US expats given hope of lower tax bills
Republicans edge towards eliminating need to pay levies overseas and at home
published in the Financial Times
by Demetri Sevastopulo and Barney Jopson in Washington
You can read the article by answering a simple question that appears when the page loads. I cannot post the entire article due to copyright restrictions.
Here are some excerpts:
Millions of US citizens working overseas could see their tax bills lowered by an overhaul of the tax system as Republicans edge towards eliminating a requirement for American expatriates to pay taxes both overseas and in the US.
Kevin Brady, the Republican head of the House ways and means committee, which is drafting a tax reform bill, said lawmakers were considering the measure, which has been the focus of lobbying by Republicans Overseas, a group of party donors around the world.
“It is under consideration. They have made the case,” Mr Brady said in response to a question from the Financial Times at a Christian Science Monitor breakfast. “Lawmakers representing that area of the tax code have made that case.”
The US Chamber of Commerce, a business lobby group, has urged policymakers to consider US-only taxation for individuals, too, arguing that taxing foreign income hurts American managers at the overseas affiliates of US exporters.
Mark Mazur, who was the top tax official in Barack Obama’s Treasury department, said he supported the change, arguing that it was necessary to address the “inequity” of an expat paying tax on the same income to both the US and a foreign government.
“If you take two people, one works in London, one in New York, working for the exact same US multinational — if they make the exact same amount of money you might think they should be taxed exactly the same,” said Mr Mazur, who heads the Tax Policy Center.
Solomon Yue and Michael DeSombre are also mentioned in the article.
There are quite a few comments with JC doing Yeoman’s Duty.
Sorry, meant to include in the above the caveat that US tax law still applies if you haven’t properly exited the US tax system, after renouncing. The perils of selective quoting.
“De jure, I think US tax law still applies, on worldwide income.”
Nope. Once you’ve renounced, you no longer have USC privileges or obligations. You can’t vote, get a US passport, or get USC withholding rates on US-source income. You’re no longer subject to US tax law.
It used to be the case that renunciants, relinquishers, and folk who surrendered a green card correctly with an I-407 did indeed all remain ‘US taxable persons’ unless and until they had also completed an initial 8854 form and sent that to the IRS. However, the introduction of the ‘exit tax’ in 2008 changed this.
After June 2008, renouncing or surrendering a green card alone is enough to terminate US tax connections going forwards. Absent a form 8854 you can become a ‘covered expat’ with all the misery that comes along with that, but — aside from the silly (and unenforceable, and trivially avoided) section 2801 tax on gift/bequest recipients from covered expat — this only affects your assets and income up to the time of renouncing or dropping the green card, and has no effect on anything you might do afterwards.
Watcher – the exit tax is US tax law. A person who is no longer a USC is no longer subject to US tax law.
It’s citizenship-based taxation. Bye bye citizenship, bye bye taxation. Except for US-source income, which isn’t CBT.
The exit tax law is designed so that it is applied to a person on the day before renunciation. It is written this way specifically so that there is a) no argument that it could not be applied, and b) slim to zero chance of being able to sidestep it by using a tax treaty. See language of 877A for detail.
Watcher – I think we’ll just have to agree to disagree on this one.
If you like. Though I see no ambiguity at all here in the way the ‘exit tax’ law operates. By design, it deliberately activates while a person is still a US citizen or green card holder, not afterwards.
Yes, but you’re talking about US law. Which I’m not subject to, because I don’t live in the US and I’m not a US citizen or PR. US law doesn’t apply to me, any more than North Korean law or Spanish law applies to me.
But which you would be subject to if you were a US citizen or PR that was just about to renounce or surrender the green card.
@Plaxy, at this point I am no longer sure what your argument is. Of course, people who are not and never have been US citizens or PRs don’t have to answer to US tax laws. But those aren’t the folk Nononymous was talking about. The specific question was whether renunciants have to follow US tax laws. To which the answer is: post June-2008, not at all after they have renounced, but there is an ‘exit tax’ for renouncing and which applies the day before renouncing by design.
I accept the point of clarification.
As I say, I think we’ll just have to agree to disagree.
I refuse to pick a side.
I don’t think there’s a side. People see things differently, that’s all.
Attempted wittiness. Been a long day.
Well, if you’re saying that you would refuse to go along with the US ‘exit tax’ because you don’t feel that it should apply and you wish instead to tell the US to go and pound sand, then fine and more power to you.
It’s just that the US does think it would apply, and moreover they specifically wrote the law so that it applies under their own rules, using the trickiness of having it activate the day before so as to bring it fully inside their beloved CBT regime. And unfortunately no treaty protects fully against this, because CBT is enshrined in treaties by the US’s execrable ‘saving clause’.
TL;DR — You could certainly take the view that no renunciant is covered by the US ‘exit tax’ because they are no longer US persons. The US government of course takes a different view, based on timing the ‘exit tax’ to activate pre-renunciation. And a treaty probably won’t help you because it whether we like it or not (and I don’t), treaties acknowledge the US’s rights to CBT.
“a treaty probably won’t help you”
Help me in what?
Look, say you’re a US citizen getting ready to renounce. The day comes. You renounce.
The following year, US law wants you, a non-US-citizen, to send the IRS a bunch of forms listing all your income and assets and enclosing a cheque for most of it.
You don’t do this. You don’t need to get help from a treaty not to do it. You just don’t do it. Which is entirely legal because you don’t live in the US, you’re not a US citizen or PR, and you aren’t required under the law of your land to donate your retirement to the IRS.
