Introduction
This is a post that I have been meaning to write for some time. Actually, I have been meaning to write it since July of 2023 when the Supreme Court of Canada declined to hear the ADCS FATCA appeal.. I had written an additional post about the end of the ADCS lawsuit at Citizenship Solutions. The lawsuit began in 2014 and ended in 2023. During that nine year period I had maintained a blog discussing the progress and rationale for the ADCS FATCA lawsuit. That blog, is an account in real time of the birth, life and death of the lawsuit. Those who are academically inclined might find my “Law Students Summary Of The ADCS FATCA Lawsuit” to be of interest. The blog also discussed the Republicans Overseas FATCA Legal Action Lawsuit which was ultimately dismissed because of a “lack of standing”. A timeline of that lawsuit is on the Republicans Overseas site here.
There have been a number of lawsuits and administrative complaints brought against FATCA in Europe. They have been generally unsuccessful. (A rare victory was the initial victory of retired KLM pilot Ronald Aires. Mr. Aires is interviewed here.)
It is now 2024. Since July of 2023 FATCA litigation has suffered at least one more setback. This was Jenny’s FATCA UK lawsuit which came to an abrupt end also on procedural grounds.
Given the odds against the plaintiffs, it is a miracle “The Alliance For Canadian Sovereignty” was able to run the FATCA Canada lawsuit at all!
Different Countries, Different Legal Systems And Different Attacks On FATCA
In order to bring a lawsuit in the courts of a country, one must allege a violation of the laws or constitution of that country. It is therefore no surprise that the various FATCA lawsuits were framed differently. At the risk of oversimplification:
1. The Republicans Overseas U.S. based FATCA Legal Action Lawsuit was based on alleged violations of the Fourth Amendment Constitutional guarantee against search and seizure. A timeline describing the Republicans Overseas FATCA Legal Action lawsuit is here. Ultimately the lawsuit was unsuccessful because of an inability to satisfy “standing requirements”.
2. The Canadian based ADCS FATCA Lawsuit was based on allegations of: violations of the Canada/US tax treaty and various provisions of Canada’s Charter of Rights and Freedoms. Specifically the plaintiffs argued that Canada’s agreeing to the FATCA IGA and legislating the terms of the IGA into Canadian law, violated Charter S. 15 (Equality Rights), S. 8 (Unreasonable Search) and S.7 (Due process). Although the case was heard in the Federal Court of Canada, the court ruled that there were no violations of either the Canada U.S. tax treaty or Canada’s Charter of Rights and Freedoms. The commentary from individuals is quite interesting.
3. Jenny’s U.K. based FATCA lawsuit was based on the allegation that FATCA’s transmission of individuals banking data to the IRS violated the GDPR (“General Data Protection Regulation”).
By focusing on the identification and transmission of information, the litigants focused on the symptom of the problem and not the cause of the problem
This is because all three of these lawsuits focused – in the context of tax administration – on:
1. The identification of bank and financial account information; and
2. The transmission of the account information of U.S. citizens to the United States.
Each of the lawsuits was based on the acquisition and exchange of information without regard to the reason why (the enforcement of U.S. citizenship taxation) the United States was demanding the information.
Each of the lawsuits took place in a sociological context of individual tax evasion, the creation of the CRS (“Common Reporting Standard”) and the OECD “Base Erosion Project”. (Notably, there is very little similarity between FATCA and the CRS.)
In the 21st century, information exchange is seen as a good thing. The erosion of privacy is justifiable in the interests of transparency. In general, information exchange is justified as being part of an appropriate (tax-centric) culture of taxation. (After all, if one explains that the purpose of FATCA is to counter tax evasion, one is 90% of the way to justification.)
