New relinquishment fee

There's a new sting in the tail of the latest announcement of Citizenship Services fees for those who may seek to relinquish US Citizenship. The current fee to renounce US Citizenship and obtain a CLN (Certificate of Loss of Nationality) is $2,350 whilst there is no charge to relinquish US Citizenship and obtain a CLN. Effective 9 November 2015, there will also be a fee of $2,350 to relinquish and obtain a CLN.  The DoS is forecasting 6,000 renunciations for 2015 and 550 relinquishments.

Hat tip to Eric at IBS.

https://www.federalregister.gov/articles/2015/09/08/2015-22054/schedule-of-fees-for-consular-services-department-of-state-and-overseas-embassies-and#h-15

A CLN may be requested by an FFI if the applicant for an account states they are no longer a USC. It may also effect those who have relinquished and are travelling to the US with a US place of birth in their UK (or other) passport.

Very interesting.  Thanks for the information.

It seems to me that by removing any route through which a USC might be able to obtain a CLN without charge, they're actually creating a situation in which a reluctant USC should be able to rely on their own affidavit that they have renounced US citizenship of their own free will, and don't owe the IRS any money, but can't afford to pay the $2350 to obtain a CLN.

UK courts won't defend a dual citizenship person against demands imposed by the other nation, but if the person demonstrates that he or she genuinely wants to escape the non-UK citizenship but can't afford the costs involved, there would seem to be no legal barrier to a court ruling that lack of a CLN is not an acceptable justification for denying account services, for example.

After reading through some very relevant comments on another website, I gather that the relevant passage in the IGA is the following:

. Notwithstanding a finding of U.S. indicia under subparagraph B (1) of this section, a Reporting United Kingdom Financial Institution is not required to treat an account as a U.S. Reportable Account if:
a) Where account holder information unambiguously indicates a U.S. place of birth, the Reporting United Kingdom Financial Institution obtains or has previously reviewed and maintains a record of:
(1) a self-certification that the account holder is neither a U.S. citizen nor a U.S. resident for tax purposes (which may be on an IRS Form W-8 or other similar agreed form);
(2) a non-U.S. passport or other government-issued identification evidencing the account holder’s citizenship or nationality in a country other than the United States; and
(3) a copy of the account holder’s Certificate of Loss of Nationality of the United States or a reasonable explanation of:
(a) the reason the account holder does not have such a certificate despite renouncing U.S. citizenship; or
(b) the reason the account holder did not obtain U.S. citizenship at birth.

http://webarchive.nationalarchives.gov.uk/20120913103048/http:/www.hm-treasury.gov.uk/d/facta_agreement_tax_compliance_140912.pdf

An unavoidable charge of $2350 seems like a very reasonable explanation for not having a CLN.  Although this wording appears in the context of determining whether an account worth more than $50000 is or is not reportable, perhaps a prudent FFI would think twice before refusing to accept similar evidence of renunciation in other contexts, such as account closure.  But IANAL, so am only speculating.

(3) a copy of the account holder’s Certificate of Loss of Nationality of the United States or a reasonable explanation of:
(a) the reason the account holder does not have such a certificate despite renouncing U.S. citizenship; or
(b) the reason the account holder did not obtain U.S. citizenship at birth.

Ultimately, it will be the FFI's decision as to whether the account is a US reportable account, or not. It's always been the downside of FATCA and the IGA's that the FFI's are the arbiter of US Personhood for financial reporting. They have nothing to lose by making an account reportable, but they also have a conundrum.

"[A]........the IRS, in its Frequently Asked Questions (FAQs), recently added Question 10 to the section dealing with General Compliance. The question posed is whether, if a Reporting Model 1 FFI or a Reporting Model 2 FFI, in applying the due diligence procedures in Section III(B) of Annex 1 of the IGA, cannot obtain the self-certification upon the opening of new individual accounts, can the financial institution, nevertheless, open the account and treat it as a U.S. reportable account? The IRS responds "no," stating that, pursuant to Section III(B) of Annex 1 of the IGA, the financial institution must obtain the self-certification at account opening, failing which the financial institution cannot open the account". (bold mine)

http://www.bna.com/fatca-versus-igas-n17179934450/

There's also the question of an old law, the Expatriation Act of 1868, which is (as I understand) still in force today:

“Whereas the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness … Therefore any declaration, instruction, opinion, order, or decision of any officer of the United States which denies, restricts, impairs, or questions the right of expatriation, is declared inconsistent with the fundamental principles of the Republic.” 15 Stat. 223; R.S. § 1999; 8 U.S.C.A. 1481….” (bold mine)

https://en.wikipedia.org/wiki/Expatriation_Act_of_1868

A lawsuit in Canada pending a judicial decision, a lawsuit in the US (Federal Court in Ohio) pending a judicial decision, and an ongoing appeal to the UN Human Rights Commission: the "slick, slight of hand" of the US Department of the Treasury in inventing the IGA's (there was nothing in the legislation about IGA's) may have been a brilliant tactic, but it may also have been a step too far.

