History has it that millions of people have sacrificed everything to become a ‘US citizen’. Since Washington has started the battle against tax fraud, this much envied passport for ‘the land of the free’ has proven to be a heavy burden for some.
This is because the US has a strange tax system; out of the entire world, only Eritrea has a similar system. American citizens always need to complete tax declarations, even if they have never lived or worked in the US, and also when they have dual nationality.
This duty to declare even applies to 100% of those Dutch citizens with a current Green Card; a type of residential permit. For a long time now, only a few American expats have taken much notice of their tax declaration obligations.
However, now there is the FATCA (Foreign account tax compliance act), a law established in 2010 designed to catch tax evaders everywhere in the world. This law, apart from affecting the above mentioned Green Card holders, also had an effect on Jan Modaal who happens to be American by chance (by place of birth, and American parenthood).
The Netherlands have been working together with FATCA since last year. The banks are obliged to register their American clients. Through the Dutch taxation authorities, this information will then be passed on to America at the end of this year.
According to Daan Durlacher, you need to be well aware of this. Born in Apeldoorn, this businessman has an American passport through one parent and knows what he is talking about.
To do the right thing by the IRS, the American Tax Authority, he submitted a tax declaration. It then appeared that Dutch company sales were suddenly taxable in America. ‘The initial fine was very severe. I found an American Accountant, and eventually I only had to pay a fraction of this. When this was achieved, I certainly celebrated’.
Together with Michael Littaur, a fellow casualty, Durlacher established Americans Overseas.info earlier this year. This business tries to make the government and especially ‘American persons’ in the Netherlands aware of this unresolved problem. The latter are also advised about what action they should be taking.
‘American citizens’ are actually also breaking the law when they do submit a tax declaration after a period of hesitation. Currently, a repentance regulation applies. Anyone who formally swears to have been completely unaware of his/her obligations will not get fined and ‘only’ needs to submit a declaration for the last three years. Otherwise, this becomes six years. How long this regulation will stand, nobody knows Durlacher warns.
He estimates that 33,000 people with an (additional) American passport currently live in the Netherlands, plus another 70,000 to 100,000 people with a Green Card. Every single one of these people is obliged to submit a declaration for taxation purposes.
“I think that 70% to 80% of them do not even know about this fact”, Durlacher says. This is starting to change; due to the questions being asked by the banks and because of publicity, Americans Overseas has already been able to assist many people.
Avoiding double taxation
He can reassure most people: an average employee or small business operator with few or no investments has little to fear. The Netherlands and the US have signed an agreement on avoiding double taxation, but the obligation to declare remains the same with the assessment being zero.
That is the good news. The bad news is that the bureaucratic hurdles are high. Firstly, their tax declaration form is too complicated for many, especially the first time.
‘You really need someone who knows the American taxation system’ according to Durlacher. The advisors easily charge €200 to €300 per hour and commonly charge for ten hours of work’. His company works with advisors using a considerably lower all-in rate.
You also need to have a Social Security Number (SSN), just like ‘normal’ Americans. This is also a (one-off) long-running procedure.
It becomes even more problematic in cases of investments. America does not have a capital gains tax like the Netherlands, but it does tax investment profits, including any profits made when selling your own home.
Durlacher also gets messages sometimes about the banks being difficult when it concerns American clients. ‘Initially, they were paranoid and wanted to remove clients from their books altogether. You can still have a debit account but they refuse to open savings accounts. This also applies to investment mortgages.’
ING Spokesman Reinier Steffens confirms that the bank no longer provides investment products to Americans. ‘This is a different issue to FATCA, but relates to another law. We can only offer investment products to “US persons” if we are registered as brokers in America.’
So much trouble and such high costs: many will decide not to submit a tax declaration after all. Those with a Dutch surname, who used this name and Dutch passport when opening their bank account, may not be ‘discovered’ by the bank as being American.
Steffens confirms that the bank cannot see everything. ‘We are only obliged to do our best.’ Durlacher points out that it is a punishable offense to not submit a tax return statement and that the fines can be substantial. In extreme cases someone with dual nationality can surrender their American passport.
Durlacher: ‘This is also quite a procedure. First, you must be able to prove that you have submitted tax declarations for the last six years.’ In fact, would you do that? Relinquish a nationality that so many desperately want? ‘You have something useful. If you want to study in the US or work there, being a US citizen is not a problem.’
‘It is a classic example of a power play.’
Mike Beaujean (39)
Born in the US and moved to the Netherlands just 3 months later.
‘This joke is probably going to cost me about €15,000,’ Mike Beaujean (39) sighs. However, after that, the financial specialist from Utrecht will definitely be exempt from the risk of being fined (or worse) for not meeting American tax regulation obligations for ‘US persons’ outside of the US. Beaujean is one of those distressing cases of Dutch citizens with dual Dutch and American nationality who is being affected by the FATCA.
‘I was born in the US when my Dutch mother and French father worked there for a few years, for my father’s work. When I was three months old, we moved to the Netherlands. Me as an ‘American’, complete with American passport. On arrival in the Netherlands, I was immediately officially registered as Dutch. I have no ties with America at all, but have always held on to my nationality and passport. As a “virtual American” I have never been aware of any possible obligations regarding the US. I have just lived, resided and worked in the Netherlands all of my life and, therefore, did not think that there was any reason for me to give up my American citizenship status.
