I describe this in more detail at the Overseas Exile blog, but here’s the issue in a nutshell.
For the first three quarters of this year the Federal Register has reported a little over 1,000 renunciations. However, one Swiss site reports that the US embassy in Switzerland has processed 411 US renunciations. This would mean that Switzerland, with somewhere between 2 to 5% of the world’s US expats, is reporting over 40% of the US renunciations. Perhaps the US expats in Switzerland have more wealth, but that 40% seems ridiculous.
However, Fox News has a story where unnamed “immigration officials” report a projected 8,000 US renunciations this year. If true, Switzerland will have approximately 5% of the world’s renunciations, a figure which makes much more sense.
So, how do we find out who these immigration officials are? Where did they get their numbers? Why is every indicator suggesting that US renunciations are increasing but the Federal Register reports that they’re way decreasing?
It’s gamed for sure. The US has a long history of misrepresenting or downright ignoring or censoring things that could possibly affect morale in the US. I don’t really blame them though. After all, how would it REALLY look to the typical US Resident Citizens if they see that tens of thousands, or possibly even hundreds of thousands of people have detonated their US Citizenship? I’ve also noted that Americans in general, have a very difficult time accepting something that directly contradicts what they have always believed to be true. They usually lash out with anger, or in a best case scenario they just don’t want to hear it.
So when I see something like this, I just just say to myself “It figures…”
Switzerland is unique in that it has lower tax rates than many other Western European nations, as far as my knowledge. Also there is the issue of the high standard of living, overvaluation of the Swiss Franc due to US-Dollar and Euro weakness, as well as high mandatory health insurance payments and rents that cannot be deducted from the US tax burden. We must also not forget the issue of the mandatory and optional pension plans that are managed through banks and insurance companies, and the double taxation of employee and employer contributions and interest. There is furthermore no “Married Filing Seperately” in Switzerland for spouses that live together under the same roof. Married individuals have, by default, a 50% interest in all pensions, savings and revenue earned during the marriage, which creates additional issues.
The current global economic situation and the US tax system that is incompatible with the Swiss tax system mean that the compliance burden on middle-class persons is especially onerous. Retired people who have “unearned” pension income are often double-taxed out of existence because their Swiss tax payments cannot FTC-out the US tax burden.
Many Swiss residents and especially duals were told by banks and local tax authorities that double taxation of Swiss income was forbidden if the individuals were tax compliant in Switzerland. The USD 627’000 exclusion for mark-to-market sale on reunciation does not apply to the pension plans as far as I know, so even renunciants or relinquishers stand to be ruined.
A few observations, not scientific at all.
I know that 2 others applied for CLNs at the same consulate I did the same day I did.
It seems that in the past week as many as 37 people have booked CLN appointments at Toronto for January (granted some may be going there for other things as it’s under “notarial and other services” but I suspect most, if not almost all, are for CLNs. The reason I think this is that a year ago at all the consulates, the “notarial and other services” appts didn’t seem to be getting grabbed up nearly so fast. They still have room for about 150 more in January, btw.)
More significantly, couple that info with the fact that Vancouver, which we’re told is currently in the process of streamlining their procedure, told two Brockers this week that they are not taking bookings at this time and are fully booked until at least June 2013. If only 2 or 3 people were applying for CLNs, they wouldn’t be booked up until at least June.
Personally, I don’t really care if the US is putting out the real numbers. Just process the CLNs and let people get on with their lives. That’s just my view – I know others are not so laid back about the stats as I am. Governments have certainly been known to game stats, and probably in this case the numbers are so large the phenomenon will become known anyway. I tend to feel as long as the US just processes this avalanche of CLNs promptly, I don’t much care if they say only 3 people expatriated in all of 2012. But I must say, having got caught up in this mess, I sure am curious.
On entering US recently for first time since renouncing, the CUSTOMS (not Immigration) officer (who spent ~5-10 mins with me, much of it reading thru many screens presumably about me on his computer screen) mentioned that there had been 25 THOUSAND Renunciants recently (!) I know he said ‘Thousand’, not ‘Hundred’. Being jet lagged, i lacked presence of mind to query him on his source for that, nor do i recall the exact interval his figure covered (if he even gave a specific time period).
