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Accidental Americans Create Headache for French, European Banks

Boris Johnson, who was born in New York but left when he was five, found it outrageous that he was obliged to pay US taxes. The easy solution was to pay to renounce his US citizenship, which he did in 2016. Hundreds of other accidental Americans don’t have the luxury of such an escape. Their legal battle may have ramifications for French and European banks.

In 2010, the US Congress enacted the Foreign Account Tax Compliance Act, (FATCA), to crack down on tax evasion by Americans with assets abroad. The law requires foreign banks to report on accounts held by US citizens to the Internal Revenue Service (IRS). FATCA threatens foreign banks with fines if they fail to disclose American accounts. That has made it very hard for some American abroad to open bank accounts. According to a 2014 survey by Democrats Abroad, one in six US expats has faced involuntary closure of an account.

It may be increasingly hard to get into the US, but try getting out. A baby born in the US and who has lived outside the country for substantially their whole life, who has no American social security number, no passport, and no knowledge of the English language, is still covered by the same extraterritorial laws as all other US citizens. Fabien Lehagre was born in the US in 1984. His parents soon divorced and he arrived in France with his French father in 1986. He grew up and studied in France, and now works in Paris.

In 2014, Lehagre received a letter from his bank asking him for his American tax identification number (TIN). Having no idea that he was a US taxpayer, Lehagre first thought there had been a mistake. But he then discovered that he had acquired American citizenship at birth, and consequently was supposed to declare all his revenues to the IRS. Lehagre decided to start a campaign against FACTA, which he believes France should renounce. He started the Association of Accidental Americans (AAA) in 2017. The AAA’s goal is to fight the application in France of FATCA and the principle of Citizenship-Based Taxation (CBT), which is taxation based on citizenship instead of the country of residence.

Paying Dues to Uncle Sam

CBT is virtually unique to the US, although the Eritrean diaspora which also has to pay a tax based on citizenship rather than residence will sympathise. The system dates back to the US Civil War when Congress deemed that citizens abroad were avoiding their dues during their hour of need, so should be taxed. The system never went away. Americans abroad have never wielded any significant political influence, and domestic political leaders have remained resolutely indifferent to the issue.

Lehagre and his supporters are making a serious attempt to dent that indifference. The AAA has filed a demand to the Conseil d’Etat, France’s highest administrative court, to cancel the application of a decree authorising automatic information exchange on banking accounts between France and the US. The lawyers involved are paid from the subscription fees coming from the AAA’s membership, which now stands at 680.

There are three possible outcomes at the Conseil d’Etat, Lehagre says. The case could be accepted, which would leave French banks with an obligation to report information to the US authorities without any legal mechanism for doing so. This would expose them to the risk of substantial US fines. The Conseil d’Etat could also refuse the AAA’s claim. Lehagre told me that he expects the most likely outcome is a referral by the Conseil d’Etat to the European Court of Justice. This would lead to the issue being broadened to the whole of the European Union, and would extend the risks to the whole of the European banking sector. Lehagre expects the Conseil d’Etat to consider the matter in the first half of 2019.

The easy thing would be just to pay the fees involved in renouncing US citizenship. This varies according to the individual case but can be very expensive: Lehagre estimates the typical cost at between 15,000 and 20,000 euros. But it’s more than just a question of money for Lehagre and his members. It has become a question of principle. Because of extra-territorial legislation, US citizens, wherever they live, are victims of the application by financial institutions of the 1933 Securities Act, which leads to them being refused access to certain financial products, such as fonds commun de placement (FCP) and multi-support life insurance policies. Lehagre argues that even after giving up citizenship, accidental Americans can still face discrimination when they apply for online banking services.

Lehagre hopes that the French Banking Federation will be able to put pressure on the US government, which has yet to give an official response. He has lobbied French Finance Minister Bruno Le Maire and EU finance commissioner Pierre Moscovici to raise the matter with the US. “The issue can be quickly solved if the US has the will to do so,” he says.

David Whitehouse , January 2019


David Whitehouse, a freelance writer in Paris, is the author of a book on France’s role in the Rwandan genocide and the French trials of Rwandan suspects which began in Paris in 2014. He also co-authored the autobiography of Cambodian opposition leader Sam Rainsy published in 2013.

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  • Accidental Americans Create Headache for French, European Banks January 15,2019,  11:07, by JC DoubleTaxed [Corporate]
    <p>"This would expose them to the risk of substantial US fines."</p> <p>That is the "stick" that encouraged most nations to adapt a FATCA IGA making data collection according to FATCA rules (reporting on US person financial accounts above a certain threshold), the law of those countries.</p> <p>There is some bluff in that "stick" as well.</p> <p>European Nations may take this stance: As the US thus far has failed on its promises of reciprocity of FATCA data, European Nations will stop sending FATCA data until the US sends "like for like" data. What this implies is that the US has broken the agreements and that may be used as justification for European Nations to end their side of it, or pause the data sending until the US provides reciprocal information which would not happen thus ending the "ëxchange." Indication from the US Bankers Association is that US banks would block any such requirements due to the cost of of implementation. Additionally, there may be opposition, one may imagine, in the US heartland were FATCA style information would require persons opening/having a bank account to certify that they are a US citizen/ or citizen of any other country under perjury if they lie. Note also opposition to including a citizenship question in the upcoming US census.</p> <p>Not mentioned in the article is that the US has not signed up to the global CRS information exchange (that requires banks to report data for residents of other countries), and that the US is recognised as among the top two tax haven countries in the world. Europe could justifiably put the US on a tax haven black list. There are states such as Delaware that do not require the disclosure of beneficiaries of accounts.</p> <p>Also not mentioned in the article is a lawsuit in Canada against the Canadian Government - with two Accidentals as complainants - that the Canadian FATCA IGA violates the Canadian Charter of Rights that prohibits discrimination based on national origin. Initiated in 2014 this lawsuit goes to trial in two weeks. Details may be found at The Isaac Brock Society.</p>

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