Supplementary pension product
I came across FATCA when I wanted to arrange a supplementary pension product at the bank. The bank in question wanted me to prove that I met the obligations set by the American Tax Department (IRS) for non-residents with American citizenship status. However, I was unable to provide this evidence and what’s more, I do not even have an American citizen number (Social Security Number, SSN) and until very recently I was totally unaware of any tax obligations for US persons.
Nervous ‘No one feels like having issues with the IRS and the US Government.’
Therefore, the application for this banking product did not go ahead. This did, however, cause me to become a little nervous. Clearly no one feels like having issues with the IRS and the US Government. Via a personal contact, I entered into discussions with fiscal advisor Ruben Freudenthal at Deloitte. Together with him, I have formulated a solution and right now we are in the middle of working on this. This is a safe, but also expensive solution.
Step one was that I applied for an SSN. This could be done free of charge at the American Consulate in Amsterdam. This was quite tedious because I had to prove that I never lived or worked in the US after my initial three months there. This procedure is now continuing and could take another six months.
Step two is that I want to make use of a type of American repentance clause. This requires you to submit your complete financial background details, including Dutch income tax data over the last few years, by submitting the correct forms. I purely need help with this because the American
Fiscal regulations are so different to those in the Netherlands. The US does not have capital gains tax, for instance. To make sure that everything and all of the figures are correct, and that all of the boxes will be checked correctly, I am being assisted by Deloitte but also by an American tax consultant as well as a very good American lawyer. This approach ensures that we can expect a decision from the IRS without revealing my identity. Then, if something is wrong, we can always still fix it.
It is only after this that I will be able to take the step of renouncing my American citizenship. For this, you need to go to the US Consulate again and take an official oath that you no longer want to be American. This also costs a lot of money, something like $2,500. Previously, this was quite a lot less, but since FATCA this cost has seen a sharp increase.
I find it extremely distressing that someone like me, who never actually had anything to do with the US, is now subject to being pursued at great costs. This is a classic example of American power games. It is an expensive and tiresome exercise. They did not tell me about this when I was born… Fortunately, I now have contact with many fellow-sufferers.’
No longer American
‘I feel Dutch in my heart and soul’
Kris Pelleboer (47)
Den Haag (The Hague)
Born in the US, married to a Dutch partner and has lived here since 1993
Kris Pelleboer is still feeling upset about this. On 19 December 2013 – the date has been permanently marked in her memory – she received a letter from Nationale-Nederlanden (NN), which was then still part of the ING group, that the bank would be cancelling her investment account linked to a mortgage at Westland-Utrecht. The reason: Kris Pelleboer, maiden name Kristen Knouse, has American as well as Dutch nationality.
No longer investment services to ‘US persons’
The bank no longer wanted to offer investment services to ‘US persons’, due to problems that could potentially arise with FATCA, says Pelleboer. NN denies that they are the wrongdoer and says that it is older SEC legislation (American stock market control) that led to the termination of her contract. “We offered for Mrs Pelleboer to get an external opinion and for us to compensate for this,” says a spokesman.
‘I was angry and upset that NN could make such a decision so suddenly and this without offering compensation for damages either. My parents are American citizens and they still live in the US. I was born there and moved to the Netherlands aged 25, together with my partner, who I met at university.
We have been living and working in the Netherlands since 1993 and I also have a Dutch passport. As an American, it is a constantly recurring administrative nightmare for me to extend my residential and working permit here. Hence, I took action and took on Dutch nationality status fairly quickly. I feel Dutch in my heart and soul and I make sure that I pay my taxes here as I should.
In 2005, we bought a house and took out an investment mortgage for this purpose. The NN’s foreclosure on this forced us to take out another new mortgage. How much damage we suffered in this process is difficult to define. It depends on all sorts of factors. NN did say that they regretted their decision, but still annulled the investment contract regardless.
‘More staff’ The cost of revoking American Nationality status multiplied fivefold in 2014.
We also tried, with help from a lawyer of our legal expenses insurer, to get a foot in the door. But they did not want to go near this problem. In Court, we were also unable to demonstrate what our immediate damage was.
A claim by another American Dutchman lodged at the College for Human Rights, that the ING Bank discriminated against US persons on the basis of their nationality, was rejected – to my amazement. According to the College, the ING Bank must abide by US law and this is comparable to the Dutch generally binding regulations.
Revoking my American citizenship
To remove annual obligations to lodge tax returns with the IRS and to safeguard our pensions and Dutch bank accounts, I had no choice but to revoke my American citizenship. In February of this year, I went to the American Consulate in Amsterdam to arrange this. Using a tax advisor who specializes in these matters, we have now completed the mandatory tax returns for the past five years for the IRS.
This cost us €,1500. We also paid $2,500 to revoke my American citizenship status. The cost of this was increased fivefold in 2014; the reason given for this was that the US State Department had to employ more staff to cope with the influx of applications. However, after six months I have still not received any confirmation of the fact that I am no longer a ‘US person’.
Over the last one and a half years, I have not travelled to the US anymore either. You just do not know what might happen at the border when you are checked. I am blind and used to collect my guide dogs from the US. They suit me better than those trained in the Netherlands. I will not be doing this again, because I am afraid of what risks I might be running.
Furthermore, I hate to think what might happen if one of my American parents or friends should pass away, but I am really too afraid to travel to the US as long as I have not received confirmation.’