The Implications of Tax Residence for Human Rights: The Transcript
Find here the full transcript for our webinar "The Implications of Tax Residence for Human Rights."
Our panelists were:
- Dr. Laura Snyder, Attorney, Taxpayer Advocacy Panel, France
- John Richardson, Lawyer, Citizenship Solutions, Canada
- Dr. Karen Alpert, Finance Lecturer, University of Queensland Business School, Australia
John Richardson: My name is John Richardson and I'm a Toronto-based lawyer and I have a very niche area of interest helping US citizens abroad and green card holders solve their quite numerous and extensive problems because they are US tax residents regardless of where they live. This is going to be a fascinating discussion today. I think what I would like is for Dr. Karen Alpert and Dr. Laura Snyder to take a moment to introduce themselves in whatever way they see fit prior to the beginning of our discussion. Laura?
Laura Snyder: Hi, I'm Laura Snyder. I grew up in the US; I've lived in Europe, mostly France, since 1995. I'm a lawyer by training, and I am a member of the Taxpayer Advocacy Panel (TAP), which is a Federal Advisory Committee to the IRS. And I'm also a member of AARO, the Association of Americans Residents Overseas. And I've been a long time student of the issues we're going to talk about today.
Karen Alpert: I'm Karen Alpert, I live in Brisbane, Australia, where I'm a lecturer in finance at the University of Queensland. I've been in Australia for 25 years now. And before becoming an academic, I was also a tax professional so bringing those two strands together, the tax and the finance, and together with Laura and John, we've written this paper on tax residence and I think this is going to be a really good discussion.
John Richardson: Thanks very much, Karen. Prior to our beginning, I think we have an unparalleled wealth of experience and diversity in terms of ways of seeing this topic today. This is actually of great interest to me because the title of this today, The Implications of Tax Residence for Human Rights, actually combines two topics that I have a very long interest in. The first being tax residence. In other words, what are the rules that countries use to determine whether an individual is subject to worldwide taxation? And human rights. I have had a long-standing interest in Canadian constitutional law, human rights document, generally, so I am really looking forward to this.
I'd like to begin to set the stage talking about the notion of tax residence in general. What we're doing is we're trying to raise the question and hopefully persuade you that there is, and should be, a link between tax residency and human rights generally. By that I mean in more than a procedural sense. So let me begin by addressing to Karen the question of: What's meant by tax residence and why in the world would something that's as arcane and prevalent as tax residence have anything to do with human rights?
Question: What's meant by tax residence and why would something that's as arcane and prevalent as tax residence have anything to do with human rights?
Karen Alpert: Tax residence is basically the notion that you are a subject of the tax system, that you're subject to a particular country's tax system, and generally countries will tax the residents on their worldwide income. So they'll apply their unique and idiosyncratic tax rules to all of the income that you have from around the world. So the problem that arises is that people end up, each country has its own way of defining who is tax resident and who is subject to taxation on their worldwide income. And when two different countries have different ways of defining that, it's actually becoming quite common for people to be technically tax resident in more than one country at a time. And so then you've got two different countries trying to tax you on your worldwide income. And if you cannot in some way break tax residence with one of those, then you're basically put in a very hard place because everything that you own is going to be foreign in one place or the other.
John Richardson: Would it be fair to say that if you're a tax resident of more than one country, in all probabilities, one tax system is likely to knock out tax benefits and preferences in the other tax system?
Question: Would it be fair to say that if you're a tax resident of more than one country, in all probabilities, one tax system is likely to knock out tax benefits and preferences in the other tax system?
Karen Alpert: Yeah, definitely, especially when it comes to things like retirement savings and tax incentives that countries may put in place for people for health insurance, investment credits, things like that. If you're tax resident in two different countries, one country will give it to you but the other country will take it away.
John Richardson: In other words, dual tax residency in all likelihood subjects you to the worst of both systems.
Karen Alpert: And it becomes even more of a problem, and more and more countries do this, when they have xenophobic tax rules. Essentially, they look at anything that's foreign and treat it differently or punitively.
John Richardson: Even the US?
Karen Alpert: Specially the US. You know that, John.
John Richardson: Could you give a couple of examples, perhaps?
Karen Alpert: For example, if you invest in a non-US mutual fund, then that could be treated as a Passive Foreign Investment Company (PFIC), which basically takes away your ability to defer capital gains until realized or punitively taxes you so that you might as well not have been able to defer the capital gains until realized.
John Richardson: Wasn't it the case with the PFIC that the longer you hold it, the worse it gets, and at the 20-year mark they pretty much confiscate all the gains?
Karen Alpert: Look, it's so complex. It really depends on exchange rate movements and lots of other things. So you can lose all of your gains in one year if the exchange rate moves such that the US gain is larger than your local gain.
John Richardson: Any examples come to mind from the Tax Cuts & Jobs Act?