@myCOUNTRYleftME: thanks for mentioning that. Every time I come up with some new way of estimating the renunciation numbers based on outside data, I keep getting indications that the real figure has to be somewhere in the low five digits, certainly not the ~1800 which the Federal Register claims:
http://isaacbrocksociety.ca/2012/11/18/homelanders-propose-raising-taxes-on-us-persons-abroad-to-pay-for-territorial-taxation/comment-page-3/#comment-98028
Very interesting to hear one more piece of data which is roughly in accord with that number, even if it’s just a remark by some border guard.
@myCOUNTRYleftME Maybe the customs official was using the figure 25’000 to mean “some big number”, just as we tend to say 35’000 (trente-cinq-mille) in French to mean the same. (example: “As I already told you 35 thousand times”).
Numbers will be adjusted after the election.
@Jefferson D. Thomas: The USD 627’000 exclusion for mark-to-market sale on renunciation does not apply to the pension plans as far as I know…
That’s right. The exclusion is for unrealized capital gains, but pension plans fall outside of that. For these, the expatriation tax rules require that you pay tax as if the entire plan was distributed on the day you renounce. 26 USC § 877A. Paragraph (d)(2)(A)(1) to be precise. Spiteful, isn’t it?
@Watcher Swiss law will not allow withdrawl from these plans unless purchasing a home, opening a business, or leaving Switzerland.
How is one to pay if one renounces, especially if one has limited means?
I have heard that the Federal Council wants to fusion othe AVS (social security) system with the mandatory employer pension scheme. As far as I know the UDC and others oppose this. But if this happened it would likely have an effect on exit tax.
Also, do not forget that the spouse has a 50% interest in pension capital accumulated during a marriage. This means that a renunciant would likely pay exit tax on capital that she or he would not be able to keep subsequent to a divorce. Hence, another example of how citizenship-based taxation results in financial ruin due to the incompatibilities between different countries’ tax and social insurance systems.
@Jefferson D. Thomas: Swiss law will not allow withdrawal from these plans unless … How is one to pay if one renounces, especially if one has limited means?
Ditto UK, though in fact even more restricted. As to how to pay this tax on phantom and/or vastly accelerated income… well, clearly congress and the IRS view this as your problem, and certainly not theirs.
There is scope under 877A to defer payment, but you have to supply “adequate security” to the IRS (never fully defined, only vaguely waffled around as a “bond”). And you have to pay the IRS interest annually on whatever it is they think you owe them, until you’ve cleared your “debt”.
While some elements of the US
Reichsflugsteuerexit tax might be somewhat defensible — or at least not that far out of line with what other countries (eg Canada) do — the pension plan provisions are not even slightly defensible. They’re outrageous.@Watcher “the pension plan provisions are not even slightly defensible. They’re outrageous.” I say, especially so where the pension funds were accrued in the foreign country such as Switzerland, and even more so if they were accrued while the person was also an EU and/or Swiss citizen.
Also, how can one post bond against exit tax on a pension capital amount that would already be taxed by Switzerland on exit (lower rate than the tax would have been on the income used to fund the plan, but still a tax) and how can one even be certain about the actual amount that could be realized? How can one predict how Swiss law might change? What if the 2nd pillar capital is one day merged into AVS and the person can only draw a pension and not remove capital under the specific circumstances I mentionned above (I forgot to add that the 2nd pillar capital can currently be taken on retirement in lieu of a pension)?
If the AVS and 2nd pillar mandatory systems were merged, people would have a bond to the IRS for taxes on capital which they subsequently cannot realize, and the amount of monthly pension benefits would likely be determined by law as an amalgam of AVS contributions and 2nd pillar capital.
The oppourtunities for bait and switch, vagueness, and poverty upon retirement seem to me to be limitless.
The numbers of Americans formally ending US citizenship are being manipulated just like the military lied about the body counts of VC killed in Vietnam.
@Jefferson D. Thomas: Also, how can one post bond against exit tax … how can one even be certain about the actual amount that could be realized?
The way that the US does it is simple enough. Absolutely and definitely unfair for sure, but simple enough. It’s not based on the future value but on the present one, and goes like this: look at your exact pension balance on the day you expatriate, or get a valuation if it’s not a “transparent” plan; on form 8854 tick ‘yes’ for section B, question 7a; add your pension balance (or valuation) as “other income” to your 1040; calculate normal income tax; pay (or defer) it. Then weep copiously.
