Walter B. Wriston (former CEO of Citicorp): “All the Congress, all the accountants and tax lawyers, all the judges, and a convention of wizards all cannot tell for sure what the income tax law says.”
Applying US tax law to “foreign” legal structures is problematic.1 This is one of the great frustrations of trying to comply with the US system of citizenship based taxation (and one of the reasons why this extraterritorial application of US law should be carefully considered by all countries who negotiate tax treaties with the US). Inevitably there will be differences of opinion as to how US law applies to particular foreign income or taxes – and these differences will lead to different US tax treatment of the same or similar items. There may be no single “right” answer, and we (or the tax professional we have hired) will have to choose how to interpret US tax law to determine our US tax liability on our foreign (home) income. Understanding how our local law meshes with the structures defined in the US tax code is the first step.
In Australia, we have two advantages relative to much of the rest of the world (especially those which are not part of the Commonwealth). First, our laws are written in English. While there are several Aussie colloquialisms that differ in meaning from American English, our laws and other formal writing are written in language that is mostly the same as US English (with a few extra vowels here and there, and the occasional “zed” that has been replaced by an “s”). Second, our legal system is derived from the British system, so many of the underlying principles are at least similar between the two countries. Even so, there are differences.
It’s been ten days now since the US election. Many (including me) were surprised by the result. Regardless of how you voted (or didn’t – I’m no longer eligible to vote), the US electorate has spoken, and it’s time to move forward under the new regime. Over on the Isaac Brock website, they are organising a letter writing and Twitter campaign to encourage the Trump transition team to enact the planks in the GOP platform calling for the repeal of FATCA and legislation to enact Residence Based Taxation (here are two other currently active threads – , ). It appears now that the current FATCA repeal bills will be re-introduced when the new Congress convenes in January.
It’s crystal clear by now that the US and Australian governments are not going to wake up tomorrow and realise that FATCA and CBT are unjust and discriminatory. It will take quite some time to get rid of CBT and move to RBT. The other night I was catching up on my long list of podcasts, and stumbled upon the latest edition of the Freakonomics Podcast – In Praise of Incrementalism. The podcast explores how an incremental approach worked for gay marriage, and the civil rights movement as well as how an incremental approach might be used for current issues such as #BlackLivesMatter. Listening to the podcast soon after reading a discussion about the civil rights movement in the American Expatriates Facebook group, started me thinking about our struggle to get our elected representatives to understand the injustice of FATCA and CBT. When it comes to fixing FATCA and CBT, a home run is unlikely. But each hit makes a run more likely. So while we have our eyes on the prize, we need to also aim for small victories that will eventually make a shift to RBT seem inevitable.
What does incremental look like?
Incremental is SLOW. It’s not exciting. But eventually it gets you there.
The incremental approach is most effective when the obvious, low-hanging fruit, is tackled first. I’ll suggest three potential baby steps that could get us on the road to victory – please add more in the comments.
Many of those claimed as US persons don’t identify as Americans at all. Perhaps they were born in the US, but their non-American parents took them home while they were still children. Or maybe they were born outside of the US with at least one US citizen parent. They may not even speak English. And now, if they admit their place of birth or parentage to their local bank, they are asked to fill out a W-9 so their account information can be sent to the IRS. What right does the US have to tax these people? The injustice is so obvious that President Obama has proposed an inadequate remedy in the 2016 and 2017 budget proposals. And recently there has been some push back against the US taxation of Accidental Americans in France.
Privacy/Transparency Last week’s post argued that US Persons should be automatically notified when their account information was reported to the IRS via the ATO. Implementing this type of reporting would be an acknowledgement that affected US Persons have a right to know who has their financial information. Again, this is a baby step towards overturning the massive privacy violations of FATCA. A comment in the Facebook group argues that privacy is just a distraction, and that we should, instead focus on more substantive problems with FATCA. However, once our governments admit that there are some privacy concerns with FATCA, it may be easier to get them to understand some of the bigger problems.
Same Country Exemption (the right way) This excellent video by Professor Allison Christians (McGill University) from 2014 was recently linked in the Citizenship Taxation Facebook group.
Starting about 6 minutes into the video Professor Christians advocates a “Same Country Exemption (SCE)” as an incremental approach to dismantling FATCA. SCE has a bad name among some groups of US expats because of a specific proposal that links SCE with IRS compliance. However, I think Professor Christians is advocating a simple SCE without any need for the FFI to check anything other than proof of residence: if you bank where you live, the bank is absolved of all FATCA reporting requirements. Plus, you’re being taxed where you live, so the chances of your “foreign” bank account being used to evade a significant amount of US tax is fairly small. SCE would be a small incremental step that would bring relief to many (not all) of those adversely affected by FATCA. Does it go far enough? No. But, implementing this type of SCE would alleviate at least some of the injustice of FATCA – it would be a small wedge that might allow us to push the door open wider.
In my last post, one of the priorities listed was more transparency in FATCA reporting. What I meant was that everyone should have the right to know what is being reported about them to the ATO/IRS by their local (foreign to the US) financial institution, and the right to correct any errors in that information. Continue reading “Transparency”
Following on from Carl’s post, I think the main issues have been obvious since this site was started. What we need now is to set specific goals and objectives. We can divide these into two broad groups – Tax Treaty goals and FATCA goals. The purpose of this post is to list the goals so that we can prioritise action. Continue reading “Priorities”
Another year, another deadline. The ATO has until 30 September to hand over another tranche of Australian bank details to the IRS under the FATCA IGA. Last year they were almost a week early when they handed over details of more than 30,000 accounts containing more than $5 billion for an average balance greater than $160,000. What will they send this year? Continue reading “Questions for the ATO”
As we approach another September 30th, the ATO is surely preparing their next data dump for the IRS. As we wait to see how much of our private financial data has been shared with a foreign nation, I thought it would be useful to find out how FATCA has affected normal Australians. I have put together a short survey. Please share it with your Australian-resident friends – whether or not they are US-tainted. Banks are asking everyone whether they’re American, not just people, like me, who can’t get rid of their accent!
If we’re going to have any real impact, we need a plan. To that end, I am gathering together a Steering Committee to assist in strategy and action. I have already asked some people to join the Steering Committee and will introduce members to the group (both on the blog and on Facebook) as they agree to serve. Current Steering Committee members are Karen Alpert and Carl Greenstreet.
The committee will ideally consist of 4-6 individuals from around the country. With Carl’s feedback, I have put together a Steering Committee Charter that describes the roles and responsibilities of Steering Committee members. Subcommittees will assist the Steering Committee with Education, Blog posts, Legislative Action, Allied Action, News, and Media.
If you would like to volunteer for one of the subcommittees, please complete this form
This post is inspired by a paragraph near the end of this blog post by Marsha-laine Dungog:
We would encourage U.S. expats to seize the current momentum and push for legislation that will “enshrine” the Super’s objectives as one that will “provide income in retirement to substitute or supplement the Age Pension.”This would conclusively lay all doubts to rest that the Super should be analyzed in a manner that is consistent with (and therefore taxed similarly to) U.S. Social Security. The treatment of SG Contributions as foreign social security is consistent with the statutory mandate under Australian Superannuation law requiring employer contributions to be made pursuant to the taxing authority of the Commonwealth of Australia (Commonwealth) and not on account of a contractual relationship between employer and employee. Consequently, earnings accrued on SG contributions and distributions therefrom should also be classified as foreign social security benefits which are already excluded from U.S. taxation under Article 18(2) of the Tax Treaty.