Does new US regime end financial discrimination against Europeans?

Privacy First pays attention to this because financial personal data - e.g. bank and savings account balances and payment data - should also be handled with care. Dutch citizens should expect their government to provide their financial personal data to other countries only if there are good reasons to do so.

Basis for data provision

It may be legitimate for banks, for example, to provide data to the Dutch government for the benefit of a foreign government. It can be compared to the financial data on employees that a Dutch employer provides to the tax authorities, on the basis of which the tax authorities can prepare and verify the employee's tax return. Similarly, the German government has an interest in hearing from the Dutch tax authorities that a resident of Germany has a bank account in the Netherlands.

The international exchange of financial personal data that takes place for the purpose of taxation and crime fighting is based on a variety of treaties and international agreements. What is striking about those arrangements is that they pay little attention to the position of citizens.

But it does not always go well: FATCA

Most Dutch people do not notice much of the international exchange, but there is one group that is affected: people born in the United States (US). Anyone born in the US, even if they moved to the Netherlands with their parents shortly after birth, is required to file tax returns on world income in the US. It does not matter if there is no US income or assets in the US. Even if the US-born Dutch citizen has no relationship with the US, he/she has this obligation.

It sounds strange and it is.

In international tax law, it is common practice that you pay income tax in the country in which you earn your salary and that property income is taxed in the country in which the property is located. The country of which you are tax resident may ask you to file a tax return on world income, this is also known as residence-based taxation. If that world income comes from countries other than your country of residence, there is usually a tax treaty with the Netherlands and foreign taxation is taken into account. (This does not always go well: then there is double taxation).

The deviant US tax system

The US is the only country in the world with taxation of world income based on nationality: 'citizenship-based taxation'. The consequence of this system is that a person living in the Netherlands and having Dutch nationality, but born in the US, has to declare world income in two countries, namely both the Netherlands and the US. Then this Dutchman must try to avoid double taxation through the treaty the Netherlands has with the US, something that does not always succeed. It gets even trickier if there is income from countries other than the Netherlands or the US, because then the question is whether the relevant tax treaties prevent double taxation.

Until around 2013, ordinary Dutch people did not notice much of this US system. However, this changed as the US passed a new law, the Foreign Account Tax Compliance Act ('FATCA'). FATCA requires financial institutions around the world to provide the US Internal Revenue Service (IRS) with financial personal data on all their customers of US nationality. On 18 December 2013, the Netherlands entered into a treaty with the US on the Netherlands' compliance with FATCA ('FATCA treaty'). Under this treaty, Dutch financial institutions must provide the personal data of Dutch nationals with US citizenship to the Tax Authority, which then passes the data on to the IRS.

Even trickier is the position of the many Dutch nationals born in the US who left the US shortly after birth. They often do not have a US BSN (SSN) and only found out through enquiries from their bank that they have a filing obligation in the US, even though they have no taxable income or assets there. These people are known as 'accidental Americans' or 'accidental Americans'. Some of them had to deal with a bank that tried to end the relationship, an example being the man who litigated against People's Bank over this.[1]

Dutch nationals with US citizenship face even more problems, such as having to declare all bank accounts on which they are authorised to sign to US authorities ('Report of Foreign Bank and Financial Accounts (FBAR)'). Financial institutions in the Netherlands, if their customer has US citizenship, must apply US financial law to many financial products, including investments, which few institutions are willing to do.

In practical terms, the way the US treats its citizens means that Dutch financial institutions refuse to provide services to people of US nationality (with exceptions) and many financial products are not accessible to them.

It is well known to the US government that their tax system is internationally deviant and leads to unreasonable results. This has been the subject of a scathing report by the Taxpayer Advocate Service, among others.[2]

It should be noted that renouncing US citizenship has been made difficult and very expensive by the US. For ordinary Dutch people with US citizenship, it is not a viable option, if they want it at all.

Citizens' objections

Objections have been raised both in the Netherlands and abroad to the unreasonable action of the US.

