Yes, we all know that the U.S. House Ways & Means Committee is focused on tax reforms for “businesses”, but the (Republican) Tax Reform Task Force does say:
— “In addition to these important reforms that will create a modern international tax system for businesses, the Committee on Ways and Means will consider the appropriate treatment of individuals living and working abroad in today’s globally integrated economy.”
Republicans Overseas (RO) has now released (see link) its “White Paper” summarizing key details of its proposal on “Territorial Taxation” for individuals.
Would the readers of this post who care about U.S. tax legislation be better off — or not — if the RO White paper were enacted?
You can send your point of view to the Members of the House W & M. RO says: “We welcome your comments and suggestions. Please email them to Mr. Keith Redmond at FATCA_Testimonials@outlook.com for our consideration and addition.”
From The Republicans Overseas FB site:
[Go to the RO FB page for details: https://www.facebook.com/republicansoverseas]
The gist of the White Paper is:
“Details of Territorial Taxation Proposal for Individuals:
What would be Taxed:
— Any wage, salary, pension, dividend, interest, commission, service or other income paid
by a bank, corporation or other entity organized within the U.S.
— Capital gains on sales of any assets, tangible or otherwise, located in the U.S. and
securities of corporations or other entities organized within the U.S. or listed or traded on
a securities exchange with the U.S.
— Any wage, salary, pension, commission, service or other similar income paid to an
individual resident in the U.S. by any corporation or other entity organized outside the
U.S.
— Any dividends paid to an individual resident in the U.S. by any corporation or other
entity organized outside the U.S. that is actively managed and/or controlled, individually
or jointly, by such individual to the extent such dividends are derived from earnings of a
business engaged within the U.S.
— Any dividends or interest of a passive nature (not from a company actively managed
and/or controlled, individually or jointly by the resident) paid to an individual resident in
the U.S. by any bank, corporation or other entity organized outside the U.S.1
— Any profit on any unincorporated (flow through) business engaged in within the U.S.
would be taxed in the same manner as for corporations, regardless of the residency or
citizenship of the owner(s).What would not be Taxed:
— Capital gains on sales of any assets, tangible or otherwise, not located in the U.S. and
securities of corporations or other entities organized not in the U.S. and not listed or
traded on a securities exchange within the U.S.
— Any wage, salary, pension, dividend, interest, commission, service or other income paid
by a bank, corporation or other entity organized outside the U.S. to a person not resident
in the U.S.
— Any dividends paid to an individual resident in the U.S. from a corporation or other entity
organized outside the U.S. that is actively managed and/or controlled, individually or
jointly, by such individual to the extent such dividends are not derived from earnings of a
business engaged within the U.S.
— Any profit on any unincorporated (flow through) business engaged in outside the U.S.
would be taxed in the same manner as for corporations, regardless of the residency or
citizenship of the owner(s)….”
Republicans Overseas White Paper on Territorial Taxation
Can someone tell me what this is when it is at home?
‘Increase the soft power and reach of the U.S.’
How is an individual resident of the US being defined in this context? Are limitations on Snowbirds, the closer connection definitions etc.still being defined and applied the same way?
Sounds reasonable
I posed this question to Matt Stross, assistant to Congressman Harding in response to his response to my letter:
“Would you be so kind as to give me your perspective on how I can get the other tax reform committee members to better understand our problems so that they might feel compelled enough to do something about them?”
He wrote back,
“As you know, with comprehensive tax reform on the table, members of the Committee are being pulled in many different directions. In addition to arguments based on the fairness of RBT, sometimes I think it is helpful to frame the discussion in terms of the economic benefits associated with a change (and consequently the economic disadvantages that come along with CBT). The republican tax plan is built around increasing jobs and growing the economy – and highlighting how a change to RBT would increase opportunities for Americans or how CBT hampers opportunity can often resonate with certain Members.”
The RO proposal is very useful in this regard. My suggestion would be to avoid crediting them specifically to RO (sorry RO!) when writing to Democrat representatives in the tax reform committee. May I suggest we create a non-partisan version, with the addition of other remarks made by Roger Conklin et al?
@Ginny, “Increase the soft power and reach of the U.S.”
In the context that you and I would like at this it would be to turn expats BACK into Goodwill Ambassadors instead of Badwill Ambassadors.