Karen Alpert: So the other area where US tax rules are fairly xenophobic is when you own a business that's a non-US business, if it's a corporation, it is a controlled foreign corporation. And there's a lot of stuff to avoid deferral but then, in the Tax Cuts and Jobs Act, they basically said that any retained earnings in that company that you haven't paid US tax on yet, you're going to pay US tax on it immediately in 2018.
John Richardson: So there's no question that dual tax residency is a very serious problem.
Karen Alpert: So for a lot of countries you can get rid of dual tax residency. If you split your time between France and the UK, there will be a tax treaty that will allow you a residence tiebreaker that will point you to one country or the other as your tax residence.
John Richardson: Why doesn't that solve the problem for Americans?
Karen Alpert: It doesn't solve the problem for Americans because every single US tax treaty basically says that US citizens cannot use that tiebreaker to break their US tax residency.
John Richardson: So, in other words, once a US citizens you are forever tethered to the US tax system and if you leave the US and try to live in another country, you create a dual tax residency and a severe problem in your life.
Karen Alpert: A severe problem in your life if you need to invest, save for retirement, or run a business.
John Richardson: We've talked about the problem of dual tax residency but what is the general criteria countries use to define their tax residency rules?
Question: What are the general criteria countries use to define their tax residency rules?
Karen Alpert: Yes, countries use a couple of different ways to decide who is tax resident. And a lot of them will use a bright line, 183-day type test where if you're physically present in the country for a certain amount of time, you're presumptively a tax resident. But countries may also use some sort of domicile, which is more about your economic connection to a country rather than physically counting days. And so what you find is that they catch people coming in using the physical presence type rules, but make it harder to leave by using domicile rules as well. A lot of countries use both.
John Richardson: On the leaving thing, there are countries that make you essentially pay a fee, pay to be able to leave in the form of an exit or departure tax?
Karen Alpert: There are several countries that have taxes like that. Australia has one, I believe Canada has one as well, where they feel that you've invested while you're a resident in the country, you have built up all these unrealized capital gains that you haven't paid tax and most of these taxes are basically on the unrealized capital gains that have accrued and they create a deemed realization event and charge you tax when you leave. And some of them allow you to defer that until you actually sell the asset. Every country is different.
John Richardson: But there is a growing trend towards this type of stuff, I understand. Every time I research this I find another country that has kind of jumped on board.
Karen Alpert: Which is another reason why anybody who's moving across country borders really needs to get tax advice before they make the move.
John Richardson: Back to the whole definition of tax residency, you talked about the 183-day rule, which I will call deemed tax residency. You talked about what I'm going to call centre of gravity tax residency that some countries call domicile. Canada calls it ordinarily resident. But the US has something that is definitionally and qualitatively very different from any of these other countries and that is what?
Question: But the US has something that is definitionally and qualitatively very different from any of these other countries and that is what?
Karen Alpert: The US uses citizenship.
John Richardson: Are you telling me that if you're born in the US, you are forever a US tax resident?
Karen Alpert: As long as you remain a US citizen. So that means you have to give up your citizenship in order to break tax residency from the US, and they are the only country that requires you to give up your citizenship to break tax residence.
John Richardson: That sounds like the introduction of human rights issue right there, doesn't it? But before we move there, now a moment ago, what you explained and I understood was that tax residency everywhere else seems to be based on an actual physical presence test, 183 days, or some equivalent to that or some kind of notion of some actual centre of life connection to the country.
Karen Alpert: So that's all based on some actual current economic connection to the country.
John Richardson: But the US is using citizenship and that must mean they're defining people as US tax residents with no connection to the country whatsoever. Is that correct?
Karen Alpert: So this is the whole idea, the whole concept of Accidental Americans, these are people who moved out of the US as toddlers, have no connection, their parents may never have been US citizens, and they're still US citizens because they were born in the US. You've got a couple of trends here that are making this worse for US citizens. You've got, first of all, the trends in US citizenship being harder to get rid of. So 100 years ago if I had decided to move to Australia and marry an Australian, I would have lost my US citizenship just by the act of marrying a foreigner a hundred years ago. But that's no longer the case; there have been a series of court decisions in the US and you could rattle them off a lot better than I could, but there's been a series of court decisions in the US that have made it harder and harder to get rid of US citizenship, and therefore more likely that people will be multiple citizens or dual citizens and therefore also multiple tax residents given the fact that the US uses citizenship as residence.
John Richardson: And in terms of getting rid of it, I understand that we have an unprecedented high fee to actually renounce it at 2,350 US dollars but going back to your discussion of exit and departure taxes, I think you said the US also has exit taxes. How do those exit taxes compare to the exit taxes in other countries?
Question: How do the US exit taxes compare to the exit taxes in other countries?
