Tax avoidance legislation in the USA is making life more complicated for American expatriates abroad, forcing some to choose between retaining their citizenship or holding a bank account abroad.
It seems many American expatriates are saying farewell to Uncle Sam as US tax avoidance legislation sets out stringent compliance requirements on foreign banks.
According to figures from the US Treasury Department, in 2012 and 2013 nearly 7,000 American expats worldwide gave up US citizenship.
The raw numbers may be small compared to the around 7 million Americans who live abroad, but the trend is a significant one.
The reason for the sudden increase is the Foreign Account Tax Compliance Act (FATCA) passed in the United States in March 2010, aimed at combatting off-shore tax evasion by US taxpayers.
It requires that banks and financial institutions worldwide identify US account holders amongst their clients, and that they automatically send information to the Internal Revenue Service (IRS) about these accounts where the account holder has assets of at least $50,000 held in the bank.
Banks are now obliged to disclose names and addresses, as well as balances, receipts, and withdrawals, although the amount of information required depends on the level of assets held by the bank.
Five European countries, including France and the United Kingdom, have initiated a common system of bilateral cooperation with the United States on the basis of an automatic exchange of tax information.
Accordingly, French and UK banks are now collecting data and transmitting it to their tax authorities, who in turn will forward to the IRS. The same procedure applies in reverse, with the IRS providing tax information on French and UK taxpayers holding assets in the United States.
The net is cast wide in terms of the information that is captured by the agreement. It includes most types of income, such as interest, dividends, royalties, bonuses, proceeds of sale, as well as most types of account holders (individuals, companies, and partnerships etc) and financial institutions (banks, insurance companies, dealers, brokers, trusts, and funds).
If banks fail to comply with the law the US authorities are entitled to apply a withholding tax of 30% on all US source income of foreign financial institutions in the United States.
The implications for foreign financial institutions are huge and the complexity of the law, the red tape involved in compliance, and the financial penalties of non-compliance, have led some European banks to drop US customer accounts.
There is some evidence in France of existing accounts being closed and new accounts refused, or, at the least, limiting the services they may be prepared to offer.
Effectively some banks are saying, make a choice between your American citizenship or holding a bank account with us.
Indeed, the wording of FACTA is such that it includes those who may not actually hold US citizenship, but who have close links with the US, thereby defining them as a 'US person'.
Thus, French citizens with a green card who have worked in the US are being caught by the law, as are French spouses of American citizens, or 'accidental' Americans, who may have been born in America of French parents, but lived all their life in France.
Some French politicians have intervened, demanding that the French government permits US citizens in France the right to hold a bank account that is accorded to every other resident in the country. The national ombudsman, the Défenseur des droits, has also been asked to investigate cases of discrimination by French banks.
There are around 100,000 Americans who live in France, many with dual nationality.
The complications and cost of completing annual tax returns to the US tax authority is undoubtedly a headache for most Americans.
Those with $200,000+ aggregate liquid assets abroad have particularly tough compliance obligations, and they are potentially liable to heavy fines if they submit an incorrect tax return.
Jeff Steiner, who runs the website Americans in France, says that: "Even before FACTA was around we had 'FBAR' (Report of Foreign Bank and Financial Accounts Act), which makes it compulsory for US persons (ie citizens or Green Card holders) with non US financial accounts that reach a total balance of over $10,000 in a year to make an annual declaration for each account to the US Treasury Department. Penalties exist for those who do not comply."
The United States is the only country that currently taxes its citizens on worldwide income, rather than just income that is earned in this country. The income threshold requiring Americans to file a tax return to the IRS is so low that many do not actually pay income tax in America and there is a tax treaty between the USA and France to eliminate double taxation.
There is now growing Republican pressure in America for the law passed by the Obama Administration to be repealed.