Caroline Leursen did not know she was American. She was born in 1964 in the town of Ames, Iowa, of which she remembers nothing. Her Dutch parents, who were chemists, were sent to study at Iowa State University by their employer Unilever for a year. Two months after her birth, they returned to the Netherlands.
Following her divorce, Leursen currently lives in the UK – with Dutch nationality. She received a notice from the Dutch ING Bank, where she has an account. They reported that they were going to pass her details on to the United States. This is the result of a recent Dutch-American treaty on the exchange of financial data, which in turn is based on the US Financial Assets Tax Compliance Act of 2010.
Leursen was astonished. She had never asked for a US passport nor did she have any idea she even possessed US nationality.
”If you receive British child benefits, you’re required to pay tax for this in the US”
In the meantime, Caroline Leursen gathered more information. For example, she found out that she was taxable in the US from the moment she started earning money and that she has to submit her financial activities to the IRS. All because the US also taxes US citizens living abroad, as she now knows. Leursen has to declare her taxes for the past five years.
8.7 million Americans who do not live in the US, must also declare taxes in the US
40,000 of these people live in the Netherlands
3,400 (Approximately) Americans renounced their nationality in 2014. This year there will be more.
What has happened to Leursen affects about another 8.7 million Americans outside the US, of whom about 40,000 live in the Netherlands. As of September, their banks are required to share their financial information with the US government.
That comes as a bit of a shock for some people – especially when you don’t even know you’re American. It’s also annoying because of the obligation to file taxes and the additional administration burden this entails. Dutch banks are also not happy with the additional information the US is asking from them, so some now want to get rid of their US customers altogether.
And then there’s another complication: although there are treaties between the Netherlands and the US to avoid double taxation, in practice, this doesn’t run smoothly at all.
For example, Leursen receives British child benefits and other state benefits to supplement her low income. But according to a tax adviser who she consulted, she is still required to pay taxes on this income in the US. “No one knows anything for sure about this,” she complains.
When buying or selling a home or for investments, the misery is taken to a whole new level. In the United Kingdom, as in the Netherlands, there is no tax on capital gains. The US does have this tax. Caroline Leursen must now pay taxes on the profit of the sale of her house while she already paid transfer tax on this purchase, like she did in the Netherlands. An American abroad, with or without dual nationality, suffers the worst fiscal consequences of both worlds.
Daan Durlacher from Amsterdam, had just sold his company when he discovered his US tax liability – his mother is American, meaning he had that nationality as well. He is also experiencing these inconveniences. Money he borrowed from his personal BV does not count as income in the Netherlands, but in the United States it does. And so you must pay tax on this. Durlacher was asked to pay $42,000 to the IRS, even though he thought that he had already settled his taxes – with the Dutch government.
Mark Petit, for example, who works in Rotterdam as a specialist in the financial market, has had to deal with the long arm of the US government. After his birth in Palo Alto, California in 1976, he no longer lived in the US. He had to prove this himself, with school diplomas, medical statements and certificates of residence. Moreover, this still doesn’t exempt him from American tax liability.
Caroline Leursen is not satisfied about the contact available with the US authorities. She doesn’t mind paying her taxes, she says, but she also has suspicions. “Because it hardly ever happens that Americans don’t have a social security number, which is comparable to a ‘burgerservicenummer’.”
Legally, American individuals may only transfer money into mutual funds that are under the supervision of the Securities and Exchange Commission. This rule was once intended to protect consumers. But the American government does not want to discover an invoice from a US citizen in a mutual fund that is not subject to SEC. The bank involved is then at high risk of sanctions. And the account holder must settle its payment another way.
For Americans who don’t respect their obligation to declare taxes, the sanctions are firm. In case of ignorance, the fine can be up to $10,000. There is a voluntary disclosure scheme whereby taxes should be declared over three years and no penalty is levied. You can’t escape the declaration of taxes itself. Failure to report to the IRS is typically seen a crime by the IRS. And the US has an extradition treaty with the Netherlands for criminals.
And so for many people who thought they were living according to the law, suddenly they are at risk of being treated as a criminal. “I’m all for it if they catch people who are hoarding dirty money,” said Mark Petit. “But now I’m being treated as if I purposefully withheld money from the government.”
Durlacher has since founded Americans Overseas, intended to help Americans living abroad with the new legislation. “With this law, America wants to catch the big fish, but they are only catching the small guppies,” he says. The website americansoverseas.info provides information for Americans, and his company gives contact information for tax and legal specialists.
On websites such as americancitizensabroad.org and democratsabroad.org, there is no shortage of complaints. People feel like they are being treated as criminals and complain about not being able to open an account abroad because banks dread the administrative burden.
Many Americans who live abroad, with or without dual nationality, want to give up their nationality. Take Boris Johnson, Mayor of London. He announced that he wanted to get rid of his US passport after having to transfer a “scandalously high amount” to the IRS in relation to the sale of his house.
In the Netherlands, Mark Petit discovered that you can not just give up US citizenship. “It takes time and lots of money.” In addition, you must meet all your US tax obligations.
*Some names have been changed.
This article was published in the NRC Handelsblad of Thursday, Juli 23 2015 on pages 10 & 11
Understanding the US tax system, the obligations, and all the additional terms can be difficult. Especially if one lives outside of America. Is your question not answered? Contact us.
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