US Citizens In Canada Must File US Tax Returns
Emptying the Tax Payer
The US tax law determines that all individuals holding US citizenship are required to file annual income tax returns with the Internal Revenue Service (IRS). In addition, Canadian financial institutions are required to report to the IRS all accounts held by US citizens in 2013. The reason being, US wants to get the maximum tax it can collect from its citizens.
If you are a US citizen or green card holder, you must report your worldwide income to IRS or risk heavy penalties, it does not matter if you live in the USA or not.
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BC Province Canada Revenue Agency Tax Fraud: audit Scam
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Donation Tax Shelter in Canada How it Works?
In Canada a tax payer can claim 75% of his income as donation and get a Tax Credit of 43% (combined Federal and BC Province) as a tax payable reduction or cash refund.
Donation is a very attractive Tax Shelter for people in higher income tax bracket.
Donations to Canadian registered charities and other qualified donees approved by CRA can only be claimed as charitable donations.
At the end of each calendar year many tax shelter advocate give attractive and compelling presentation to tax payers to donate money to their tax shelter and either reduce tax or get a big refund.
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Illegal Tax Saving Schemes Promoted by Charity Promoters
At the end of the year with Holidays, Christmas and Gift of Giving makes us all charitable and there are these Charity Promoters, who take advantage of your Good Will by tying your charity/donation contribution with tax savings.
Donations in excess of $200 each year will save you 44% in taxes. That is the amount you get as Tax Credit to reduce your overall tax bill.
This is where the Charity Promoters take advantage of you. They promise to give you a charitable contribution receipt many times more than the actual cash contribution. Even with your good will to help the needy, you fall hostage to your greed and give in to their shady scheme. These charity promoters offer you a receipt in the range of $4,000 to $5,000 for every $1,000 cash donation. Their reason for offering the additional money in the donation receipt is that your $1,000 will have such a great effect on the needy, that it could be easily valued at $5,000, so they can issue a $5,000 donation receipt for you.
The problem is this kind over valuation of Cash donation is in violation of Canada Revenue Agency regulation.
If you are given a donation receipt in excess of your Cash donation by a charity promoter, be sure that your tax return will be audited and your donation contribution for tax savings purposes will be disallowed
Donation to your favourite charity is a great way to help the needy also reduce your taxes. There are many other legitimate ways for tax savings other than inflating your actual cash donation.
CRA is actively prosecuting these kinds of Charity promoters.
UBS Betrayed its Customers in Tax Case
Zurich based UBS the largest Swiss bank, acquired customers from all over the world, on the promise that their information would be protected and kept secret. The U.S. Justice Department filed a criminal case against UBS AG, that the bank conspired to defraud the U.S. by helping 17,000 Americans to evade taxes hiding money from the Internal Revenue Service.
To avoid prosecution, UBS broke the veil of Swiss bank secrecy to its loyal customers and admitted to the charges by U.S. Justice Department. UBS paid US$780 million, admitted helping tax evasion from 2000 to 2007 and handed over data on more than 250 U.S. clients. UBS later turned over information on additional 4,450 US account holders.
UBS signed an agreement with the prosecutors to end its cross-border business and co-operate with the U.S. government and identify the American account holders. With this agreement UBS avoided the prosecution and U.S. dropped the criminal case against UBS.
This agreement raises a serious question about the loyalty of corporations to its customers. Swiss banks are known for the protection of their customer’s information. If they fail to perform their duty to their customers, should the customers bring legal action against the corporation?
The Bank do not have the information if taxes were paid or not on the deposit of account holders. Out of 17,000 US account holder, I wonder how the bank decided to turn over selected account for tax evasion to the U.S. government.
Google’s Tangled Weave of Tax Strategy
Fantastic reporting by Bloomberg on Google’s income tax strategy.
New words to learn,
Income Shifting
Transfer Pricing
Double Irish
Dutch Sandwich
Advanced Price Agreement
US corporate income tax rate is 35%. Google’s foreign income tax rate is 2.4%. By shifting earning source from US to Ireland Google’s effective income tax rate is 2.4% on the foreign earnings portion of it revenue.
Is it Legal?
It is absolutely legal. It is approved and heartedly supported by US Congress. Any change to this tax strategy is opposed by US congress. In February, the Obama administration proposed measures to curb shifting profits offshore, part of a package intended to raise $12 billion a year over the coming decade. The Proposals haven’t advanced in Congress at all.
US treasury officials estimate the current policy change in Income Shifting and Transfer Pricing would raise $86.5 billion in new revenue over the next decade. But the policy change was opposed by Congress as they were lobbied by companies, i.e. General Electric Co., Johnson & Johnson, Starbucks Corp., according to federal disclosures compiled by Center for Responsive Politics.
From 2006 to 2009, US treasury lost about $60 billion in tax revenue due to this practice of Income Shifting by leading US companies.
Transfer Pricing Strategy is approved by IRS (Internal Revenue Service). IRS approved Google’s transfer pricing strategy for tax savings in 2006 after three years of negotiation. IRS gave its consent in a secret pact known as advanced pricing agreement. Under the agreement IRS approved the price of licensing of Google’s search and advertising technology and other intangible property for Europe, the Middle East and Africa.
Companies work for shareholders. It is management’s job, to give shareholder’s interest a priority. Larger profit and boosting share price is what shareholders prefer. The no. 1 way to boost earning is income tax strategy to pay less tax. Just by bringing down the effective tax rate from 35% to 2.4% Google boosted its earnings by $3.1 billion. It’s money in the pocket of shareholders. Google’s share price is $607. If Google had paid the $3.1 billion in tax, it share price would have been $100 less.
Simple, but Not so Simple Solution to this Tax Avoidance Strategy:
There is a very simple solution to make companies liable to pay fair share of their tax, like all American do.
Companies report earnings in their quarterly earnings report. All IRS need to do is make sure that the companies pay 35% tax on their pretax earning.
For Example, say Google reported $1.5 billion in pre tax earnings in the quarter. IRS needs to check, how much Google paid taxes on the pre tax earnings. At 35% corporate tax rate, Google should pay $525 million in corporate tax. If they paid any less than $525 million in tax, IRS just need to send them a bill for the difference and enforce the same kind of collection tactic they use on average American people for a tax avoidance and maybe put some of the executives in jail for tax avoidance strategy.
Google is doing nothing illegal. So, the Congress should first decide, if they will stand up to corporations and account them for their due share of income tax. Now that is not simple.