The cause of FATCA (the acquisition of information) is U.S. citizenship taxation – the U.S. claim of right to capture the residents of other countries as U.S. tax residents
All FATCA litigation has assumed the right of the United States to claim the residents of the FATCA partner country as tax residents of the United States. To put it simply: Canada, the UK, France and all the other countries which have signed FATCA IGAs (and U.S. tax treaties) have agreed that the United States has the “sovereign right” to impose taxation based on citizenship. (Nobody explained to these countries that their own residents include U.S. citizens!) A country’s right to deem its citizens to be tax resident is NOT the issue. The issue is whether the United States has the right to claim the residents of OTHER countries as tax residents of the United States. This is the issue that should be (and should have been) the focus of FATCA litigation.
To put it simply:
FATCA IGAs are in furtherance of the United States imposing its tax, forms and penalties on the non-U.S. source income of people who do NOT live in the United States. Interestingly, …
– I (without success) argued that the FATCA Canada lawsuit should include an attack on the the assumption/claim that the United States has the right to claim Canadian residents (without regard to citizenship) as U.S. tax residents
– A delegation from Europe visited Washington and asked for FATCA relief while acknowledging that the U.S. had the right to tax their residents who are U.S. citizens
– No lawsuit has challenged the CAUSE of FATCA (the desire to tax the residents of other countries) and has simply accepted the right of the United States to do this.
U.S. Citizenship Taxation As A Violation Of International Law
The only practical impact/meaning of U.S. citizenship taxation is that the United States imposes the entirety of its tax code (taxes, forms and penalties) on:
1. People who are NOT residents of the United States; and
2. On the non U.S. source income or those people who are NOT residents of the United States.
Might this be construed to be a violation of international law?
McGill University Professor Alison Christians writing in 2017 comments that:
A. Violation of Customary Law
As outlined in Part I, the residence and source principles are so widely understood as the foundations of income taxation as a viable tax in the context of a world of economic, social, and political integration, they may
constitute customary international law. Whether this is an accurate description is the subject of ongoing academic debate that does not appear to have been resolved by courts. It will likely be tested, even if only implicitly, in the application of FATCA to individual cases, because, to the extent it acts as a mechanism to implement worldwide taxation by one state of the residents and citizens of another, FATCA sets states up to violate these international law principles to the detriment of their own peoples. 127 As a clear deviation from global tax norms, citizenship-based taxation of nonresidents, as enforced by FATCA, does not create legitimate obligations on the part of other states. 128
An interesting discussion of whether citizenship taxation violates international law took place at the Isaac Brock Society as early as 2012.
Future FATCA litigation should focus on whether it is a violation of international law for the United States to impose citizenship taxation (the reason for FATCA) on the residents of other countries (who suffer the effectsof FATCA
I cannot understand why all litigants (or more specifically their lawyers) assumed the right of the United States to extend its information sucking vacuum into other countries and suck up the money. Future FATCA litigation should challenge this assumption. Future FATCA litigation must make this the basis for the lawsuit.
Writing in 2019, I wrote that …
‘Time to change the narrative’
It is increasingly obvious that the the time has come to change the narrative.
Journalists, academics, bankers and other professionals must stop referring to FATCA as a “tax evasion law”, implying that its chief purpose is the protection of the U.S. tax base from would-be tax evasion by its citizens, and start referring to it as a law that has expanded the U.S. tax base into other countries, through the accompanying tool of citizenship-based taxation (CBT).
Because, as I see it, those who continue to misrepresent what FATCA actually does are complicit in assisting the U.S. to tax the nationals of other countries.
As we have seen in recent months in Europe, where, as a growing number of newspapers and other media outlets have been reporting, thousands of accidental Americans are said to be in danger of losing their local bank accounts if they don’t get an American Social Security number (SSN) – in other words, for many, officially entering the U.S. tax net, with all the implications this will mean for them – at once.
The U.S. Treasury, therefore, is now determining which citizens of other countries around the world, who happen to have legacy ties to the U.S. in some way, will, or will not be able to have a bank account where they live.
It’s obvious that this sorry (and ridiculous) state of affairs impacts, in the form of a sanction, both sovereign nations and their citizens.
Q. Why Does FATCA Litigation Fail? A. Because, It Focuses On The Symptom And Not The Cause
A Reminder – What is U.S. citizenship taxation?
John Richardson – Follow me on X.com @Expatriationlaw