So you refuse to comply with the part of CBT that applies the US’s ‘exit tax’. Fine, but if you’re going to do that then you might just as well refuse to comply with all of CBT in its entirety. At which point you could simply not bother to even renounce and so save yourself the $2,350 fee.
I renounced so the US couldn’t screw up my banking.
‘I see that Japan has a Model 2.https://www.treasury.gov/resource-center/tax-policy/treaties/Pages/FATCA.aspx
Here’s a link to the Japan-US FATCA IGA, https://www.treasury.gov/resource-center/tax-policy/treaties/Documents/FATCA-Statement-Japan-6-11-2013.pdf
*Paragraph (A) of this section – too long to quote here – says that accounts under $50,000 are “not required to be reviewed, identified, or reported,” though I’d assume they’ll follow Paragraph (B) for all accounts.’
I guess my bank isn’t following Paragraph (B) for all accounts. When I opened my account I was still using my US citizenship even in Japan. It sounds like if my account balance goes over the equivalent of US$50,000 the bank will have to ask for my CLN and W8-BEN, but they haven’t asked.
“With no social security number, they can’t match my records to my return.”
Yes they (IRS) can. They could also match your records to your withholding, if they weren’t busy embezzling the withholding.
Even Japan, which used to screw up its social security records incredibly badly, didn’t seem to have any trouble matching tax records (income, amounts of tax payable, amounts of tax paid, etc.), prior to the recent invention of the “My Number” system, whether or not the person has to file a return (ordinary company employees usually don’t have to file a return).
On the other hand the former Revenue Canada din’t even care about SINs when we did report them, when another Norman Diamond (whom I never met) and I both moved to Toronto in the same year and they sent me his forms.
“The question asked was this: are there specific examples of banks requiring proof of compliance with US taxes by US persons.”
“These examples would NOT include banks requesting that customers sign W8s or W9s, or obtain SSNs or TINs, or sign CRS forms. While that might ultimately be caused by CBT and FATCA, it is not evidence of US tax compliance per se.”
Sure it would. You are focused on the symptom and ignoring the disease. All these are for use by the US and the US only. SSN have absolutely zero value or utility for any government other than the US. Same with the others, they perform no function outside the US. The fact that the US has forced our FIs to act as its surrogates does not change the fact that our FIs are collecting this data and these forms at the behest of the IRS and for nor benefit to themselves or their local government.
On another point, it is not local law that enables the IGAs. These laws are remotely controlled US laws. For they to be local laws, they must of, by and for the local government, which the are not. They are of, by and for the US and the US alone, actuated remotely via IGAs.
This my earlier argument all over again. The IRS need not chase after us, its drones aka our local FIs are doing that work for them.
As for not paying the exit tax, as one would have been a USC when the tax was levied, the tax treaty may allow for your country to take action against you as it is as tax levied by the US on a USC. Changing citizenship after incuring a tax does not protect from having to pay the tax. Trying to escape the exit tax is actual tax evasion.
“The video seems to have been produced by condors trying to scare up clients. At one point it says renunciation is “difficult.” Renunciation isn’t difficult, it’s easy, though expensive.”
It was produced by a Dutch news channel. Regardless of how you look at it, these were people forced in to the system by their banks.
Renunciation might be easy for you, for most it is not. It’s not easy practically, emotionally or financially.
Renunciation costs too much, definitely, but it’s not difficult. Pay the money, sign the forms, swear the oath.
How people feel about renouncing their US citizenship obviously varies from one person to another.
“Renunciation costs too much, definitely, but it’s not difficult. Pay the money, “
The rich do not understand the poor.
Agree with Mike: Renouncing is not only not easy, it’s excruciating. On that annual Greenback Tax expat survey, they often come up with a number like 37% of expats “considering renunciation”. My husband and I are two of those. I’ll bet the majority our fellow would-be renunciants have not taken the plunge, not because they don’t want to bother, but because the obstacles are just too extreme.
Sure, if you’re a lifelong Canadian, it may be administratively simple to renounce. Sure, you have to deal with is the boo-hoo emotional part, and 5000 bucks; I get that. But if you’re one of the tens or hundreds of thousands of Americans living in Saudi or Korea or Nigeria or China or Iceland, or other such places where it is either nearly impossible, or extremely unattractive, to take on local citizenship–even if we choose to or even enjoy living there–then renunciation is one of the most difficult decisions one can face.
We took years to make the decision. It isn’t costing us $2350 plus a few tears. It’s costing us our entire life’s savings to buy a passport of convenience through a property purchase, one which seems safe, but certainly not the best of all potential financial investments. Then we get to wait three years. Then we get the passports, we think. Then we deal with whether or not changing citizenship might affect our permanent residency status where we live. Only then do we face the pleasure of renouncing.
No matter what happens with the current tax reform, we’re determined to go through with it. We’ve lost all faith in the US government. There’s no doubt in my mind that the next administration will be a reaction against this one, and will be all Democrats, out for blood. And there’s no question the economy and national deficit will be in a worse mess than it is now. And us rich squillionaires hiding money abroad will be the first to be roped right back in.
Anyone who claims renouncing is easy, try thinking outside your own borders.
And I too hate all Homeland Americans. I find it hard to talk to them at all anymore. Who gives a damn about talking about Harvey Weinstein? I want to talk about TTFI.