to the queen). There is supposedly a team of law students that are going to be studying all of these nationality issues as a summer project at the University of Alberta. I let you know what they come up with.ReplyDelete
Fantastic, do keep me apprised as the situation develops. I would definitely come out to Alberta to hear what they come up with if I could. You're asking great questions. I don't know the answers. I doubt there are answers. Yet remedies will be extracted even in the absence of certainties, as you point out. The likely scenario is that your merchant account will be withheld upon, and you'll have to dispute with the IRS to try to get it back. I doubt there's a treaty double tax issue so I suspect you can't try that angle of dispute resolution, but I haven't looked into it, maybe there is something there. CA has a lot of flexibility to resolve disputes even if not specifically authorized under the treaty. When you lose with IRS Appeals, which you will, you would have to try to make a case of it, but where? It's not a violation of the US constitution, and anyway you've got no rights thereunder. Neither is it a violation of the Canadian law, since it's not Canada doing you the harm. Same for the CLN issue. You can argue its a violation of some right but who is forcing you to hand it over--not Canada, so no constitutional protection there. Again it's the US, and no constitutional protection there either. I can't see how this ever gets won on legal grounds, so it will have to get won on social, cultural, and most of all political grounds. Flaherty statements, pressure, and the like.ReplyDelete
I think the real rubber meets the road moment is if the end goal of the US are these intergovernmental partnerships I think Canada would have a real problem signing up under the Charter of Rights and Freedoms. Now generally tax and Charter law don't intersect that often. Generally the courts in Canada have ruled the federal governments power to tax isn't hindered by the Charter(essentially there is nothing in the Charter that says gives you a right not to pay tax, to higher tax as you earn more, or not to give certain relevant information to CRA). However, I believe and some pretty knowledge lawyers do too that to create a separate class of taxpayers i.e. Canadian citizen "US Persons" resident in Canada and subject those persons to a separate reporting requirement system to for fill a FATCA intergovernmental agreement under the Income Tax Act(Canada) WOULD in fact likely be a violation of those individuals Charter rights of equality of citizenship. Its close enough to probably at the very least take any such law all the way to Supreme Court of Canada. The US Treasury should know better not to mess around with "The Charter" as we call it as one of the few tax cases to involve the Charter in fact dealt with the US Canada Tax Treaty. In the case I believe called Chua a Canadian citizen was able to successful challenge a provision of the US Canada Tax Treaty as a violation of her Charter rights and forced the US and Canadian governments to renegotiated the offending provisions. Chua's lawyer was later appointed to be a judge on the Tax Court of Canada. He retired a few months ago and I have been trying to get in touch to get his opinion on FATCA.ReplyDelete
Overall the Charter is pretty close to being an impenetrable brick wall. The notwithstanding clause(where violating law can be allowed to override for five year intervals) has been used twice since 1982 and never by the Federal Government and not since the mid 1980s. To amend the Charter would essentially require the approval of every provincial legislature in the country(Not going to happen).
People in every country of the world need to know what FATCA and other US extraterritorial legislation mean for personal privacy and local-country sovereignty.ReplyDelete
The reality is, US policies especially crush middle class USPs (US Persons = Green Card or US Citizenship) Abroad whether they are tax compliant to the US or not. The reporting requirements of FATCA and FBAR (FATCA having apparently been passed as a rider to the HIRE act without much real open Congressional debate on the issue) are causing US Persons abroad, many of whom are dual nationals of their country of residence or a third country, to lose their jobs, be refused even basic bank accounts, and be shunned by prospective non-USP business partners who don’t want to deal with dual-reporting and taxation requirements to the IRS.
Most working and middle-class “minnows” abroad pay local, regional, and national taxes in the countries where they live, as well as VAT, excise and other taxes and fees. Whether these taxes are lower or higher that what they would pay as “homelanders” (USPs resident in the US) is immaterial. They all pay their fair share where they live according to the local system negotiated through whatever political means extant. They have to deal with the advantages and the drawbacks of their local countries’ system and do not need and often cannot survive with the additional variables imposed by the IRS.
US extraterritorial taxation policy does not take into account the disparities caused by the shift in exchange rates (thanks perhaps largely to US “quantitative easing”) that pushes people into higher US tax brackets despite no increased local purchasing power, the cost of living in each foreign country, as well as the tax structure in the foreign countries (for example, some countries have a much higher VAT than the US sales tax, but VAT paid outside the US is not eligible for a Foreign Tax Credit in the US).
US Double Taxation also takes money rightfully earned in a foreign country out of the local economy, where USPs should be free to spend or invest their money. Non-USP family members of USPs are also adversely affected, despite having no allegiance to the US.
Working and middle-class USPs have recently reached retirement age to discover that they have outstanding US tax liability, or while having no US tax liability due to the (limited) Foreign Earned Income Exclusion (FEIE) and Foreign Tax Credit (FTC), might owe confiscatory penalties on foreign tax-deferred or tax-exempt retirement plans that were not reported to the US (see FBAR). Many USPs abroad renounce nationality because their pensions would not count as “Earned Income” and they could not survive if they paid US double taxes. Nonetheless, the renouncement process is time consuming and costly.
There are a number of websites now dedicated in whole or in part to discussions of tax problems that US Persons abroad face (this list is not exhaustive, on many of the sites you will find links to many others):
Disclaimer: In the case of the sites run by lawyers, this present post is not an advertisement for their services, only an indication to the reader who might want to read their blogs and participate by posting comments.
I feel it is primordial that people in the US get the complete story about what is going on with US extraterritorial and taxation requirements. It appears that many people in the US are not aware of the issues, or think that the issues have only to do with very rich people who move money out of the US into offshore banks in order to avoid taxes. The story is much more complicated than that, and I hope that American voters will become more informed.