How the “assistance in collection” provisions in the Canada US Tax Treaty facilitates “US citizenship based taxation”

The above tweet references the comment I left on an article titled: ”

Why is the IRS Collecting Taxes for Denmark?

which appeared at the “Procedurally Speaking” blog.

The article is about the “assistance in collection” provision which is found in 5 U.S. Tax Treaties (which include: Canada, Denmark, Sweden, France and the Netherlands). I am particularly interested in this because of a recent post at the Isaac Brock Society.

This post discusses the “assistance in collection” provision found in Article XXVI A of the Canada U.S. Tax Treaty. The full test of this article is:

Article XXVI A

Assistance in Collection

1. The Contracting States undertake to lend assistance to each other in the collection of taxes referred to in paragraph 9, together with interest, costs, additions to such taxes and civil penalties, referred to in this Article as a “revenue claim”.

2. An application for assistance in the collection of a revenue claim shall include a certification by the competent authority of the applicant State that, under the laws of that State, the revenue claim has been finally determined. For the purposes of this Article, a revenue claim is finally determined when the applicant State has the right under its internal law to collect the revenue claim and all administrative and judicial rights of the taxpayer to restrain collection in the applicant State have lapsed or been exhausted.

3. A revenue claim of the applicant State that has been finally determined may be accepted for collection by the competent authority of the requested State and, subject to the provisions of paragraph 7, if accepted shall be collected by the requested State as though such revenue claim were the requested State’s own revenue claim finally determined in accordance with the laws applicable to the collection of the requested State’s own taxes.

4. Where an application for collection of a revenue claim in respect of a taxpayer is accepted

(a) by the United States, the revenue claim shall be treated by the United States as an assessment under United States laws against the taxpayer as of the time the application is received; and

(b) by Canada, the revenue claim shall be treated by Canada as an amount payable under the Income Tax Act, the collection of which is not subject to any restriction.

5. Nothing in this Article shall be construed as creating or providing any rights of administrative or judicial review of the applicant State’s finally determined revenue claim by the requested State, based on any such rights that may be available under the laws of either Contracting State. If, at any time pending execution of a request for assistance under this Article, the applicant State loses the right under its internal law to collect the revenue claim, the competent authority of the applicant State shall promptly withdraw the request for assistance in collection.

6. Subject to this paragraph, amounts collected by the requested State pursuant to this Article shall be forwarded to the competent authority of the applicant State. Unless the competent authorities of the Contracting States otherwise agree, the ordinary costs incurred in providing collection assistance shall be borne by the requested State and any extraordinary costs so incurred shall be borne by the applicant State.

7. A revenue claim of an applicant State accepted for collection shall not have in the requested State any priority accorded to the revenue claims of the requested State.

8. No assistance shall be provided under this Article for a revenue claim in respect of a taxpayer to the extent that the taxpayer can demonstrate that

(a) where the taxpayer is an individual, the revenue claim relates to a taxable period in which the taxpayer was a citizen of the requested State, and

(b) where the taxpayer is an entity that is a company, estate or trust, the revenue claim relates to a taxable period in which the taxpayer derived its status as such an entity from the laws in force in therequested State.

9. Notwithstanding the provisions of Article II (Taxes Covered), the provisions of this Article shall apply to all categories of taxes collected by or on behalf of the Government of a Contracting State.

10. Nothing in this Article shall be construed as:

(a) limiting the assistance provided for in paragraph 4 of Article XXVI (Mutual Agreement Procedure); or

(b) imposing on either Contracting State the obligation to carry out administrative measures of a different nature from those used in the collection of its own taxes or that would be contrary to its public policy (ordre public).

11. The competent authorities of the Contracting States shall agree upon the mode of application of this Article, including agreement to ensure comparable levels of assistance to each of the Contracting States.

(See S. 8 in particular.)

After reading the article at “Procedurally Taxing“, see my comment.

My comment describes how the “assistance in collection” provisions facilitate the expansion of “U.S. citizenship-based taxation” throughout the world.

Thanks for an interesting post. A couple of thoughts:

1. Your post includes:

” … it misses the mark that the United States should lead in insuring global collection of taxes just as it took the lead in FATCA.”

In practice the the effect of FATCA is to enforce the U.S. practice of “citizenship-based taxation” on the citizens and residents of other nations. U.S. citizenship is conferred by birth in the United States. There are a very very large number of “U.S. born” people living all around the world. In most cases their ONLY connection to the United States is a “U.S. place of birth”. For all practical purposes they are citizens and residents of other nations. They are often referred to as “accidental Americans”. What is happening is that the FATCA IGAs (FATCA in it’s original form exists in name only) are identifying people with a U.S. place of birth, exposing the fact that they (who could have known) have never filed U.S. taxes and is forcing them into the U.S. tax system. This is the case even when they are full “tax residents” of other nations. In some European nations (example France), French citizens with a U.S. place of birth, are (because of the FATCA IGAs), being denied bank accounts in their own country. To put it another way:

FATCA is actually enforcing the U.S. system of “place of birth taxation” on the citizens and residents of other nations. By doing so, it effectively imposes a U.S. tax on the economies of any nation that has “U.S. born people” among its residents.

This raises the question of whether the United States, via FATCA, should be attempting to enforce U.S. taxation, on the citizens and residents of other nations, whose only connection to the United States is a place of birth.

2. You note that there are five countries that via treaty – agree to an abrogation of the “revenue rule and provides the United States with the “assistance in collection” of U.S. taxes. Because of U.S. “citizenship-based taxation”, this “assistance in collection provision” can be used to enforce U.S. “citizenship-based taxation” on those who are actual residents (and often citizens) of other nations. To put it another way: the U.S. can use the tax treaty to approach another country and say: Hello, but these specific people are U.S. citizens residing in your country. Because they are U.S. citizens they have tax obligations to the United States even though they are tax paying residents of your country. The tax treaty requires YOU to deplete your tax based by assisting the United States in imposing taxation on these people. We understand that this will result in double taxation and on a transfer of wealth from your country to the U.S. Treasury. But, we will NOT allow “U.S. born people” to live outside the United States without paying taxes to the United States.

My point is this:

The “assistance in collection” mechanism in these five treaties can and will be used to allow the United States to enforce direct taxation on those who are “tax residents” of other nations AND on the economies of those other nations.

Given the U.S. practice of “citizenship-based taxation” I can’t understand why any country would enter into an “assistance in collection” treaty with the United States. Interestingly the Canada U.S. Tax Treaty does create an exemption for those who were Canadian citizens at the time tax debt arose. The Denmark U.S. Tax Treaty has a similar provision exempting citizens of Denmark.

Conclusion: It is quite clear that tax treaties which include “assistance in collection provisions” (abrogating the Revenue Rule) are overwhelmingly to the benefit of the United States. Only the United States (and the nation of Eritrea) impose taxation based on citizenship (and therefore impose taxation on the residents of other nations). These five treaties allow the United States to extend its tax base into the economies of other nations.

Interestingly, the 2016 U.S. Model Tax Treaty (unless I have missed it) does NOT include the “assistance in collection” provisions.

John Richardson