Karen Alpert: The part of the problem is because of this lingering tax residence in the US, the exit tax in the US gets imposed long after you've actually physically left the country, which means that a lot of the assets that they're taxing are assets that you accumulated after you left the country.
John Richardson: So let me get this straight. You're saying, on the one hand, that the US imposes worldwide taxation based on citizenship, which means that includes many people with no connection whatsoever to the US and if they try to leave the US is going to impose an exit tax on non-US assets that were accumulated when the person did not have any connection to the US. Have I got this right? This is shocking. If that doesn't have some implications for human rights, to bring Laura into the discussion, what do you think of the discussion we just had, this US definition of tax residency and human rights, do you think these two topics belong in the same webinar?
Question: Do you think tax residency and human rights as topics belong in the same webinar?
Laura Snyder: To me it's obvious that they do, John. I can rattle off a list of human rights violations that you and Karen have just talked about. What I would say is that I'm going to talk about some things that normally you might want to see a citation for it, a place to find the citations are in the paper that the three of US worked on, that Karen mentioned at the beginning.
So I'll just say the sources of the human rights that I'm going to talk about are basically in five different documents. There's the Universal Declaration of Human Rights, there's the International Covenant on Civil and Political Rights, there's the International Convention on the Elimination of All Forms of Racial Discrimination, there's the International Convention on the Protection of the Rights of All Migrant Workers and their Families, and there's the International Covenant on Economic, Social and Cultural Rights, so a lot of those documents are post-World War II documents and are the sources of these rights. In fact, the rights I'm going to talk about now have their source in at least one and in most cases multiple of those human rights instruments I just mentioned.
John Richardson: Now that is really fascinating. If I can just link that back to some point that Karen made a moment ago, Karen made the point that a hundred years ago if she had moved to Australia and married an Australian she would have automatically lost her US citizenship and a series of court decisions essentially reverse that type of thing and I think it's important to understand here that the sort of the history of citizenship law, it's largely followed the end of the great wars, at the end of the first World War the focus was on the rights of countries in relation to their citizens, by the end of the second World War the documents shift to the rights of citizens themselves in relation to their countries. Have I got that right, Laura?
Laura Snyder: Yes, I would say that it's the rights of citizens, of individuals and included in that is the right to citizenship, the right to freedom from arbitrary deprivation of nationality, the right to return to one's country, so you're absolutely right, John, on different levels, you're absolutely right.
John Richardson: I think we can go through these in sort of any order that you'd like but I'd like to start off, I'd like to sort of say something and give you a question to perhaps address or if not send it to either Karen or me, so not only has there been this focus in international human rights documents but when we're talking about US citizenship domestically, the US has evolved quite a bit since about 1967 in terms of reinforcing the rights of the individual to citizenship. You want to comment on that, I think it's very important or do you want me to comment on it?
So in 1967 the Supreme Court of the US handed down a decision in a case called Afroyim that over the years came to be understood as an example of a very important principle, that US citizenship belongs to the individual and that Congress cannot forcibly basically steal somebody's citizenship, which they were doing up until 1967. So even domestically I think this is important in the US, under US constitutional law, there is now a strong tradition that American citizens cannot be forcibly deprived of their citizenship and a question I'd like to ask each of you is this: We know that renunciations of US citizenship are high and I think going higher. Do you think that US citizens abroad are being forced to renounce US citizenship because of all this unbelievable regulatory environment?
Question: Do you think US citizens abroad are being forced to renounce US citizenship because of the unbelievable regulatory environment?
Laura Snyder: I think the answer to that is clearly yes, and I would even say that there are agencies of the federal government who have acknowledged that indirectly. There is a September 2019 joint document posted online by the Department of the Treasury, Department of State, the IRS and the Social Security Administration and it's got a very long title, Joint Frequently Asked Questions (FAQ) from the Department of the Treasury, the Department of State, the Internal Revenue Service, and the Social Security Administration on Obtaining Social Security Numbers, Expatriation, and Tax Implications. I think if you look at just that title and certainly if you open up that page and you see how the US government expressly links the problems with taxation, the problems with banking and the problems with taxation, citizenship and banking all together, and how they understand and they acknowledge in that document that this leads to the people renouncing their citizenship, I think you see it's clear, it's undeniable that there is a direct link.
And I would go further than that; last year I did a survey of Americans living overseas on the topic of the taxation and banking issues that they face and so the survey included people who had renounced the citizenship and then asked them to discuss the experience and how they felt about it, and I think that some of the comments that they made are really revelatory and you can't help but remember them, they sit with you. So you have people saying things like US citizenship means being unable to live without severe restrictions on my life and with the ever-present threat of financial ruin. Another said citizenship-based taxation is ruining our lives, is unfair and I can't take the stress and anxiety it gives me anymore. And then people who renounced, when they talked about how they felt on the day they renounced, they used words like angry, sad, torn up, grief, sick in my stomach, heavy heart, devastated, fraught, holding back tears, one burst into tears and another vomited. One person said renunciation is not one of those things you get over, I didn't feel I had any choice, and if I had a choice I'd still be American. Another said I feel betrayed by the US and will never in capital letters forgive them for forcing me to renounce my citizenship; it is part of who I am. So I think the answer to that question is an obvious yes, John.
