In a 76-page tour de force, international tax lawyer and University of London School of Law Ph.D. candidate Bernard Schneider takes on the U.S.’ unique practise of taxing people who do not live in the country nor receive any benefits from it. His paper, published in the Virginia Tax Review in October, was posted on SSRN yesterday. A sample quote:
The worldwide taxation of nonresidents can also be seen as a form of tax imperialism – the United States is overriding the incentives that foreign countries have put in place to attract U.S. taxpayers and investment. A foreign country’s decision to impose a lower tax rate than the United States reflects its judgment on how to tax and may even be specifically designed to attract foreign labor or capital. To the extent that the United States arrogates to itself the right to tax the difference between the foreign country’s effective tax rate and its own, even when its citizens reside in that foreign country, the United States is breaching inter-nation equity.
Schneider goes into copious detail to demolish every one of the myths and lies that Homelanders have come up with to justify extracting tribute from U.S. Persons abroad. Unlike many previous papers on the topic, he not only discusses the issue of tax owed (which is typically dismissed by Homelanders with snide and uninformed comments about the “great tax breaks” we get), he also covers the difficulties of compliance — such as the significant costs of filing Form 8621 under PFIC rules which apply to non-U.S. retirement plans — and goes on to bring up the issue of green card holders abroad, who face the same tax issues as citizens but without even having a vote, a U.S. passport, or a guaranteed right to return to the United States.
Interestingly, Schneider also takes the time to dismiss one of the popular but logically weak arguments in support of the FEIE, that U.S. citizens abroad deserve “tax breaks” because they are helping the U.S. economy. He concludes his paper with a detailed proposal for the U.S. to adopt a departure tax system similar to Canada’s.
Bernard Scheider. “The End of Taxation without End: A New Tax Regime for U.S. Expatriates”. 32 Virginia Tax Review 1, 2012.
Within the Eu, the holder of an account has an option to either declare the account towards his home country, or the bank just sends the tax anomymously to the other country.
Norway just simply taxes foreigner money in Norway and keeps it. (until the account is closed).
US has the option of continuing to doing the same it does today, just keep taxing whatever divididends and gains are there until that account is withdrawn, when it is reported and taxed.
“An agreement with the U.S. to share information on a government to government basis, within prescribed limits, will bring certainty to the application of the FATCA regime to Canadians, and will also facilitate compliance by our financial institutions,” he said in a statement.
In its previous deal with Washington involving dual citizens, Ottawa said it would not collect penalties on behalf of the IRS, nor would Revenue Canada collect taxes for the IRS on an individual that was a Canadian citizen at the time the liability began.”
After reading this piece, it’s clear that the entire system is geared to keep the US citizen returning home, either through the payment of tribute or an actual physical return. Renunciation is therefore punishable by banishment or monetary penalty.
The writer does and adequate job in conveying that citizenship based taxation places an unjustifiable price tag on US citizenship.
One of my favourite parts, which could apply to the views of many homelanders: “Several arguments have been advanced to justify the taxation of the worldwide income of U.S. expatriates. Both horizontal and vertical equity have been invoked. Horizontal equity requires that persons who are similarly situated (i.e., have the same economic income) should pay the same amount of taxes.259 Vertical equity requires that persons with greater incomes should pay more taxes than persons with lesser incomes.260 Like the ability to pay argument, the horizontal and vertical equity arguments do not address which taxpayers should be within the pool of persons that are being compared.261 Implicit in the arguments for and against section 911 is the understanding that U.S. expatriates can legitimately be compared to domestic taxpayers.262 Yet most commentators simply assume that the jurisdictional nexus has been satisfied and the inclusion justified.263 While short-term expatriates clearly should be considered members of U.S. society for purposes of this analysis, the argument will generally be much weaker with reference to long-term expatriates, depending on their ties to the United States. The argument for comparison falls apart completely in connection with accidental, nominal, and unaware citizens, whose connection to the United States is typically minimal to nonexistent. “