(International Investment)-- A group of French citizens who – as they insist on putting it – the US government considers to be Americans as well are looking to rally the support of the French government, in a new campaign aimed at freeing themselves from what they regard as a hugely unfair tax burden they’re required to bear as a result of their “accidental” American citizenship.
In doing so they become the latest group of American dual nationals to appeal to a foreign government as citizens of that country, in hopes of finding a permanent way of keeping the US from coming after them for taxes – and/or, in some cases, penalty fees that the US says they owe.
Their plan is to collect enough signatures to be able to get a motion put forward in France’s National Assembly by Marc Le Fur, a French MP and the NA’s deputy speaker, who is sympathetic to their cause, according to Fabien Lehagre, an “accidental” American who heads up the French-American group, l’Association des Américains Accidentels (Accidental American Association, or AAA).
The AAA, Lehagre says, has some 320 members from across France at present, and is growing rapidly, as more dual nationals like him begin to realise the significant reporting and financial obligations their often distant American links mean for them.
Stressing how un-American he and the other members of his group feel, Lehagre, pictured left, notes that the majority of them “left the United States when they were less than 10 years old”, and that he himself left at 18 months.
The problem for these French-American citizens, as for the almost 9 million American expats elsewhere in France and around the world, is that – unlike the expatriate citizens of any other country or jurisdiction, with the possible exception of Eritrea’s – the US taxes individuals on the basis of citizenship rather than on the country of residence. (That said, it also taxes foreigners who are resident in the US.)
This means that anyone who was born in the US is required to file a tax return to the IRS every year after they reach a certain age.
This is true even for American dual-nationals who have spent most of their lives living outside of the US, and who, like Lehagre, don’t regard themselves in the least bit as American – and even who, in many cases, only discovered the fact of their American citizenships relatively late in their lives, when, for example, some sharp-eyed bank official noted the American place of birth on their non-US passport.
Thus far, though, various efforts around the world by American expats to get help from foreign governments have had little lasting success, so far at least, during the last three to four years that the Foreign Account Tax Transparency Act (FATCA) has made it easier for the IRS to come after expat Americans for tax.
It is the existence of FATCA that has made life unexpectedly and increasingly difficult for many such individuals, beginning not long after it was quietly signed into law, buried inside another piece of legislation, by President Obama in 2010.
‘Canada is not a tax haven’
To be sure, Canada’s then-finance minister, the late Jim Flaherty, was persuaded by that country’s numerous accidental Americans in particular to speak out on behalf of them, and other dual US-Canadian citizens, early on in the saga. At one point in 2011 he even drew considerable publicity to their plight, when he penned a letter for publication in several major US newspapers in which he said, “put frankly, Canada is not a tax haven. People do not flock to Canada to avoid paying taxes”.
But Flaherty wasn’t able to rally other key Canadian politicians to his cause before leaving office in 2014, and his successors have yet to show much interest in coming to the aid of the country’s estimated 1 million American expatriates and accidentals, according to campaigners there.
In the meantime, a Canadian organisation calling itself the Alliance for the Defence of Canadian Sovereignty (ADCS) has nevertheless been promoting the cause of the American expats and accidentals in Canada, as a party to a 2014 lawsuit filed by two expatriates (known to anti-FATCA crusaders by their nicknames of “Ginny” and “Gwen”) in Canada’s Federal Court in 2014 against the Canadian government, for its role in enabling the US to come after them by agreeing to enforce FATCA.
An initial effort in the courts failed, but anti-FATCA campaigner Patricia Moon, an Ohioan who moved to Toronto in 1982 to be with her Canadian husband, and who subsequently renounced her US citizenship, says the group is changing its focus to concentrate on “the charter issues”, and is hoping to have more success with its latest legal challenge.
Also in 2014, the organisation filed a legal motion with the US State Department asking it to suspend – for Canada-resident American expats – a then-just-enacted 422% increase in the fee charged by the US to those who seek to renounce their citizenship, on grounds that “US citizenship is imposed on many Canadian citizens and residents without their consent”.
This five-fold rise in the renunciation fee, to $2,350, they noted, was made “without any advance notice or opportunity for prior input, [as is] usually required for changes in administrative policies”.
ADCS chairman Stephen Kish said the group believed the hike was aimed at “discouraging the rising number of individuals seeking to free themselves” of the mounting obligations and filing requirements they US has been placing on its expatriates by renouncing their citizenships.
Expats with non-US business interests emerge in IRS cross-hairs
A clause in the US tax reform bill, which came into force on 1 January, is attracting growing concern in the American expatriate community, as it imposes a one-time “deemed repatriation tax” of 15.5% on the profits businesses have accumulated overseas, whether or not they choose to repatriate them.
As reported here last week, Trump’s Tax Cuts and Jobs Act imposes this tax not just on large multi-national corporations, which were the main target of the tax, but on small businesses, or “controlled foreign corporations”, as well of which an expat US citizen or green card holder might have more than 10% ownership of.
