What the heck is this, “Same Country Exception,” you ask? Let me explain by stating first that this is a concept present in the existing tax code relevant ONLY to subpart F income of foreign corporations. Don’t ask what subpart F income is, but just understand that it is NOT relevant to you or I individual expats. But the concept exists within the IRS where a payor corporation is organized and operating in the same foreign country as the recipient is a resident, exempting this income from taxation. Now take a leap to our situation. Here we are in the FATCA Squeeze, as I have called it. It is clear that FATCA is meant to capture money that is funneled offshore in order to avoid U.S. taxes. I, like 99% of American Expats, earn some income outside the United States. And this income is deposited into my foreign bank account here where I live. I use this bank account to pay my real estate tax, buy food, and help support my daughter pursue her education. The income is reported to the tax authority in the country in which I live. I pay all taxes due on it, not to mention reporting it as self employed income to the IRS and paying self employment tax (social security) to the United States, even though I think it is unfair. FATCA forces my bank to report the details of my account to the IRS. Not only that, I must report this myself to the IRS by filling out the FBAR. Multiply that six million-fold, and you can imagine the huge mountain of paperwork generated by us “little fish” expats working and banking abroad. What will the IRS gain? How will this help the massive deficit in the USA Treasury? Zero! All it will do is inundate the IRS with mountains of paperwork which succeeds in obscuring their ability to find tax evaders hiding their profits in offshore accounts (the “big fish”).
Now, apply the “Same Country Exception” to FATCA and FBAR and you have a rule exempting those who reside, earn income, and deposit that income into their banks — all three activities (residing/earning/banking) in the same foreign country — from FATCA and from FBAR. I reside, earn, bank in this foreign country so my bank doesn’t have to “FATCA” me and I don’t have to “FBAR”. It is plain and simple and succeeds in allowing the IRS to see to few felons from the humungous number of honest folk.
This was drawn to my attention by our friends at the American Citizens Abroad who alerted me to a scholarly article entitled, “Could a Same-Country Exception Help Focus FATCA and FBAR?” and published in Tax Notes International (July 9, 2012, p. 157). It is written by Allison Christians, the H. Heward Stikeman Chair in Tax Law at McGill University in Montreal, where she writes and teaches in the area of national and international tax law and policy. You can follow her on the Tax, Society & Culture blog at taxpol.blogspot.com or on Twitter @taxpolblog. The ACA announcement was also publicized by the Isaac Brock Society. All of this was some four months ago. My point is that this should be discussed in Congress and passed as law. So take the time to write to your Congressperson impressing them with the importance of this to us all, including to the coffers of the US Treasury. A small amount of your time now will same a large amount of your time later.
Incidentally, I will now work to compose such a letter to my Congressman and to those in Congress who have expressed interest in Expats. My next article will include my letter which you can use as a template for yours, saving you the time to compose your own letter.