Regardless, it appears anyone who may have US citizenship (knowingly, or unknowingly) is being directed towards paying $2,350. Relinquishments are subject to the approval of the DoS. What happens to the $2,350 if the DoS decides to deny the relinquishment? Is the $2,350 refunded, or put towards renunciation, or lost with an additional $2,350 due with an application for renunciation?

IMHO, the new charge may drive even more individuals to hide at all costs. 

....... in the context of determining whether an account worth more than $50000 is or is not reportable,......

The US/UK IGA allows the FFI complete discretion in reporting. If the year end total in the account is over $50,000, they must report it. If it is below $50,000, they have the choice as to whether to report it or not. For ease of compliance, reporting any US indicia account, regardless of the year end amount, may be prudent. 

"[A]........the IRS, in its Frequently Asked Questions (FAQs), recently added Question 10 to the section dealing with General Compliance. The question posed is whether, if a Reporting Model 1 FFI or a Reporting Model 2 FFI, in applying the due diligence procedures in Section III(B) of Annex 1 of the IGA, cannot obtain the self-certification upon the opening of new individual accounts, can the financial institution, nevertheless, open the account and treat it as a U.S. reportable account? The IRS responds "no," stating that, pursuant to Section III(B) of Annex 1 of the IGA, the financial institution must obtain the self-certification at account opening, failing which the financial institution cannot open the account". (bold mine)

  I don't imagine one could bring a successful court case against a UK bank for refusing to open an account, but the closing of an existing account might be contestable.  I'm only guessing though - until/unless it gets challenged, there's no knowing. 

With regard to self-certification, in theory a renunciant should be able to self-certify by complying with the requirements set out in the IGA, shouldn't they?  Supplying a reasonable explanation (inability to afford the charge) for the lack of a CLN?  If UK courts rule that that's a reasonable explanation I don't see how a UK FI could disagree.  The UK FI is after all reporting to HMRC, which is just as much bound by UK court decisions as the banks are.

The US/UK IGA allows the FFI complete discretion in reporting. If the year end total in the account is over $50,000, they must report it. If it is below $50,000, they have the choice as to whether to report it or not. For ease of compliance, reporting any US indicia account, regardless of the year end amount, may be prudent.

Ah, I didn't read the right bit.  Thanks for the correction.

The US/UK IGA allows the FFI complete discretion in reporting. If the year end total in the account is over $50,000, they must report it. If it is below $50,000, they have the choice as to whether to report it or not.

Actually, that may be better,  as a challenge to FATCA, than challenging the closure of an account.  A UK FI can't legally hand over account information without the owner's consent; if the owner has notified the FI that they've renounced US citizenship (albeit without benefit of a CLN), the FI can't very well bully them into waiving their data protection rights.   Would the UK Government enforce US threats of a 30% sanction against the FI, if the waiver could not be obtained?

For ease of compliance, reporting any US indicia account, regardless of the year end amount, may be prudent.

The banks have to comply with all laws, not just FATCA.

A lawsuit in Canada pending a judicial decision, a lawsuit in the US (Federal Court in Ohio) pending a judicial decision, and an ongoing appeal to the UN Human Rights Commission: the "slick, slight of hand" of the US Department of the Treasury in inventing the IGA's (there was nothing in the legislation about IGA's) may have been a brilliant tactic, but it may also have been a step too far.

There seems to be a reasonable degree of progress towards a multilateral approach to automated exchange of information, which may eventually have the result of attenuating the ill-thought-through aspects of the FATCA implementation.  (http://www.oecd.org/tax/exchange-of-tax-information/automaticexchange.htm).  If international procedures of enforcement can be agreed - procedures which respect the rights of citizens who aren't in the business of tax evasion, terrorism, people-trafficking, etc - the current IGAs may morph into something less threatening to ordinary law-abiding citizens.