John Richardson: Thank you for that, Laura. Karen, very quickly do you agree, is it your view that the people are renouncing US citizenship or being forced to renounce US citizenship because of the impact of all this stuff?
Karen Alpert: I think yeah, I think that's true. It would be really nice to see statistics on what countries they're renouncing from because I think there's a disproportionate number of Australians who are renouncing due to the incompatibility of US and Australian law around retirement savings. I hear from a lot of Australian-based Americans.
John Richardson: With the superannuation being a huge actual symbol of the overall problem. Now back to Laura. Now what you're describing is very interesting to me but I'd also like to ask you this: very recently Tax Notes published a paper that you'd written, which I thought was really quite brilliant, which I think was called The Criminalization of the American Emigrant. So presumably that, in part, is a reflection of the actual, I mean it's not only tax rules, but it's the whole penalty apparatus that people are suffering from, right? I mean the idea that they should be criminalized an American citizen living in France, for example, should be criminalized for having a bank account in France, right. I mean is this part of what you mean by the criminalization of the American emigrant?
Question: What do you mean by the criminalization of the American emigrant?
Laura Snyder: Of course, the fact that you are an American living overseas makes you criminally suspect under American tax and banking rules and if you want to talk about banking rules, if you're an American living overseas, your name and your social security number and your address and your bank account information is collected and put on the list of people, it's collected by the banks and it's submitted to government tax agencies and who in turn submits it to the IRS, to American tax agencies. The last time we collected names of people on personal information about people just on the basis of their national origin was during World War II and necessitated these human rights documents that we're talking about. But, yes, the fact that this requires Americans overseas to report their normal everyday bank accounts that they need in the place where they live, there's nothing criminally suspect about it, but they have Americans report those accounts to the Financial Crimes Enforcement Network of the Department of Treasury. That tells you a lot.
John Richardson: Doesn't this include accounts that are also owned by their non-US spouses have to be reported to financial crimes?
Laura Snyder: So any account that an American has signatory rights to. So if you hold a joint account with your spouse, even if that money in that account was earned outside the US by your non-US citizen spouse, yes, that has to be reported if you have signatory rights to that account. As you can imagine, a lot of non-US citizen spouses don't like that, don't appreciate that, and have removed their US citizen spouses from those joint accounts or have refused to open them and of course if you are dependent on your non-US citizen spouse, financially dependent, that puts you in a precarious position. You also have that problem depending on the employment position you might have, if it's a position that you would need to have signatory authority for the employer's accounts, a lot of employers don't see why those accounts should be reported to the US government and so they simply won't give you that position if that's what it entails.
Karen Alpert: It may be in fact illegal for you to report that data to the US under your local country law and the US regulations specifically say that that's not sufficient reason to exclude it from the FBAR.
John Richardson: Yeah, that's also true of the form 8938, the foreign financial asset reporting. This is not a regulation, the actual statute, the actual Internal Revenue Code is written right into the section that, one, you have to report this stuff, two, the fact that the other country prohibits the reporting of it is not reasonable cause, in other words, what the Internal Revenue Code specifically says is US law overrides the rule and laws in the country that you live in.
Karen Alpert: That you must violate your local law in order to be compliant with US law.
John Richardson: Absolutely, to be an American you have to be a criminal somewhere, that's the key point. To be an American, you're either a criminal according to the US or you're a criminal according to the country of your residence. Back to Laura now. I think that provides some interesting context for how the international community in these human rights documents interpret some of this stuff. So let's pick up where you were going a second ago on this.
Laura Snyder: I can pick up from what you just discussed about how the US rules say that the rules of the country where you live are relevant you need to disobey those in order to obey the US rules. And so one of the human rights that is violated under the documents and instruments that I cited earlier, this is a human right not for individuals but for countries or more specifically for peoples, there is a right to self-determination and this right basically says, this is under the civil and political rights instrument I mentioned earlier, that all peoples have the right of self-determination, by virtue of that right they freely determine their political status and freely pursue their economic, social and cultural development and all peoples may for their own ends freely dispose of their natural wealth and resources. So if you have the US coming along and saying, well, because you've got an American citizen living within your borders, other country, and because we impose all sorts of obligations on those people by virtue of their citizenship, they now because of that, the rules that you've made, foreign country, are irrelevant to us, and we're going to override them. How are we going to override them? We're going to make it difficult for the residents of your country, the ones that have US citizenship to save for retirement, that's a public policy you might have in your country that you want to encourage your residents to save for retirement, but we're going to make that very difficult for certain residents because they're citizens. You want to encourage that they make certain other kinds of investments, certain other kinds of mutual fund investments, for example. We're going to make that difficult because our rules are going to override yours. You might want them to hold joint accounts with their spouses, you might want them to hold assets jointly with their other family members or to engage in certain business pursuits but because our US rules are going to override your local rules, that doesn't matter to us, you as a country, that right of self-determination is being violated. So I could go back to the other individual rights but I thought that I'd mentioned that one now just because of what you were talking about.