In my neck of the woods when I first arrived many moons ago, I stayed in the closet as a relinquisher. The expat community was a happy group even if you had left eons ago. Some were pro-USA and others were at least positive-USA.
But then as we know the tide changed…..I came out of the closet having relinquished and instead of being called traitor I was called smart.
I am sure some in Congress want to go back to the day when expats have nice things to say about the USA and work to help the USA through exports.
Today I freely discourage anyone from emigrating to the USA, I discourage students from studying in the USA and I freely tell people that being a USA Person is like having a cold sore virus you can not get rid of it.
@Bubbles…I am sure we have Brockers in DA Circles that could help. Especially since the Obama Treasury deep sixed their SCE idea.
Yes, George, same could be said for ACA.
@Bubbles……OK I was disappointed that Obama SLAMMED the door in our face on SCE but the disappointment was the door slamming AGAIN.
Having said that, THIS Republican Overseas white paper is beautiful and above all FAIR.
I hate the idea of pleading and using arguments that show the USA gaining by doing this when the ethical argument is to stop the abuse of those you deem citizens. But…..George can dance and dance he shall.
Again, Bubbles thank you for all your hard work and dedication over the years on this issue. You are focused like a laser and when this is all over I will be very proud having stood alongside you and the many other Patriots here at IBS.
Would it be wrong of me to assume that since they propose to not tax basically anything outside the US boundaries, they will no longer require personal financial details from anyone who is outside and has no inside sources of income? I wouldn’t want all negatives to continue to have to be proven by documentation. Anyway, this white paper has taken a big leap into positive territory. I’m pleased about that but I’ve become so used to disappointment, I’m just going to wait to see whether this becomes a reality. There are both dark and light currents flowing in the USA going into 2017 and I’m not wise enough to predict which will prevail.
From my perspective the unfriendly country I don’t want to share with is the USA but I know that’s not how they look at it.
EmBee,
This is from the White Paper:
“Other Changes to Tax Code
…Repeal FATCA as unnecessary, burdensome and requires sharing of financial information
through IGAs with other countries.
Repeal FBAR requirements or provide exemption from FBAR reporting for persons ordinarily
resident outside of the U.S.”
Thank you, George. Your encouragement, and that of others means a lot to me. It’s the fear that I will one day regret not having done more that keeps me focussed. To tell you the truth, availing myself as a witness to the Canadian lawsuit has taken a lot of pressure to do more off of me, as it’s probably the most effecting thing I can do as a Canadian here in Canada. Anything else pales in comparison.
Although Treasury slammed the door on SCE, the US government is starting to listen. I wish there were some magic bullet to shoot the ugly CBT, but it looks like it’s going to take a lot of little cuts for us to make any headway. It will be interesting to see how far we can or can’t get without the help of a big lobbying firm to get through to US lawmakers, and whether grass roots activism means anything anymore.
All the best in 2017 to you and yours.
@ Stephen Kish
Thanks. That sounds what I’m looking for. I didn’t realize there were more pages to the report. The first page was pretty blurry over there at RO FB so I just relied on what was presented here.
Heitor’s ripping RO’s white paper apart on the American Expatriate’s FB page…
@ Bubblebustin
I just read his comment and I will stand by to see more details. He’s a very astute person and I’d like to learn what has shown up on his radar that he finds so troubling.
The Territorial Taxation Proposal (White Paper) seems reasonable.
However, having read ACA’s proposal yesterday, I am still concerned about the following:
– The White Paper does not address the issue of filing returns. Changing taxation would be nice, but would not change much for me if I still had to file tax returns as a US citizen abroad. I don’t pay taxes anyway. (My personal situation is irrelevant but I believe many US citizens abroad are in a similar situation). In my opinion, when one stops residing, one stops filing. As EmBee asks “Would it be wrong of me to assume that since they propose to not tax basically anything outside the US boundaries, they will no longer require personal financial details from anyone who is outside and has no inside sources of income?”
– The practical issue of determining/defining residence is important. The ACA proposal mentions balderdash such as having to ask (ask!) for a “departure certificate” and an “IRS usage fee” of $5000 to become “non resident”. I think the transitioning should be easy and immediate but this would pose a problem for homelanders since it will allow some people to decrease their tax bill significantly. The obsession with tax avoidance (legal) will, most unfortunately, almost inevitably lead to restrictions on transitioning from resident to non-resident.