Regardless, it appears anyone who may have US citizenship (knowingly, or unknowingly) is being directed towards paying $2,350. Relinquishments are subject to the approval of the DoS. What happens to the $2,350 if the DoS decides to deny the relinquishment? Is the $2,350 refunded, or put towards renunciation, or lost with an additional $2,350 due with an application for renunciation?

The language of the proposed amendment makes it very clear that it's not a charge for relinquishment, but simply a charge for processing a request for a CLN.  Whether the request is granted or refused won't matter, since the  processing costs are incurred regardless of outcome.

IMHO, the new charge may drive even more individuals to hide at all costs.

Hiding has costs to one's self-respect in addition to other impracticalities.  I expect a lot of people will just ignore the whole business. 

There seems to be a reasonable degree of progress towards a multilateral approach to automated exchange of information, which may eventually have the result of attenuating the ill-thought-through aspects of the FATCA implementation.  (http://www.oecd.org/tax/exchange-of-tax-information/automaticexchange.htm).  If international procedures of enforcement can be agreed - procedures which respect the rights of citizens who aren't in the business of tax evasion, terrorism, people-trafficking, etc - the current IGAs may morph into something less threatening to ordinary law-abiding citizens.

The link above concerns the OECD CRS (Common Reporting Standard). 61 countries, including nearly all of the G20, have signed on to this initiative which will commence in 2017 or 2018. The CRS is based upon residence based taxation. In other words, it only concerns a resident of country A with a bank account in country B (B reports account to A if individual owner of the account is resident of A).

One country has refused to sign the agreement. Guess which one? They feel the attempt to have a law passed which will fulfil reciprocity as defined in the IGA's overrides the need to join the CRS, even though, after several years, a law (or Executive Order) requiring reciprocity (by requiring local FI's to search for and report foreign addresses for accounts) still doesn't exist.

http://www.oecd.org/ctp/exchange-of-tax-information/MCAA-Signatories.pdf

The language of the proposed amendment makes it very clear that it's not a charge for relinquishment, but simply a charge for processing a request for a CLN.  Whether the request is granted or refused won't matter, since the  processing costs are incurred regardless of outcome.

Agreed, there is no longer a charge for renunciation/relinquishment, but an Administrative Processing of Request for Certificate of Loss of Nationality charge.
 

.... I expect a lot of people will just ignore the whole business.

There's also a possibility a larger number of people will become more economical with the truth when applying for an account. The place of birth (if asked for) is always the giveaway.

One's place of birth is not a "giveaway" unless one has tried to conceal it or lie about it.  Everyone has to make their own decisions about these matters, but personally I wouldn't do that.  I've done nothing wrong, and I plan to keep it that way.

I shall notify all my banks, once I've sworn the oath of renunciation.  I won't wait for the CLN.  It will be interesting to see how each reacts to (a) the news that I was born in the US and have been a US citizen all these years, and (b) my self-certification of renunciation.  I think I can predict, in two cases, but I'm not sure about the third. 

So it goes.

Actually, that may be better,  as a challenge to FATCA, than challenging the closure of an account.  A UK FI can't legally hand over account information without the owner's consent; if the owner has notified the FI that they've renounced US citizenship (albeit without benefit of a CLN), the FI can't very well bully them into waiving their data protection rights.   Would the UK Government enforce US threats of a 30% sanction against the FI, if the waiver could not be obtained?

Should have realised - because the data is required by law, and goes to HMRC first, before being passed on to the IRC, the Data Protection Act can't be invoked.  No waiver needed.

Are there data protection issues in providing client’s financial information, such as account numbers, to HM Revenue and Customs (HMRC)?

All reporting to HMRC for FATCA is done in order to comply with UK law. As financial institutions have a legal obligation to provide this data there is no data protection issue.

https://www.gov.uk/government/publications/foreign-account-tax-compliance-act-financial-institutions-quick-guide/foreign-account-tax-compliance-act-financial-institutions-quick-guide

Can't help pointing out that in most countries the fee for renouncing/relinquishing citizenship is zero. In Canada it is 100 Canadian dollars. In China it’s US$74.

Even in the US, the fee for BECOMING a US citizen is only $670.

At least being conceived in the United States does not (yet) make someone a US citizen

At least being conceived in the United States does not (yet) make someone a US citizen

Provided no US citizen is involved in the conceiving.