John Richardson: On that particular note, you talk about, if I understand you correctly, these rules bumping up minimally and I think probably attacking sovereignty of other countries, Karen, can you add something to that? I mean, is it your view that US tax rules and the whole US regulatory regime, which really I think can be fairly stated as US citizens are property of the US government and any country where they live, foreign governments must understand that it's US property living in that country? Would you agree?
Question: Is it your view that US tax rules and the whole US regulatory regime, which really I think can be fairly stated as US citizens are property of the US government and any country where they live, foreign governments must understand that it's US property living in that country?
Karen Alpert: Not sure I'd put it quite that strongly, John. But I think that the US laws are attacking immigrants to other countries and they're attacking the rights of those immigrants in the other countries and those other countries really need to stand up a bit more for the rights of their immigrants, who are dual citizens often. They're attacking the rights of Accidental Americans, they are one place where this is really quite clear, someone who was born in the US to someone that was temporarily there from Australia, moved back to Australia and then 60 years later finds out, oh no, the US thinks that they have the right to tax me but I've lived my whole life as an Australian under Australian tax laws and that person is being attacked by US tax laws and the Australian government. Other governments should be standing up for their own citizens and not allowing the US to define someone as a US tax resident just because of some prior connection to the US that's no longer current.
John Richardson: Right, let me ask this question to Laura. I would add to that, I think it's even worse because these rules apply to anybody born to two US citizens outside the US or at least that's if you interpret them that way. From a human rights point of view, I think it's pretty rich for the international community to even allow another country to forcibly impose US citizenship on their own citizens and residents. Isn't that what's happening here?
Laura Snyder: Well, that's clearly what's happening. I don't think there's any dispute there if you look at some of the statements, for example, the different EU officials have made in the context of FATCA, they have said every country including the US has the right to define who constitutes a citizen of their country and they've said that they're not going to challenge that.
John Richardson: I think it's one thing to say that the US can do this for people who live in their countries but, as I understand, what the EU is saying is that we are actually going to allow the US to define any EU citizen or resident as a US tax resident if they want to. Is that correct?
Laura Snyder: Absolutely because there's two pillars to that. There's A: we will allow the US to define who they want to be citizens and they don't make a distinction there in terms of whether it's someone who lives inside or outside the US, that's not part of the thinking there. And then B: we're going to allow the US to decide how it taxes its citizens; we're not going to question that or oppose that in any way.
Karen Alpert: All of this came about in this whole system of US tax treaties, where the US has reserved the right to tax their citizens from the very beginning, from the first tax treaties that they've written, and that they've just perpetuated that. So we've got these clauses in the tax treaties that have a genesis in the 1930s to the 1950s that they just keep copying every iteration of the tax treaty and nobody questions it because it's the same as the last treaty, it must be okay. And people don't realize, one, that since those clauses started showing up in the treaties, the US has changed the way it or how difficult it is to get rid of US citizenship as John talked about with those court cases. More people are, the global mobility has increased quite a bit. More countries are accepting people to be dual citizens so you can become a citizen of another country and not be forced by your new country to give up the old citizenship and more and more countries are allowing that. So you've got all of these things happening and then on top of it the US decides to impose FATCA and make all the banks in the world enforce their citizenship-based taxation.
John Richardson: So, in other words, what has happened is that, say, 50 years ago, the savings clause really meant was that, when they said the US reserves the right to impose worldwide taxation on citizens, that generally would not apply to people who were citizens and tax residents of the treaty partner country. But now because of these changes, what the savings clause really means is that anybody who signs a tax treaty with the US is actually agreeing to allow the US to impose worldwide taxation on the country's residents and citizens, correct?
Karen Alpert: Right and to undo all of the tax incentives that country is putting into their tax code, incentives to save for retirement, all these things we've talked about earlier, all those get undone by the US taxation of that income. Australia's retirement savings, the system is among the top in the world but it's very difficult for US citizens to take full advantage of that system because the US is going to tax income that's not taxable in Australia.
John Richardson: Well, they are US citizens to whom much is given, much is expected. Laura, can I ask you this question moving back to the human rights thing, don't you think that it ought to be recognized as a human right to not be deemed to be a citizen of a country you weren't born in and have no connection with?
Question: Don't you think that it ought to be recognized as a human right to not be deemed to be a citizen of a country you weren't born in and have no connection with?
