reposted from citizenshipsolutions dot ca
posted by John Richardson
Introduction: It’s tax reform season and Senator Orrin Hatch wants to hear from you (again)
As reported on the Isaac Brock Society and other digital resources for those impacted by U.S. taxes, you have until July 17, 2017 to tell Senator Hatch what you think needs to be changed in the Internal Revenue Code. After great deliberation, it occurred to me that people who either are (or are accused of being) U.S. citizens or Green Card holders living outside the United States, might want the USA to stop taxing them. After all, they already pay taxes to the countries where they reside. This is your opportunity to “Let your voices be heard” (well maybe).
The Senate Finance Committee is yet again asking the general public to send comments on tax reform. The deadline is July 17, and the email address is taxreform2017@finance.senate.gov.
https://www.finance.senate.gov/chairmans-news/hatch-calls-for-feedback-on-tax-reform
(July 17, 2017 is coming quickly. Please take a few moments to send your thoughts to Senator Hatch. Tell him you feel about FATCA, citizenship-based taxation, FBAR, etc.)
Speaking of “tax reform”: Introducing Jackie Bugion
Jackie Bugnion is a U.S. citizen who has lived in Switzerland for many many years. She has been a tireless advocate for “residence based taxation”. She worked with “American Citizens Abroad” for many years and has recently retired. She was recently honored with the Eugene Abrams Award by ACA- an event that was the subject of a post at the Isaac Brock Society – that described her many achievements (over a long career).
She was the principal organizer of the “Conference on Citizenship Taxation”
which took place in Toronto, Canada in May of 2014. The Conference was widely discussed on the Isaac Brock Society here and here. The live video of the “Kirsch Schneider debate” is here.
I have reproduced a number of her written submissions and posts on this blog, specifically:
- Even in “retirement” Jackie Bugnion writes the best arguments against citizenship taxation
ever - A Proposal for Fair U.S. Tax Treatment of Foreign Pensions
- Excellent @JackieBugnion and Roland Crim article on Boris Johnson @MayorOfLondon and plight
of #Americansabroad
Jackie Bugnion – 2013 Submission to the House Ways and Means Committee – Explains the upcoming New American Revolution
2013 submission from @JackieBugnion to the House Ways and Means Committee – explains the "New American Revolution" https://t.co/csUxqFeqUn pic.twitter.com/azfw4jyCQz
— Citizenship Lawyer (@ExpatriationLaw) July 14, 2017
The submission referenced in the above tweet describes the history of the construction of the U.S. “fiscal prison” brick by legislative brick!
(Forward it to anybody and everybody with a interest in this.)
Jackie has returned with her 2017 submission to Senator Hatch.
Jackie Bugnion 2017 submission to Chairman Hatch – reproduced with permission of Jackie Bugnion
Jacqueline Bugnion
Submission to Chairman Hatch’s request for tax reform proposals
Adopt residence-based taxation (RBT) for Americans resident overseas
The Senate Finance Committee and the House Ways and Means Committee have both cited the need to review the way that the United States taxes its citizens and green card holders who reside overseas.
The current policy known as citizenship-based taxation (CBT) is increasingly called into question as it taxes Americans on their worldwide income irrespective of their residence, domestic or overseas. I am an American citizen who has resided overseas for 52 years, as my husband is a foreigner. I have personally observed the devastating consequences of CBT on Americans abroad and strongly urge Congress to adopt residence-based taxation (RBT).What is RBT?
Under RBT, the U.S. would tax its citizens and green card holders who reside abroad the same way that the U.S. currently taxes non-resident aliens, i.e. through taxation of U.S.-source income only. FDAP (Fixed, Determinable, Annual, Periodic) income would be taxed largely through withholding at source by the paying agent. Effectively connected U.S.-source earned income would be reported on Form 1040NR and taxed under U.S. income tax rules.
Foreign-source income would not be taxable.RBT would apply to all bona-fide overseas residents.
RBT would be immediate and automatic, but would not be open to residents of Puerto Rico or to military and diplomatic personnel stationed abroad.
As an obvious anti-abuse measure, RBT would not be available to residents of designated tax havens. RBT would not be compulsory; Americans abroad for a short period of time, such as academics on sabbatical, may opt to stay under CBT.The rules for RBT are already in place as they apply to foreigners with U.S.-source income.