@Fred
Easy and immediate transitioning will not happen. Even Canada requires more than this as well as the payment of any unrealized capital gains (e.g. on property, stock, etc), known as the departure tax. IMO, the departure tax is fair, given that it represents deferred taxes, and I suspect the US would also require at least this.
Seems confusing. Would my dividends earned from a foreign corporation I don’t control be taxed by the US if I am resident in the US?
Another proposal that promises way more than it delivers. I’m not convinced by the assertion that a Territorial Tax would be easier to sell than Residence Based taxation because it uses the same terminology as the proposed corporate tax reform. Corporations are very different from individuals, and there are good reasons to tax them differently. As I said on FB:
@Neill – yes – see this bullet point in the middle of page 3 under What would be Taxed:
If they’re going to continue to tax US residents on foreign passive investments, then perhaps they should join on to CRS (or keep FATCA for US residents). All the arguments made in the recent Treasury proposed regulations still apply.
Oh – and at the bottom of the very last page they propose to repeal FATCA and FBAR. But no mention of foreign trust reporting or any other reporting by non-resident citizens.
Well. That would be nice and reasonable. I think it has a snowball’s chance in hell of actually getting passed.
1. Expats are not a priority for politicians because their votes usually won’t tip an election outcome. (Putin does a better job at that.)
2. Playing the “let’s stick it to those traitorous fatcats” card works for politicians of either main party.
3. All the xenophobes voted for Trump and he knows that. He actively encouraged it.
Fred: I have disliked ACA’s proposal since the day it was published. I have, quite happily, lived outside the United States since 1960 (!) and I am not about to apply for any kind of “certificate” to satisfy the IRS that I am no longer a resident of the United States. My permanent (and only) address of physical residence is in Canada and has been such throughout my adult life. I am not going to present myself, hat in hand, to any agency of the U.S. government to, effectively, ask their permission to continue living my life as I have always done … particularly if that “application” must also be accompanied by a ridiculous fee …. twice as high as that for renunciation! That’ll really stem the flow, won’t it?! What in the world is ACA thinking?
As for this current proposal by RO, I’m grateful for all their efforts on our behalf throughout this debacle but I think this is going to be difficult to sell to the US government in its present state. Similar to what Karen has suggested I would have preferred a *Residence-Based* approach for individuals. After all, residents in *any* country should not be able to stash money elsewhere to avoid taxation. That’s what the whole international hoopla is all about. But an RBT proposal needs to be written in such a way that people like Neill are not subject to reporting money overseas that they had earned and saved *before* their emigration to the U.S.
MuzzledNoMore says
January 7, 2017 at 10:46 am
Fred: I have disliked ACA’s proposal since the day it was published. I have, quite happily, lived outside the United States since 1960 (!) and I am not about to apply for any kind of “certificate” to satisfy the IRS that I am no longer a resident of the United States. My permanent (and only) address of physical residence is in Canada and has been such throughout my adult life. I am not going to present myself, hat in hand, to any agency of the U.S. government to, effectively, ask their permission to continue living my life as I have always done
Extremely well said. Certainly mirrors my own position and thoughts!!
As the original post says – RO is looking for feedback on this proposal. As you might imagine, I have a few things I want to say (see my comments on both this thread and the other one), so I’m in the process of putting my feedback into what might pass as a coherent document. I hope anyone else here who has opinions on this proposal will send feedback to the email listed in the post. If RO don’t get any feedback, they will think everyone agrees with their plan.
I’m totally baffled by the choice to advocate territorial taxation rather than residence based taxation. Wikipedia lists 238 tax jurisdictions by the type of tax system used (https://en.wikipedia.org/wiki/International_taxation#Individuals). Of those, 32 use a territorial system and 4 use a hybrid of territorial and residential – while 178 (almost 3/4) use a residential system. When you look at the countries using a territorial system, however, they are mostly small countries. The only ones of any financial or economic significance are Hong Kong and Singapore. When you merge this data with population data you find that almost 90% of world population uses a residential system of taxation.
If the US is going to reform the tax system, I would think they would want to look at what other developed countries are doing – try to find “world’s best practice” in taxation. The “White Paper” has little analysis of what works (and doesn’t) in other countries (or even in the current US system).