Most tax experts believe the government must have intended to exempt individuals from this clause, but as there have been no announcements thus far that such an exemption is planned, American expat groups and tax lawyers representing expatriate clients have been urgently discussing the matter since it began to emerge over the past few weeks.
However, it’s not thought that there are any plans, for now, to seek help from any foreign governments on this specific tax, above and beyond the requests for help generally with respect to expatriate Americans that have already been made.
As reported here today, renunciations have been rising steeply since the introduction of FATCA, and there is conjecture that the American bride-to-be of Britain’s Prince Harry, Meghan Markle, could be forced to renounce at some point, probably after the wedding this May (and once she has a British passport), in order to avoid the possibility of US financial and reporting complications for the Royal Family.
Most recently in Canada’s expat American circles, a Canadian organisation called the Alliance for the Defeat of Citizenship Taxation has been considering a possible lawsuit in the US against citizenship-based taxation (which it prefers to call non-resident taxation), which has taken on a new urgency recently, since the Trump tax overhaul took effect last month.
Israel: Petition rejected
Expatriate Americans living in Israel, of whom there are said to be around 400,000, including green card holders, have also sought the help of their adopted government in challenging America’s right to come after them for tax, but as of last month, lost a years-long battle in the Israeli Supreme Court. A spokesperson for one of the expat groups there told International Investment they nevertheless intend to continue their fight.
The Supreme Court ruling, on 2 January, formally rejected a petition that had sought to challenge the constitutionality of the Israeli legislation that enabled Israeli financial institutions to participate in FATCA. It had been brought by the Republicans Overseas Israel (or “Foreign Republicans in Israel”, as the court documents refer to the plaintiffs).
As reported, the country’s High Court of Justice issued a temporary injunction against the enforcement of FATCA in Israel in 2016, in response to the Republicans Overseas’ efforts, but lifted it soon thereafter.
Jerusalem-based American lawyer Marc Zell, who had been involved in the petition as co-chairman of the Israeli chapter of the Republicans Overseas, said his organisation sees the Supreme Court’s “lengthy, 45-page” decision as coming down to the fact that the Israeli government’s interests in maintaining good relations with the US ultimately “outweighed the plaintiffs’ privacy rights” – a concern some say has been at the heart of the Canadian government’s reluctance to speak out on behalf of its own dual citizens.
In a summary of the Israeli ruling on the Law Library of Congress’s website, the justice in the case, Hanan Melcer, is quoted as saying that “ensuring compliance with FATCA is essential to prevent the imposition of sanctions on financial institutions in Israel under FATCA’s provisions”, and that that the deal agreed with the US would enable Israeli tax authorities to receive information from their US counterparts that would “strengthen Israel’s ability to pursue tax evaders outside of its borders”, while also enabling Israel to comply with its international commitments.
Justice Melcer also rejected arguments that US account holders in Israel “were discriminated against [under FATCA] in comparison with those not subject to the reporting requirements”, according to the summary of the ruling, and noted that Israel had “managed to exclude a number of bodies and financial products from FATCA’s purview, including pension funds, mutual funds, accounts held by lawyers and accountants, etc”.
Zell said the Republicans Overseas, like their Democratic party counterparts, plan to continue their lobbying efforts in Washington aimed at getting the US to change to a residence-based tax regime (or as the Republicans called it, “territorial taxation for individuals”, or TTFI), and that an ongoing constitutional challenge to FATCA in the US Supreme Court, in which he is personally involved, is also continuing.
“In short, the fight against FATCA, and for US expats, is continuing, and we remain optimistic,” Zell said.
“This is the reason that, when Americans here in Israel ask [me] whether they should renounce their US citizenship, I am telling them to wait. Republicans Overseas will continue its struggle to undo the FATCA disaster, and other misguided policies aimed at America’s expat community around the globe.”
En France: Aux Barricades
Back in France, meanwhile, members of France’s Association des Américains Accidentels seem undaunted by the Israeli/American and Canadian/American expatriates’ lack of success thus far in challenging the legal basis for FATCA – imbued, perhaps, by their country’s long and deeply-rooted history of standing up to undemocratic taxation and authoritarianism, as well as their insistence that they, as “accidentals”, are different from ordinary American expatriates.
In his determination not to be called an “expat”, Lehagre notes that the only time he ever had an American passport was when he left the country, in his French father’s arms, on his way to France.
Though just 33, he is determined to convince the French government to renegotiate its agreement with the US that allows French institutions to enforce FATCA, “and to engage in discussions with the United States to find a solution that would allow accidental Americans either to be exempt from their tax obligations or to give up their American nationality without having to comply [with the existing regulations] and without having to pay anything”.
Potentially in Lehagre’s and his fellow Américains accidentels’ favour could be the fact that their situation is receiving growing publicity. France’s daily financial newspaper Les Échos, for example, ran an article earlier this month about “ces Française nés aux Etats-Unis”, the headline of which translated as “The tax nightmare of these French citizens born in the United States”.