Laura Snyder: Well, there is a human right that a person cannot be arbitrarily deprived of the right to nationality. Also there is the right to change one's nationality so that is a human right. You should ask: should a country be able to just impose citizenship on someone? Should Russia be able to decide that any random resident of the US is a Russian citizen for any reason? Of course, people would find that to be ridiculous.
John Richardson: But that's what the US is doing, that's exactly what they're doing, isn't it?
Laura Snyder: Yes, of course, it's what they're doing but it's more than that, John. It's not just that, because then you would say, okay, fine, just renounce your citizenship. Well, that's a pretty tough thing to do, to renounce your US citizenship. There's the cost, there's the renunciation fee that you've already discussed, there's the exit tax that you've already discussed that can apply to assets that you've accumulated outside the US, and of course at this very moment in time it's impossible in most places to renounce your US citizenship because the consulates are closed, you can't make an appointment and go in and actually do it.
John Richardson: Interesting. Now a question did come in about the exit tax and what it applies to. Just a very quick reader's digest. Basically and there are different aspects of this, but the exit tax would apply to somebody who meets one of three conditions: a net worth of over 2 million US dollars, somebody who has had US tax liability of an average of 170,000 a year for each of the past five years, and somebody who can't certify five years of tax compliance. The point that I would note though is two million dollar threshold is very easy to meet for somebody who has been employed and has a very good pension for 30 years or so in a high-cost non-US city like Toronto, Vancouver, London, this sort of stuff, so it's actually a very big problem.
Karen Alpert: I'd also point out that that we've done webinars about the exit tax in the past and I'm sure if you search the Taxlinked website you'll be able to find those that will go into a lot more detail.
John Richardson: Okay, now question for both of you. I think at a bare minimum anybody, even a tax professional listening to this conversation, would probably have to concede that there's something fundamentally wrong going on here where the US can at a stroke of a pen find somebody as a US citizen. By the way, I'm not making this up, if one were to look at the FATCA IGAs, for example, it very clearly says the US citizen is defined by US law, which can be a shifting definition. So FATCA IGAs, these countries have actually agreed to allow the US to define which of their residents are US citizens and subject to US taxation and that I think alone, I'm going to say what I think, is a massive human rights violation. I mean what they're saying is, hey, we're going to agree to turn anybody in our country over to the US tax system if they ask for you. That's basically what they're saying here. Now I know that you know Karen a moment ago said that I said something's a little bit too strong. Karen, is that too strong?
Karen Alpert: The US basically has the right to define anybody as a citizen; it really messed up the political system here in Australia where dual citizens aren't allowed to be in Parliament. But they could do that; they could decide to make everybody in Australia a US citizen.
John Richardson: Or any politician they don't like. Imagine that? The US doesn't like a certain politician, why not just make him a US citizen and disqualify him from holding office in Australia? Because, when was it? In the 70s, if this is accurate, the US managed to orchestrate the governor general dismissing Prime Minister Gough Whitlam. Have I got that right?
Karen Alpert: Yeah, Gough Whitlam was dismissed in the 70s; I'm not sure exactly what the CIA involvement was.
John Richardson: Maybe this isn't true but you can find all kinds of allusions to this. I mean, wouldn't it have been easier just to make him a US citizen? Think of the possibilities for the weaponization of citizenship here, absolutely incredible. Now back to the human rights thing. I'm wondering, Laura, if you could sort of just in point form kind of come back to where you began, what are the human rights documents that this violates and why?
Question: What are the human rights documents that this violates and why?
Laura Snyder: I'll tell you what the human rights provisions are, they're found in multiple documents, the ones I cited earlier. So there is a right to move from one country to another, that's a fundamental human right that's in four different human rights documents. There's the right to work, there's the right of free choice of work and freedom from discrimination in work. There is equality and dignity rights, that's a right. The freedom from arbitrary deprivation of one's nationality and the right to return to one's country. There's the right of self-determination that we've talked about and there's I think two more rights that are not found in the human rights documents that I cited earlier but that are found in US law, which is the taxpayer bill of rights, there's ten rights in the taxpayer bill of rights, which these are the rights that were recognized and promoted by Nina Olsen who's the former taxpayer advocate. Now those rights are focused much more on procedural elements than they are on substantive elements. Our discussion today has been focused on the substantive but there are still I think two key rights in the taxpayer bill rights that are important for us; there's the right to a fair and just tax system and there's the right to be informed. So I can talk to you in more detail about any of those that I've just talked about, John.
John Richardson: I have a question for you now on that and also you know for Karen too, I'd like her thoughts on this, but you talk about the right to a fair and just tax, I mean nobody knows what that means, it sounds like a platitude, a fair and just tax system. Let me ask Karen a question first and I'll come back to you, Laura. Karen, if I were to make the following statement would you agree or disagree: US tax rules impose a more punitive system of taxation on American citizens living outside the US than who live in the US. Would you agree with that?
