Introduction
As "explained" by James Henry of @TaxJusticeNet. Does compliance with the law even matter? https://t.co/QOINlPQ44k https://t.co/ANhGabanPJ
— U.S. Citizen Abroad (@USCitizenAbroad) December 25, 2015
This is cross posted from the RenouceUSCitizenship blog. I find it fascinating that many U.S. politicians and observers of U.S. tax policy are upset that it is possible to comply with U.S. tax law and to avoid paying taxes to the United States. Isn’t this an admission that tax reform in the United States is required? Shouldn’t these people be expressing their rage at Congress? After all, as Tim Cook says:
“It’s a tax code. It should have been changed years ago.”
Yet, (for reasons that are inexplicable to me) these politicians vent their rage at the companies. The tax code encourages U.S. persons (including corporations) to leave the United States. Instead of changing the tax laws, people like Hilary Clinton, Carl Levin, Barack Obama and his Motley Crew of Democrats want to punish them for leaving. Do they believe that “U.S. persons” are owned by the U.S. Government? Is that the problem? U.S. persons who renounce their citizenship (whether Green Card abandonment, corporate inversions, or straight renunciations) are somehow escaping their rightful owners? Are these people for real?
The current S. 877A Exit Tax rules were originally proposed by President Bill Clinton in 1996. Hilary Clinton is now proposing Exit Taxes on U.S. Corporations.
Perhaps “U.S. Exit Taxes” should renamed: U.S. “Clinton Taxes”. In any event …
Does compliance with the law even matter?
My last post featured the comments of Apple CEO Tim Cook about the ongoing debate over whether U.S. companies should be punished for their strict compliance with the absolutely archaic, dysfunctional, overly complex tax laws of the United States of America. It has reached the point where it appears there are two classes of corporations that Homeland politicians and groups like the Tax Justice Network dislike:
Group 1 – U.S. Politicians dislike those U.S. companies who do comply with U.S. laws; and
Group 2 – U.S. Politicians dislike those U.S. companies who do NOT comply with U.S. laws.
These sentiments were recently expressed by James Henry of The Tax Justice Network who makes the point that:
James Henry of https://t.co/4q8ttJdmnP – "It's not a question of the legality of what they are doing". Shouldn't Mr. Henry lobby Congress?
— U.S. Citizen Abroad (@USCitizenAbroad) December 25, 2015
The interview with Mr. Henry is fascinating. Mr. Henry is opposed to “territorial taxation” for Corporations. This suggests that he might be opposed to “residence based taxation” for individuals.
I would appreciate you commenting on what you think of Mr. Henry’s interview. What are the key points that he makes? What (if anything) does he say that is relevant to the RBT vs. CBT debate? Do you get the impression that Mr. Henry believes that U.S. companies are the property of the U.S. government?
A response from Mr. Henry …
@submergingmkt @suzanneherman1 @nobledreamer16 An open debate is a wonderful idea. Thank you for suggesting this!
— U.S. Citizen Abroad (@USCitizenAbroad) December 28, 2015
Mr. Henry is to be commended for his willingness to contribute to this discussion. I suggest that an open debate/discussion be organized in which Tax Justice Network can share and explain their opposition to territorial taxation. Such a discussion is sorely needed.
By the way …
Here is Tim Cook’s testimony before the Levin Committee in 2013:
Here is Tim Cook's testimony in 2013 before the Levin Subcommittee: Part 1 https://t.co/WGxaXz0DoZ Part 2: https://t.co/5OTQPnGN8F
— U.S. Citizen Abroad (@USCitizenAbroad) December 25, 2015
Winston said it best –
You can always count on Americans to do the right thing – after they’ve tried everything else.
Winston Churchill
Sadly we’re still in the ‘try everything else’ stage and must continue legal action.
“Do they believe that “U.S. persons” are owned by the U.S. Government? Is that the problem? U.S. persons who renounce their citizenship (whether Green Card abandonment, corporate inversions, or straight renunciations) are somehow escaping their rightful owners? Are these people for real?”
Yes, yes, yes, and yes. For some time I have been wondering why people in the U.S. Government, and probably U.S. citizens generally, resent their citizens who choose to live abroad. I have come to the conclusion that The U.S. does not want to lose talented people and companies to the economic and cultural benefit of other countries, even temporarily. So it punishes them financially if they move outside the U.S.. Here in Canada we have many U.S. citizens who are professors, researchers, entrepreneurs, or artists and who have become Canadian citizens, but who want to maintain flexibility for their careers by keeping the option of returning to the U.S. at a later time, or who have strong family ties to the U.S. that they wish to maintain. Current U.S. tax laws make it difficult and expensive for such people to remain here as permanent residents or to give up their U.S. citizenship while retaining a guaranteed right to visit family members in the U.S.
Although I think I now understand the motivation of the U.S. in this matter, it disappoints me that our Canadian government is so willing to cooperate with U.S. extra-territorial tax policies rather than opposing them in the interest of Canada. I take that as a sign of our government’s continuing submission as servants to our economic master/bully neighbour.
His defence of extraterritorial taxation:
1. Companies and people that were created in the US and their spawn created via US vehicles (human and corporate) are considered a US patent. Royalties must be paid.