Is the deemed distribution of deferred tax assets (pension, IRA etc.) excusively part of the exit tax regime that applies if you are a covered expatriate or does it also apply if you are not a covered expatriate? Can you use general limitation foreign tax credits to offset this or does it fall into a separate category of income for which no foreign tax credits apply?
@Edelweiss, the deemed distribution stuff for pensions only applies if you’re a covered expatriate. Form 8854, “do not complete section B if …” blah blah blah, usual rules for being “covered”. As for whether you can mitigate it with GL tax credits, to be honest I’ve no idea. I’m not convinced anyone knows for sure. The IRS is vague even on where to place it on a 1040.
@overseasexile
Glad to see you posting here. I look forwarded to reading more from you.
*@Watcher, I shared Edelweiss’s concern about the deemed distributions stuff for pensions. Thank God if it only applies to covered expatriates; but could imagine that it could still apply to those who are technically covered expatriates for not having been tax-compliant for the previous five years, for instance, even if way below the $2,000,000 threshold. All the more reason why they’ll be interested in 8938, for example…
`(1) COVERED EXPATRIATE-
`(A) IN GENERAL- The term `covered expatriate’ means an expatriate who meets the requirements of subparagraph (A), (B), or (C) of section 877(a)(2).
`(B) EXCEPTIONS- An individual shall not be treated as meeting the requirements of subparagraph (A) or (B) of section 877(a)(2) if–
`(i) the individual–
`(I) became at birth a citizen of the United States and a citizen of another country and, as of the expatriation date, continues to be a citizen of, and is taxed as a resident of, such other country, and
`(II) has been a resident of the United States (as defined in section 7701(b)(1)(A)(ii)) for not more than 10 taxable years during the 15-taxable year period ending with the taxable year during which the expatriation date occurs, or
`(ii)(I) the individual’s relinquishment of United States citizenship occurs before such individual attains age 18 1/2 , and
`(II) the individual has been a resident of the United States (as so defined) for not more than 10 taxable years before the date of relinquishment.
I have said time and time again, that the United States is a practicing cult in the guise of a nation. Being fed the dogma that “the US is the best nation in the world” having to recite the Pledge of Allegiance while putting the palm of their hand against their hearts. Holding a piece of fabric in exaltment, Marches and fanfares, pomp and circumstance to hold onto the myth that is the United States and to keep the “suckers” in line. And like all cultists, when they leave, they have to be de-programed. Sorry to say, FATCA has become a wakeup call (a sort of deprogramming by force) to all Americans who have opted to relinquish or renounce their citizenship and say “We’re not going to take this bullshit anymore.”
FOr those of us who can’t renounce, an insurrection is the only possible next step.
Could a number of people be renouncing without submitting any forms to the IRS? If so, this could also have a bearing on the official figures, at least until/if the IRS catches up with them. I imagine a few would have tried, especially some who have never been “compliant”.
Does it matter what the number is or what is published? Or are you just interested in what makes the United States look the worst, and want some huge number to spread anti-American sentiment? It seems to me, if you’re unhappy with your citizenship you should change it, but that would have to be an entirely personal decision not influenced by what others are doing, right? I suppose some might find a bandwagon to join, but making life altering decisions based upon the bandwagon is awfully silly.
The high number would just show that the policies of the United States are wrong. It is not right to create or strictly enforce laws that force people to dump their citizenship.
If the numbers were public, the US government would have to admit that it is doing something wrong and change those policies, something that it is not willing to do.
IMHO, those policies will be changed when the economic consequences will be felt, but at that point it will be too late to fix the damage that would have been done.
*I find it interesting that even US officials can’t agree on numbers. The official list figure for last year is 1,781 yet the fox article quotes the immigration officials as saying 3,805. You’ve already got a discrepancy of over 2,000 right there.
@WhoaIt’sSteve: Does it matter what the number is …?
One take on this. From wikipedia’s entry on the Wisdom of the crowd:
Knowing how many people renounced suggests the size of the group. The larger the group, the more accurate an individual’s personal decision to renounce. I suspect that what many people are looking for is justification if they’ve already renounced, vindication if they’re considering it in future.
And as Christophe noted, others may hope that a massive spike in figures would cause the US to reconsider its anti-expat tax jihad, although there probably are a few folk that just want bad publicity for the US. Both of these outcomes seem highly unlikely to me. In this arena the US is impervious to embarrassment.