Les Échos is a well-known and major financial publication, sometimes described as the French Financial Times.
In December, another French publication, La Dépêche, reported that Lehagre’s organisation had filed an appeal with the State Council in early October, which it followed a month later with two motions for resolutions by French senator Jacky Deromedi and Marc Le Fur “to raise awareness of the situation of these tens of thousands of French” and perhaps more importantly, the paper said, to annul the legislation that permits French institutions to comply with FATCA – similar to the strategy tried in Israel and Canada.
La Dépêche quotes an unidentified legal expert as saying that the legislation in question is “illegal” because it is “not reciprocal”, in that under FATCA, US institutions don’t have to provide the French government with the same information the French institutions are having to.
The article concludes by noting that this unidentified expert “predicts a solution to this ‘Kafkaesque situation’” sometime in the next year, echoing Lehagre’s idea of the time frame for achieving their goal.
“What we are trying to get the French government to do is to negotiate a way forward with the United States that would allow us [accidental Americans] to relinquish our American citizenship without cost, and without tax difficulty,” Leharge says.
Common Reporting Standard
Meanwhile – and potentially inconveniently for l’ Américains accidentels – a new, worldwide tax information exchange regime known as the Common Reporting Standard has come onto the scene.
Sometimes described as a “global FATCA”, it’s essentially the same idea as FATCA, but it requires signatory countries to provide the same individual tax-relevant financial information about accounts held by the citizens of other CRS-signatory countries to these individuals’ home governments, which, in turn, provide the same information about their citizens’ overseas financial accounts to them.
Some 98 countries have signed up to participate in the Common Reporting Standard thus far, of which 53 started exchanging information last year, and most of the rest have committed to begin doing so in 2018.
The US is one of the few major countries that have not agreed to participate in the CRS, which is being overseen by the Organisation for Economic Co-operation and Development, on grounds that it doesn’t see a reason to, as it already has FATCA.
Some observers and even some American expatriates believe that the existence of the CRS weakens the argument of the American expatriates, including the accidentals, who are seeking to be exempt from their FATCA obligations.
Instead, they believe, the focus should instead be on an all-out campaign to get the US to move to a residence-based tax regime for individuals, like the rest of the world has – while also, possibly, permitting those who can demonstrate that they’ve never really lived in the US to be able to renounce their American citizenship simply and without having to pay much, if anything.
Joseph Smallhoover, an American lawyer who has been living in Paris for more than 33 years and who is chairman of the Democrats Abroad there, says the issues are extremely complex, and solutions will be difficult to arrive at.
Nevertheless, he adds, “I can see that it might be worthwhile pressuring a government, such as the French government, to come to an arrangement with the US which would permit ‘expedited renunciation of citizenship acquired at birth at a significantly reduced cost’ in certain situations, such as in the case of ‘accidental Americans’ – provided that it’s done early enough in their lives, or with proof that the person really didn’t know that they were a dual national”.
Based in Washington, DC, the American Citizens Abroad has been fighting the expats’ cause for years, and has the advantage of being able to make their case in person to influential lawmakers. As reported here in December, the ACA has pledged to keep up the pressure on Congress to do something about the situation facing the country’s expatriates, with changes to the citizenship-based tax regime a particular priority, after hoped-for changes weren’t included in the final draft of President Trump’s tax reform bill, which he signed on 22 December and which came into force on 1 January.
Charles Bruce, a former tax counsel at the Senate finance committee who now serves as legal counsel to the ACA, and who spends part of his time living and working in Europe when not in Washington, told International Investment that the ACA is calling on Congress to hold hearings on the taxation of Americans abroad “early in the new year”, with changing the tax regime to one based on residency a priority.
“ACA will probably also ask the Treasury/IRS to provide thresholds below which people need not worry about the deemed repatriation hit,” he added, referring to the unexpected “controlled foreign corporations” tax that emerged in the Tax Cuts and Jobs Act.
Irony of Trump’s ‘chain migration’ campaign
Back in the States, few Americans are thought to have any idea that their country’s expatriates are struggling as a result of their US citizenships. Campaigners say this is one of their biggest problems, since Washington lawmakers are reluctant to be seen as doing anything that might be interpreted as helping rich Americans to avoid their fair share of the tax burden, and as a general rule, expat Americans are thought by their stateside counterparts to be wealthy.
Meanwhile, to campaigners like Lehagre, who are struggling to shake off their American citizenships, there is disbelief that at the same time they can’t rid themselves of their US passports, the US is targeting its “Dreamers”, the undocumented immigrants who came to the US as small children, and to end so-called “chain migration” rules that currently allow US citizens or green card holders to sponsor relatives who wish to come into the country.
As the Financial Times reported yesterday, President Trump has endorsed a bill in the Senate “that aims to halve the number of legal immigrants by limiting which family members a US citizen or green card holder can sponsor, [overturning] five decades of political consensus in which immigrants with families in the US are given priority.”