For many years, an action group called 'Dutch Accidental Americans' (see https://accidentalamericans.nl/) active, which tries to draw attention to the problems of casual Americans. They believe that the Dutch government should not cooperate with citizenship-based taxation, as it violates the fundamental rights of residents of the Netherlands and violates the AVG (GDPR) and the EU Charter of Fundamental Rights, among others. This group is supported by Privacy First.

Groups are also active elsewhere in the EU, and during the recent US presidential election these groups drew attention to the problems that citizenship-based taxation caused. Future President Trump announced during his campaign that he will end double taxation [3], although it is not yet known what this means in concrete terms.

Privacy First position

Privacy First Foundation believes that governments and financial institutions should respect the fundamental rights of citizens, which includes not exchanging financial personal data (such as bank account information) if there is no legitimate reason and need to do so. After all, financial personal data can be misused and data minimisation is the best security.

While data sharing can be useful for taxation and crime fighting, careful consideration must be given to whether the rationale is sound and the safeguards for citizens are adequate.

Citizenship-based taxation / FATCA

For the US regulations facing residents of the Netherlands, in Privacy First's view, this means the following:

1. The Dutch government may only provide financial personal data to other countries if that other country's tax system meets the requirements set out in the European Charter and the AVG (GDPR) for breaches of privacy and property rights. That means the breach must be necessary on the basis of EU-recognised public interest objectives. That is where the US system of citizenship-based taxation not to since it is internationally anomalous and it is hard to see why someone not resident in the US should have to pay tax there on world income, so that such data provision is contrary to public policy. Data provision under residence-based taxation is in line with international usage and means that only information originating from Dutch financial institutions can be provided to the US on individuals who are tax resident in the US.
2. Residents of the Netherlands should not have FBAR obligations, especially when it comes to accounts that do not belong to them.
3. The US should end extraterritorial financial regulations that result in Dutch financial institutions not wanting to provide services to residents of the Netherlands with US citizenship. It is important that the Dutch government and the European Union urge the US to do so and take protective measures on behalf of its residents that promote financial inclusion.

If provision of financial personal data to the US is allowed as mentioned in 1. above, it should be accompanied by safeguards:

4. Data sharing should meet the highest standards of cybersecurity. Privacy First has learned that the US government does not meet these and that serious data breaches occur regularly.
5. Furthermore, the person whose data are provided to the US should be informed about this in detail by the provider (the Tax Administration), so that he or she has the opportunity to check whether the financial personal data are correct and can correct them. (The current practice is that when financial personal data is exchanged, the citizen is not informed by either the financial institution or the Tax Administration).
6. In the receiving country - here the US - there should be full legal protection on international data transfers that can be achieved in the Netherlands in an easily accessible way, for instance through the US embassy. There is currently none of that.

In conclusion

Privacy First will call attention to respecting citizens' fundamental rights in international exchange of financial personal data in the coming period.

If you have experiences with that exchange or can support us with your expertise or your donation, we would love to hear from you!

[1] See Volksbank may not close accounts of 'unintended American' https://www.rechtspraak.nl/Organisatie-en-contact/Organisatie/Rechtbanken/Rechtbank-Midden-Nederland/Nieuws/Paginas/Volksbank-mag-rekeningen-onbedoelde-Amerikaan-niet-sluiten.aspx.

[2] More information in the Taxpayer Advocate Annual Report to Congress 2023 https://www.taxpayeradvocate.irs.gov/reports/2023-annual-report-to-congress/.

[3] Read at Tax Fairness for Americans Abroad the article American citizens abroad are victims of a lot more than double taxation https://www.taxfairnessabroad.org/blog/american-citizens-abroad-are-victims-of-a-lot-more-than-double-taxation. From another post https://www.taxfairnessabroad.org/blog/presidential-candidates-finally-recognize-issues-plaguing-americans-abroad it appears that the Democratic candidate is also ready to take action.