Withholding taxes on FDAP U.S.-source income would lead to automatic, efficient tax collection. In fact, withholding tax at source would in certain circumstances shift taxation from foreign countries to the U.S.Shifting from CBT to RBT would be close to tax revenue neutral.
Analysis of the IRS 2555 statistics, relating to the foreign earned income exclusion reported by overseas Americans, shows that a significant share of wages and salaries of the highest income groups is U.S.-source, and hence would continue to be taxed by the U.S. under RBT. The top 1% income group account for more than 50% of all taxes paid. In addition, the U.S. today under CBT renounces most claim on tax liability on foreign earned income, by allowing foreign tax credits and the foreign earned income exclusion. These two factors and few minor ones, lead to a neutral tax revenue situation. Any possible difference between CBT and RBT would be utterly insignificant in the U.S. budget – less than 0.001% – so small that it could swing either way.IRS enforcement costs under the current international tax system are disproportionate to revenue.
The international tax forms create burdensome filing costs for taxpayers and create heavy administrative costs for the IRS; this is terribly inefficient when the vast majority of overseas taxpayers owe no U.S. tax.Tax collected currently under CBT, other than that linked to U.S.-source income, comes from unacceptable instances of double taxation.
Incompatibilities between the U.S. tax code and foreign tax systems lead to double taxation. The outrage of Boris Johnson, at the time Mayor of London, when the U.S. taxed the capital gain on the sale of his U.K. home illustrates this issue very well.
There are numerous examples of differences between U.S. and foreign tax systems which penalize Americans abroad. To cite just a few:• IRS does not recognize foreign pension funds and therefore taxes
all contributions; it treats income generated over the years as coming from a PFIC fund, guaranteeing a negative return.• U.S. legislates double taxation in the cases of the NIIT and the
Additional Medicare Tax since neither allow foreign tax credits. This is particularly cynical since these taxes aim to finance U.S. medical care; Americans abroad pay into their foreign health programs and are excluded from the Affordable Care Act.• Some countries have a wealth tax on all net assets instead of a
capital gains tax on securities investments. The U.S. taxes the capital gains, but does not allow foreign tax credits against this income.• Definitions of what is an income tax and what is a social
security tax varies enormously from country to country, with onerous tax consequences for U.S. citizens abroad.• All OECD countries, except the U.S., have replaced sales taxes by
VAT, which can range up to 20% of the price of goods and services purchased. The U.S. does not recognize VAT paid as compensation for the U.S. tax liability, even though it does accept deduction of U.S. state sales tax.• Entrepreneurs in countries without a totalization agreement are
subject to double contributions to social security, in the foreign country and in the U.S.Beyond the immediate issue of taxation, moving from CBT to RBT would have major advantages for Americans abroad, at essentially no cost or lost revenue to the U.S.:
• CBT tax law and related FATCA asset and revenue reporting
requirements amount to a bank lockout for Americans abroad. FATCA reporting rules imposed by the U.S. on foreign financial institutions, accompanied by draconian penalties for non-compliance, strongly discourage foreign banks from accepting American citizens as clients.
In addition, the U.S. Patriot Act know-your-client requirements have effectively cut off Americans abroad from access to U.S. financial institutions. It is difficult to function without a bank account in today’s world.• FBAR and Form 8938 reporting requirements shut off employment and
investment opportunities for Americans abroad. The FBAR requirement to report bank accounts with only signature authority eliminates jobs in financial positions. Foreign employers refuse to have their accounts reported to the United States, and such reporting is illegal in many countries. Form 8938 requires foreign companies in which an American holds 10% ownership to report this ownership to the IRS. This measure has shut out entrepreneurial and partnership opportunities for Americans overseas.Consequently, the number of renunciations of U.S. citizenship is skyrocketing from a few hundred in 2008 to well over 5,000 in 2016. And this is just the tip of the iceberg. The blatant discrimination and unfair treatment of Americans abroad at the hand of their own government has created massive anger and frustration in the overseas community of more than 8 million Americans. The financial burden of compliance is far in excess of reporting requirements for U.S. residents and easily runs into the thousands of dollars, which is all the more ludicrous when the vast majority have no U.S. tax liability.