Karen Alpert: I would definitely agree with that John because you are going to be earning your money where you live, you're going to be investing where you live, you're going to be saving for retirement where you live, and if where you live happens to be outside of the US, then you're subject to more punitive tax rules than a similarly situated person who lives inside the US and is investing where they live, which is inside the US.
John Richardson: So, in other words, the US is imposing more punitive taxation on somebody who doesn't live in the US, may never have lived in the US than, say, unemployment income or investment income than somebody who actually lives in the US. Have I got that right?
Laura Snyder: I see that as a direct violation of this element of the taxpayer bill of rights; the right to a fair and just tax system is described, if you look at the taxpayer bill of rights, this is described as US taxpayers have the right to expect the tax system to consider facts and circumstances that might affect their underlying liabilities, ability to pay or ability to provide information timely. I would argue that the fact that the US imposes a tax code on people who live overseas under the exact same rules and conditions regardless of the taxpayer's residence and so it doesn't take into account at all the fact that people living outside the US have entirely different circumstances, is a fundamental violation. I don't see how you could not see a more clear violation of the taxpayer bill of rights, there's nothing in the US Internal Revenue Code that takes into account the fact that Americans who live overseas are in fundamentally different circumstances than those who live in the US.
John Richardson: I would expect a home lander CPA or tax professional to simply point out to you that in 17th century France the law in its majestic equality prohibited both the rich and the poor from sleeping on the park bench. Why isn't it just because it's the same law applied to everybody?
Karen Alpert: So to add to all of this because I think when Congress passed some of these laws like the PFICs laws, part of the reason was to encourage people to invest inside the US rather than outside the US. So if you're a US citizen living outside the US, they want you to invest inside the US. But then post 911, all of the know your customer laws and the Patriot Act and all these things made it more difficult for US people living outside of the US to open accounts inside the US. US citizens who are living outside the US are having their US accounts closed so you can't even open a mutual fund account in the US in many cases, so that to avoid the PFICs laws. So what are you supposed to do?
John Richardson: What they would say in the homeland, they would say just renounce your citizenship. Laura, how do you feel about that response in relation to a discussion on human rights?
Laura Snyder: As we have discussed, first of all I would say, there's several fundamental rights here at issue. You have the right to move from one country to another; okay, you say, fine, move, what's the problem. You have the right to a nationality, you have the right to not be arbitrarily deprived of your nationality, and you have the right to return to your country. So if you say to someone just renounce; well, I would say first of all in that case you're acknowledging that there are problems. If you're saying just renounce your citizenship, I don't see how you're not acknowledging that there are problems with that response. The other thing I would say, citizenship shouldn't be something to be bought and sold, many people consider it a fundamental part of their identity.
John Richardson: There's a constitutional right in the US, it's a constitutional right.
Laura Snyder: Yes, as you described earlier, it's also a fundamental human right, which Hannah Arendt talked about, Justice Warren talked about it. It is a fundamental right, you are correct. And there's more to it than that. If you renounce your citizenship, you are giving up the right that you have to return to the US, to return to your country. And that's a problem, not for everybody, some people don't care and they never want to go back to the US, but a lot of people have family in the US that they want and need to see and spend time with. They have elderly parents that they might need to go back and take care of for an extended period of time. If you renounce your citizenship, you'll probably be allowed back in the country as a tourist, probably, there's no guarantee you will be but you probably will be, certainly you can't stay for an extended period of time, not without applying for a visa like any other foreigner would have to do. So the response to renounce your citizenship is crazy, it's just a crazy, callous, heartless response that acknowledges the human rights violations.
John Richardson: I think also it's a response interestingly that misunderstands, A, what citizenship is and, B, the status that citizenship has both constitutionally and the US and human rights documents in general. But now your discussion a moment ago was focusing on these rules from the perspective of an American living outside the US and I'm reminded in 2012 when Ron Paul I guess was running for president, they were talking about the wall being built and he said, well, you mark my words, this wall is eventually going to be used to keep Americans in. Of course, everybody laughed. Doesn't it seem to you that these rules are also designed to keep Americans in the US? If you agree, maybe you don't, I think most Americans imagine that they have a right to leave the US and if they have a right to leave the US, you're free to leave but you can't survive if you, is this another possible human rights violation or not?
Question: Doesn't it seem to you that these rules are also designed to keep Americans in the US?
Laura Snyder: I would say that this is one of the primary human rights violations. It's interesting because we talk in an American context about freedom and liberty and it's the freest country in the world, that Americans have their freedom, and I would say that the right to physically distance yourself from something is a fundamental aspect of liberty and of freedom, if you cannot physically distance yourself from a place, a house, a city, a country, whatever, it is clear you're not free. I think that in today's world, it would be I think very difficult to impose an actual physical restraint on Americans leaving the country, although maybe once those walls are constructed, maybe it's not as difficult as I thought.
