Dual nationals residing outside the United States intend to refer a complaint to the European Commission after a French court rejected their request to undo an agreement under the Foreign Account Tax Compliance Act.
The French Administrative Supreme Court (Conseil d’Etat) on July 19 ruled against the France-based Association of Accidental Americans (AAA), which has been fighting against the far-reaching U.S. law enacted to curb tax evasion through exchange of financial information related to U.S. taxpayers.
The AAA brought a challenge against a decree implementing the FATCA intergovernmental agreement between France and the United States, alleging violations of EU data protection laws and infringement of the French Constitution for lack of reciprocity. The French court was not swayed by their arguments, however, according to a July 19 statement from AAA President Fabien Lehagre.
Lehagre explained in the statement that the Conseil d’Etat declined to refer the question of EU law compatibility to the Court of Justice of the European Union. The AAA is now planning to bring a complaint alleging a breach of EU law before the commission.
Captured in FATCA’s global reporting regime are so-called accidental Americans with negligible ties to the United States, including nationals residing overseas who are U.S. citizens because they were born on American soil or were born abroad to American parents. These individuals seemingly were not the intended target of FATCA, which was designed primarily to track down Americans hiding taxable assets abroad.
The United States is the only country in the world, with the exception of Eritrea, that has a citizenship-based taxation system. It can come as a surprise to individuals who accidentally inherited U.S. citizenship that they are responsible for declaring and paying taxes on their global income — and accidental Americans are finding that FATCA can reach further into their daily lives.
For example, foreign financial institutions, which must report on accounts held by U.S. persons, can be reluctant or unable to assume the FATCA burdens and costs and risk noncompliance penalties, leading many to close accounts and deny U.S. citizens access to banking and other financial services. The AAA is behind a discrimination complaint against several banks, filed with the Paris public prosecutor, which alleges that financial institutions have discriminated against birthright citizens in France based on their U.S. citizenship.
A French parliamentary report released in May detailed the issues faced by accidental Americans, including the obstacles to financial services. Rapporteurs Marc Le Fur and Laurent Saint-Martin suggested renegotiating the France-U.S. IGA to incorporate provisions providing relief to dual French-American citizens. If negotiations fail to generate the requested relief, government officials should consider denouncing the FATCA agreement and restricting the exchanged information, according to the report.