Adopting RBT meets three of the four tax reform objectives cited by Senator Hatch.
• First, it provides relief to middle-class individuals and
corrects major unfairness.• Second, it removes impediments and disincentives for savings and
investments.• Third, it makes Americans abroad and therefore the United States
more competitive in the global economy while preserving the tax base.I thank you for your attention to the above.
Sincerely yours,
Jacqueline Bugnion
July 8, 2017
Background
BA in Economics, Cornell University, 1962
MBA, Harvard Business School, 1964
Tax Director, American Citizens Abroad, 2003-2015
Publications
Tax Notes International, Volume 62, Number 11, June 13, 2011, Jackie Bugnion, Overseas Americans Should Have a Say in National Tax Reform Debate
Tax Notes International, Volume 66, Number 5, April 30, 2012, Jackie Bugnion, American Citizens Abroad’s Recommendation for U.S. Tax Law Reform
Tax Notes, December 1, 2014, Jackie Bugnion and Roland Crim, Thank you Mayor Boris Johnson for speaking up for many
Tax Notes, Volume 148, Number 8, August 24, 2015, Jacqueline Bugnion, Concerns About the Taxation of Americans Resident Abroad
Tax Notes, May 30, 2016, Jacqueline Bugnion and Paula N. Singer, A Proposal for Fair U.S. Tax Treatment of Foreign Pensions
Fax delivery confirmation in.
I hear Democrats Abroad had their submission hand delivered because they could not send an e-mail in.
I would like to see that submission. Or is it all still a game of “smoke and mirrors” with DA who will not put RBT as a key issue on the homepage of their website. The mention is always on an internal page that can not be navigated to from the home page.
I caught ACA out to leverage the issue with a series of memes on Twitter about RBT. Sounded great. Looked great. Yet the targets of the hashtags and addresses were Americans abroad and none in Congress. They were just using the issue to fund raise.
I would like to see submissions from ACA, FAWCO, AARO, DemsAbroad. Are they still hanging onto FATCA SCE? Any submission from the Americans Abroad Caucus in Congress?
Just a follow up.
Sent my submission to 4 or 5 of the assistants listed. None were bounced back, so I am hoping that they got it.
In addition to what JC would like to see, I’d love to know the contents and more importantly the sources of all the spam emails that clogged the mailbox.
Republicans focused on:
https://www.finance.senate.gov/chairmans-news/hatch-statement-at-finance-hearing-on-comprehensive-tax-reform-prospects-and-challenges
I sent my submission to one of the assistants listed – I received an acknowledgement email this morning (Australia time).
ACA submission.
Overall sounds good. Yet they are not calling for FATCA repeal and talk is bringing U.S. persons overseas into compliance!
An American citizen residing abroad would no longer be treated as a US account holder for FATCA purposes. Foreign banks would no longer need to be wary of providing services to this individual. Also, the problems of enforcing tax and foreign account reporting rules against Americans overseas could be reassessed. These individuals would be incentivized to bring themselves into compliance. [!]There would be the need to chase after them and employ complicated and sometimes unfair disclosure and other enforcement programs.
https://www.americansabroad.org/news/ACA-submits-comments-to-Senate-Finance-Committee-on-reforming-tax-for-overseas-Americans/?platform=hootsuite
Detail – letter itself: https://www.americansabroad.org/media/files/files/b88c9ece/Senate_Finance_Committee_July_17_2017_Tax_Reform_Hearing_-_ACA_ACAGF_Statement_1530.pdf
Tax Talk: What’s A Territorial Tax System?
No mention of INDIVIDUALS!
https://www.finance.senate.gov/chairmans-news/tax-talk-whats-a-territorial-tax-system
I have kept a page open in my browser in regards to news from Senate Finance:
https://www.finance.senate.gov/chairmans-news/hatch-shift-from-worldwide-to-territorial-tax-system-has-bipartisan-support
Members of Congress from both parties support a shift to a territorial tax system.
No mention of territorial for individuals.
Focus on preventing inversions.
Boomerang words might whack U.S. Persons overseas: “ensuring protection of the U.S. tax base from things like earnings stripping and profit shifting.” Mentioned a few times by Hatch.