2. Because they have always had a worldwide tax and done well. Why would one change or adjust just because there is new world order? How is that working for them now? How are inversions and renunciations forced by currently outdated US laws helping the US do well?
3. Would be disastrous for small companies? He doesn’t explain why. I would think extraterritorial taxation would limit their ability to expand internationally as it similarly limits US citizens ability to expand internationally.
4. He advises Mr. Cook to borrow against his foreign assets and deduct the interest in the US. This is a better solution than repatriating the funds tax free and benefiting the US side of the operations? (Seems a similar logic to extorting the world’s banks for a pittance in return causing, at the end of the day, more harm to the US than good.)
What would be the vehicle for an open debate with Mr. Henry? (Might Charlie R moderate? Richardson and Cook vs Henry and Clinton. I’d pay to watch that one for certain.)
To Mr Henry, adopting RBT would be another “race to the bottom” I assume. Paying taxes in perpetuity is how we repay our debt to the United States for providing us the sweet earth we were born upon.
He skates around the real problem though – which is the corruption of US lawmakers. Why?
@Charl, why not invite him here?
There has been criticism of Burger King for bolting to Canada to avoid U.S.A. taxes, but guess what? I still pay 9% New Hampshire tax at the cash register. They should stop trying to tax foreign activities that cost the U.S. and its subdivisions nothing.
It appears US residents (people who live in the US) identify big government as the biggest threat to the country. 69% in the latest gallup poll said big government is worse than big business or big labor.
So big government, which is behind the persecution of USPs abroad, is also an issue for those who live in the US.
http://www.gallup.com/poll/187919/big-government-named-biggest-threat.aspx
Considering that almost 50% of US residents pay no taxes, this is an interesting poll.
And f/ Phil Hodgens’s Dec. 24 post:
***
“Corporate Expatriation
There was a lot of chatter in the tax press in the last couple of weeks about corporate inversions. The trigger du jour for all of this discussion was the Pfizer-Allergan merger of juggernaut pharma manufacturers.
There is nothing that actually happened — the chatter is just a bunch of people displaying their political affiliations and moral imperatives while coolly and professionally talking about tax esoterica. “Something Must Be Done” etc.
Nopes. It’s not politics, patriotism, or morality. It’s just economics.
Corporate inversions are the business equivalent of human expatriations. A U.S. corporation, through some complex legal maneuvers, reincarnates itself as a corporation based in a foreign country. It continues to do business exactly as before, except it pays less income tax worldwide.
U.S. multinationals are good at finding ways around the U.S. system’s “pay tax on all of your profits, no matter where you earned it, every year”. You need only look at Apple and Google for examples.
But life becomes a lot easier — and you pay less tax — when the corporation ceases to be a U.S. corporation.
The government started its fight against corporate expatriation in 2004, by enacting Section 7874 into the Internal Revenue Code. Through it all, inversions have continued.
It’s not surprising. A sane corporate executive will ask “What is the cost of inversion?” and “What is the benefit of inversion?” Over any considerable period of time, the benefits of taking a corporation offshore will outweigh the cost.
The government’s anti-inversion strategies are designed to make inversions more expensive. The benefit side of the equation, however, is untouched. And I suspect that any decent present value calculation will demonstrate this.
Conclusion
Expect to hear about the evils of corporate inversions in the 2016 election rhetoric. Heh.
Expect the government to continue to make corporate expatriation more difficult and more expensive. Yet corporations will continue to move abroad, and those that don’t will continue to hoard capital abroad rather than bring it home and pay tax.
(This one will be hard to see because you’re looking for something that isn’t there, but it is real because I tell startups to do it right now). Expect new businesses to start as foreign-based companies rather than U.S. based companies, because if you’re a foreign corporation you don’t need to expatriate — you are already safe. So over time, expect entrepreneurs to be more and more willing to build their companies abroad, to the long-term detriment of the U.S. economy.”
***
Notice the last item — new businesses to start as foreign-based companies…. So if this kind of so-called capital flight (f/the USG perspective) occurs, won’t they have even more incentives to go after USPs abroad?
And, of course, the USG considers USPs “property”… i.e., income sources.
They’re worried that there won’t be enough taxpayers to support retirees and others on the govt. dole.
Same in Europe.
The right thing is to reform the tax code, of course.
But they won’t do that.
They’ll go for the so-called “low-hanging fruit” first, which is again fundamentally about enhancing govt. waste — feeding the pigs at the trough.
But it’s not their money. So they don’t care…
Very sad…
“there are two classes of corporations that Homeland politicians and groups like the Tax Justice Network dislike:
Group 1 – U.S. Politicians dislike those U.S. companies who do comply with U.S. laws; and
Group 2 – U.S. Politicians dislike those U.S. companies who do NOT comply with U.S. laws.”
That’s because those are corporations. Let’s see how that compares to people:
Group 1 – U.S. Politicians and IRS and DOJ and Courts dislike those U.S. persons who do comply with U.S. laws; and
Group 2 – U.S. Politicians and IRS and DOJ and Courts dislike those U.S. persons who do NOT comply with U.S. laws; and
U.S. Politicians and IRS and DOJ and Courts abuse Group 1 worse than Group 2.