John Richardson: The COVID-19 thing is interesting because that's imposed a lot of restrictions, particularly for Americans who are no longer allowed to enter other countries.
Laura Snyder: I mean that's a wall that, you know, you can argue who built that wall, did the Americans build it for themselves or did the other countries build it for them? But, yes, that's clear. That is a physical wall but the US has built a physical wall around its citizens. You really can physically at least before COVID remove yourself from the country but physically you cannot remove yourself from the country, it's impossible, and that is a violation of a human right that's found in four different human rights documents that says everyone has the right to leave any country including his own. You can put certain restrictions on that right but only under very exceptional circumstances. For instance, the UN Committee on Human Rights, the restrictions can only be for purposes protecting national security, public order, public health or morals, or the rights and freedoms of others. I don't see how making it difficult to financially survive outside of the US meets any of those restrictions.
John Richardson: Just as a reminder here, I think it's important that all of these problems that we're talking about, every single one of them is the direct result of US citizenship-based taxation, that is defining tax residence in terms of citizenship, which actually to make it even worse is the US policy of imposing worldwide taxation according to all the provisions of the Internal Revenue Code, including the penalties on people who are tax residents of other countries on non-US source income, on people who have no connection to the US. All we're talking about is the direct result of that unique policy. Although, Karen, there is one other country that is understood to have citizenship-based taxation and that is what?
Karen Alpert: Eritrea does impose a flat two per cent tax on its expatriates, but it's a flat tax and it it's not this punitive, you have the compliance of the US laws, the penalties, all are much worse. The problem with Eritrea's tax is not its existence but it's the way they try and enforce it, which they've gotten into a lot of trouble for.
John Richardson: So would you agree then that the US is in a class by itself? Would you agree that really then to compare Eritrea to the US in this regard is probably nothing more, nothing less, than a gross insult to Eritrea? As we kind of bring us to a close, we've talked about this from the perspective of the poor status, the horrible status of somebody being born a US citizen in the 21st century. Laura alluded earlier to the fact that this actually is an attack on the fiscal sovereignty of other countries and you would both agree with that, maybe not in the same way, but you would both agree with that, right? You think that this is likely down the road to have an impact on allowing US citizens to immigrate to these countries? I mean to allow an American to immigrate to a country is to allow an individual to immigrate who is not able at the end of the day to engage in the normal financial and retirement planning opportunities that would result in somebody not being dependent on government services, right?
Question: You think that this is likely down the road to have an impact on allowing US citizens to immigrate to these countries?
Karen Alpert: I think that if countries really truly understood what was going on, they would be fighting it in some way. That's one way they might fight it or they might fight it by trying to incorporate fixes into international agreements. But if they truly understood what was happening, they would find a way to fight it.
John Richardson: So these US citizens are Trojan horror soldiers and once they arrive in other countries their mission is to leave the US and bring back wealth from other countries. What do you think about this?
Laura Snyder: I don't know if I'd say I disagree with Karen on this. I think that no other country tries to do what the US is doing, I don't think that that's by accident. I think that it would be impossible for pretty much any other country. I mean some might succeed to greater or lesser degrees if they try to do what the US does. But I don't think there's any that could possibly go nearly as far as the US does, I think if they tried the other governments would laugh them out of the room. Do you see other countries?
Karen Alpert: Several other countries have had citizenship-based taxation in the past and have gotten rid of it because it's impossible for any other country to enforce it.
Laura Snyder: Yes, how would you enforce it?
John Richardson: Is the US enforcing it? What is the compliance rate on this type of stuff? I understand that they're trying hard; I understand they're getting the banks to hunt down people born in the US, but I don't know the answer to this but clearly there's some degree of non-compliance in this area, I think.
Karen Alpert: I think best estimates are that somewhere between 15 to 20 per cent of US citizens living outside the US are actually tax compliant.
John Richardson: Do you think that there's a correlation between being tax compliant and feeling that you're forced to renounce your US citizenship? Do you think then that to become US tax compliant could reasonably be seen as the first step towards renunciation?
Karen Alpert: If you've got anything more than just salary income, yes.
Laura Snyder: I think for the people that are not compliant, who live their lives in blissful non-compliance outside the US, there's no reason for them to renounce, there's nothing that would drive them to renounce.
John Richardson: So, in other words, it's the people who patriotically try to comply with the US laws who are being forced out of US citizenship. Is that what's going on here? Fascinating. I remember years ago when I was teaching a basic intro law course and somebody said who can make up laws like this, how is this even possible. Well, I see we have another participant in our discussion, Mateo is back, and that means two things: that we're drawing this to a close, but it also means that it's time for me to end with what I would normally say that: "All roads lead to renunciation."