Reference to 2015 Senate Finance Work group on international tax, yet no mention of individuals.
Mention of American based workers – this reform important for them.
Would be nice if they’d do something for us without much fanfare to keep the “fairshare” big mouths at bay.
@Bubblebustin. I don’t have enough trust in that. I would like it mentioned somewhere in addition to the Republican Party Platform.
https://twitter.com/JCDoubleTaxed/status/888181135187902464
Agreed, JC!
RO tried to spin Paul Ryan’s mention of jobs being lost offshore as a mention of territorial tax for individuals, but I’m not buying it!
We are nothing but a cash crop to them. Any complaints from us fall on deaf ears.
@JC
Maybe recognition of the benefit of RBT for coorporations would lead the path for individuals as well.
DA submission. This is navigable from their homepage under news. Perhaps not so intuitive. You click on NEWS and drop down menus appear, yet click again and: http://www.democratsabroad.org/news
Staying with FATCA SCE but including FBAR in this for the first time.
I like removing U.S. bank discrimination against USP with an overseas address.
Not RBT as practiced by other countries yet sounds certainly better than at present. No mention of Accidentals.
Territorial Tax https://www.youtube.com/watch?v=4x1iU9arEDw&feature=youtu.be He can be reached on Twitter and FB
Tax burdens prompt more Americans to ditch their citizenship / CNBC with Video
http://www.cnbc.com/2017/05/31/taxes-are-driving-these-americans-to-consider-giving-up-citizenship.html
Submission by John Richardson:
Why is the United States imposing full U.S. taxation on the Canadian incomes of Canadian citizens living in Canada?
http://www.citizenshipsolutions.ca/2017/07/24/why-is-the-united-states-imposing-full-u-s-taxation-on-the-canadian-incomes-of-canadian-citizens-living-in-canada/#more-12220
“I suggest that the phenomenon of “citizenship-based taxation” NOT be described exclusively from the perspective of U.S. citizens and U.S. interests. Furthermore, I suggest that the descriptive of “Citizenship-based taxation” be avoided and the label “Taxing the citizens and residents of other countries” be adopted. Adopting a “new label” may change the terms of the discussion.”
Agreed with the above. Changing from citizenship based taxation might be confused with U.S. flag burning. Removing “U.S. Citizenship” from what is requested to change from will I believe help the cause.
Another message from the Chairman on the “Lock out effect” on companies as it damages the U.S. economy.
Still no mention of INDIVIDUALS.
https://www.finance.senate.gov/chairmans-news/tax-talk-the-2-trillion-lockout
@JC: Quoting Orrin Hatch from the article: “This isn’t a dodge or a tax hustle on the part of these companies – they’re simply doing what the tax code tells them to do.”
In other words, companies finding a way around CBT is logical and justifiable and they should be forgiven. Individuals doing so aren’t paying their “fair share”.
Can anyone direct me to the updates on RO’s efforts for Individual RBT, please?
Sorry, wrong term. Looking for updates to the TTFI proposals being discussed or the mostly recently discussed.
@Japan T – no news for a couple of months now. JC mentioned it recently in the media thread http://isaacbrocksociety.ca/media-and-blog-articles-open-for-comment-part-5-of-5/comment-page-37/#comment-8264165 (last paragraph of letter from Solomon Yue)
Thanks Karen.
I was looking for what was or was not in the proposals last being discussed in the legislature. I seem to recall a staffer giving some info in this regard. Do you recall which thread that might have been in?
Japan T – there doesn’t seem to be a dedicated thread. There’s some talk about it in the Media thread from around mid-March (i.e. this comment by BB about the DA doorknock – http://isaacbrocksociety.ca/media-and-blog-articles-open-for-comment-part-5-of-5/comment-page-13/#comment-8170790) and I wrote a post at the end of March (http://fixthetaxtreaty.org/2018/03/30/residence-based-taxation-proposal/) about what SHOULD be in such a bill. There was also a meeting in DC in April that John Richardson attended – I know it was discussed on FB, but can’t find a comment here. Closest would be JC’s quotes of various Solomon Yue tweets http://isaacbrocksociety.ca/media-and-blog-articles-open-for-comment-part-5-of-5/comment-page-27/#comment-8210460
Thanks.