Toward An Argument That US Citizenship Taxation Violates International Law

May 4, 2025 - An AI conversion of a written blog post into a podcast ...

 

Here is the original blog post from April of 2025:

https://citizenshipsolutions.ca/2025/04/20/toward-an-argument-that-us-citizenship-taxation-violates-international-law/

 

 

AI - Generated podcast:

 

This podcast episode delves into the complexities of FATCA litigation and U.S. citizenship taxation, exploring why legal challenges to FATCA often fail. The discussion emphasizes the distinction between addressing the symptoms of FATCA, such as privacy breaches and discrimination, and tackling its root cause: U.S. citizenship-based taxation.

The episode scrutinizes the implications of the U.S. imposing tax obligations on citizens residing abroad, questioning whether this practice aligns with international law principles. It argues that U.S. citizenship taxation expands the U.S. tax base globally, often conflicting with the tax sovereignty of other nations and potentially violating customary international law (CIL).

Listeners are encouraged to consider whether U.S. citizenship taxation, which bases tax residency on citizenship rather than physical or economic ties, is an outdated practice incompatible with modern international norms. The podcast aims to spark a broader discussion on the need for tax reform, particularly for Americans living overseas.

Episode Transcript

Introduction (00:00):
Why FATCA Litigation Often Misses the Mark In the realm of international taxation,

(00:07):
few topics are as contentious as the Foreign Account Tax Compliance Act (FATCA).
Enacted to combat tax evasion by U.
S.
citizens holding accounts overseas, FATCA has sparked significant legal challenges.
Yet, most of these litigations fail.

(00:29):
Why?

Because they often address the symptoms rather than the root cause (00:30):
U.
S.
citizenship-based taxation.
This blog post revisits my September 2024 analysis on FATCA litigation and explores why U.
S.
citizenship taxation might violate international law.

(00:54):
The Misguided Focus of FATCA Litigation The crux of FATCA litigation typically revolves around its consequences—privacy invasions,
discrimination,and similar issues.

However, these are merely outcomes of a more profound issue (01:08):
the U.
S.
's insistence on taxing its citizens regardless of their residency.
FATCA, and the intergovernmental agreements (IGAs) supporting it, essentially extend U.
S.

(01:29):
tax laws globally, including to those who are tax residents of other nations.
By signing these IGAs, countries inadvertently assist the U.
S.
in identifying their residents who are also U.
S.
citizens, thereby expanding the U.

(01:50):
S.
tax base internationally.
Reassessing FATCA Litigation Future FATCA litigation should pivot towards questioning whether the U.
S.
's imposition of citizenship-based taxation on foreign residents breaches international law.
This shift in focus could undermine FATCA's legal foundation, especially concerning non-U.

(02:18):
S.
residents.
It might also prompt countries to reconsider the implications of the "saving clause" in U.
S.
tax treaties, which allows the U.
S.
to tax its citizens abroad.
Exploring Citizenship Taxation and International Law Is the U.

(02:42):
S.
's practice of taxing non-residents a violation of international law?
This post aims to dissect this question, suggesting that U.
S.
citizenship taxation, which claims non-residents as U.
S.
tax residents, might conflict with customary international law (CIL).

(03:07):
If proven,this could justify courts in rejecting FATCA obligations for non-resident individuals and encourage countries to scrutinize their treaty agreements with the U.
S.
Understanding the Theoretical Framework To build this argument, we must first define U.

(03:28):
S.
citizenship taxation,which taxes individuals based on citizenship rather than residency or economic ties.
In contrast,international law,which exists outside any single nation's legal system,
is based on treaties and customs.

(03:49):
While treaties are formal agreements,customs evolve from consistent state practices driven by legal obligations.
Tax Residency and International Law The concept of tax residency is crucial in determining taxation rights.
Traditionally, this is based on residency or income source.

(04:11):
U.
S.
tax treaties,however,uniquely include citizenship as a basis for tax residency,
an approach not mirrored globally.

This discrepancy raises the question (04:23):
Does the U.
S.
's practice of using citizenship as a tax residency criterion violate CIL,
which typically emphasizes residency or source?
Treaty Implications and Tax Residency Most tax treaties aim to avoid dual tax residency, yet U.

(04:48):
S.
treaties, with their "saving clause," allow the U.
S.
to tax its citizens abroad.
This results in U.
S.
citizens being perpetual dual tax residents unless they renounce their citizenship.
This approach contrasts sharply with global norms,

(05:12):
where citizenship is the least significant factor in determining tax residency.
Human Rights Considerations Moreover, U.
S.
citizenship taxation might infringe on individual rights as articulated in human rights documents.
The burdens imposed on U.

(05:34):
S.
citizens living abroad,such as the obligation to renounce citizenship to escape dual taxation,
could be viewed as barriers to emigration,potentially violating international human rights laws.
U.
S.
Citizenship Taxation and Sovereignty From a sovereignty perspective, U.

(05:59):
S.
citizenship taxation could be seen as siphoning capital from other nations,
undermining their tax sovereignty.
The common law "revenue rule," which prevents one country from enforcing another's tax laws,
further supports this view.

(06:20):
By facilitating U.
S.
tax enforcement through FATCA, partner countries might inadvertently violate their sovereignty.
Tax Treaties and the "Saving Clause" U.
S.
tax treaties' "saving clause" effectively overrides international norms, allowing the U.

(06:42):
S.
to enforce its tax laws on citizens residing abroad.
This clause's existence raises questions about its compatibility with the revenue rule and whether it justifies denying treaty benefits to U.
S.
citizens residing in partner countries.

(07:04):
Concluding Thoughts This exploration suggests a credible argument that U.
S.
citizenship taxation, as applied to non-residents, could indeed violate CIL.
The practice of taxing individuals based on citizenship alone,
without significant physical or economic ties to the U.

(07:27):
S.
, is out of step with international norms.
The international community should not tolerate this outdated approach,
which imposes undue burdens on global citizens.
In summary,while FATCA litigation has traditionally missed the mark,

(07:47):
a shift in focus towards challenging the underlying principle of citizenship-based taxation might pave the way for more successful legal outcomes.
This post aims to spark a broader discussion on these critical issues,
inviting further exploration and debate within the international legal community.