cross-posted from citizenshipsolutions
Update January 2018: This post has been updated with some new links and discussion
Part I is here.
Part II is here.
Part III is here.
Part IV is here.
*******
Taxation of #AmericansAbroad in the 21st Century: “Country of birth” Taxation vs. “Country of Residence” Taxation- Part V (Final)
What the U.S. calls citizenship-based taxation is actually a U.S. claim that it has the right to impose “worldwide taxation” on the residents and citizens of other countries.
Specifically the U.S. claims the right to impose taxation on:
1. Who: residents and citizens of other countries; and on
2. What: income earned in other countries or property situated in other countries.
(The U.S. also taxes U.S. corporations on profits earned in other countries when those profits are taxed by those other countries. This has led to “inversions” which are the corporate equivalent to renouncing U.S. citizenship. Note that the 2017 “Tax Cuts and Jobs Act” has resulted in “partial territorial taxation” for certain U.S. corporations.)
Under the guise of what the U.S. calls “citizenship-based taxation, it actually taxes people who are neither U.S. citizens nor people with an actual residential connection to the United States and are “tax residents” of other countries.
The two obvious examples are:
A. Permanent residents of the United States (AKA Green Card holders) who do NOT live in the United States (having either moved away or in some cases having never moved there – see the story of Gerd Topsnik); and
B. Non-citizens who are NOT Green Card holders. The obvious example are people who have lost their U.S. citizenship for immigration purposes but are still treated as taxable U.S. property for tax purposes. The S. 877A Expatriation rules clearly contemplate this reality. Furthermore, there are certain U.S. tax treaties that specifically allow the U.S. to tax people who were but are non longer U.S. citizens. (Furthermore, the “savings clause” found in all U.S. tax treaties “saves” the right of the United States to impose full taxation on its citizens.)
My point is that the U.S. has long since separated the idea of being “taxable U.S. property” from being a U.S. citizen for nationality purposes.
Therefore, although birth in the U.S. makes one a U.S. citizen, a U.S. birth should NOT make one taxable U.S. property for life. Surely citizenship should mean more than taxation.
The U.S. is laying claim to people because they were born in the USA. There is no reason why it has to. They just do it because they think they can. The U.S. is the only developed country in the world that attempts to control the lives of its citizens (under the guise of taxation) when they move from the United States. This is an intolerable and grossly unfair policy.
The discussion and debate at the Toronto Conference on “U.S. Citizenship-based taxation” demonstrated that citizenship should be neither a necessary nor a sufficient condition for taxation. Taxation should be based on some kind of voluntary connection to the United States. It is submitted that those in Categories:
(A) Border babies
(B) Those who move from the U.S. with their parents as children
(C) Those non-U.S. residents who were born outside the U.S. to U.S. citizen parents
(D) People who left the U.S. as young adults, have never returned to the U.S., and have accumulated all of their economic assets outside the U.S.
do NOT have any connection to the U.S. that could possibly justify U.S. taxation. In each of these cases, taxation is NOT based on a connection to the U.S., but only on the circumstance of a U.S. birthplace! Can it really be that the United States of America is the only advanced country in the world where:
“The circumstances of your birth determine the outcome of your life?”
To tax those who are not residents of the United States solely because they were born in the United States:
“Is unjust and is inhumane. People do NOT choose where they were born!“
What about the person in Category (E) above? This is the U.S. citizen and resident who leaves the United States temporarily with the intention of returning. This is the ONLY kind of U.S. citizen that could rationally be subjected to U.S. taxation while living temporarily outside the United States. But, to tax even this person is incompatible with the realities of the modern world.
Citizenship imposed vs. citizenship chosen
The current practice of U.S. “place of birth taxation” is much more analogous to a “property interest” that a country has in it’s citizens than a voluntary commitment to the engagement that should characterize good citizenship. It is respectfully submitted that “citizenship” should imply a voluntary connection to a country and not a form of “ownership” where the citizen exists only to serve the government.
It is so frustrating and upsetting that this is allowed to continue. It is one of the worst human rights abuses the U.S. has ever engaged in, and nobody is even talking about it.
Here is a category I do not see as referenced: perhaps category (F)
non American family members of a U.S. Person. Could be “foreign” spouse & kids.
These are nonresident aliens.
Genetics/Society/Governments organises people into family units. This provides financial stability and security for members of the family units. When the U.S. “attacks” the family unit via claiming double tax jurisdiction over one or more members then this is also an “attack” on the financial security of non US person family members.
One might think governments of the world would concern themselves with the U.S. extraterritorial double taxation claim as it specifically disadvantages nonUS family members & citizens of their countries.
I discussed this with Allison Christians a few years ago who responded that it was a matter for the courts to decide.
Many of the homelanders I have talked to about it support it. On theory I have heard is that taxes are the membership dues to the club and it is foolish to think that a member should be able to stop paying dues just because they haven’t visited the club house in a while. Yes, I have actually bed told that by two different people.
Others just say “The rules are the rules” and further state in regards to children born abroad “Well (insert any one of several derogatory terms) you should have taken the time to learn the rules before you had kids”.
More give the laundry list of underfunded US Gov. programs blaming our avoidance of US taxes for these shortfalls and ending with “YOU PAY, YOU PAY”.
I am not optimistic of it ever getting properly cleared up. For, even if RBT went into effect tomorrow, many have had all our financial data shared puttung us at a greatly hightened risk of ID theft, fraud and other crimes. The damage on this front is already done. No putting that genie back in the bottle.
@JapanT perhaps you did not reference that the CBTax laws are contra to the U.S. Founding Principles and that of OECD countries only the U.S. taxes nonresidents.
Also you might have tried the state comparison, of moving states and the other state continuing to claim tax jurisdiction: https://purpleexpat.org/wp/about/#.Wmmcjx9yZ-c.twitter
@JC
Actually did both. The responses were unbelievable to me.
I was told to not keep quoting from ancient documents and live in the present global world when I brought up the founding principles.
When using the state comparison I was laughed at for not knowing the difference between a “state” and the federal government.
@JapanT. We will never convince a majority of Homelanders.
There are reports here of people alienating friends and family in trying to get agreement that the laws are unjust if you live in another country. So you may need to decide who you bring the topic up with and to what extent.
Yep, which is one of the several reasons why I am doubtful about this ever being resolved. Elected representatives will not vote for relief measures for us when the majority of the voters in the homeland are against them.
While their tax system is a gross violation of both human rights and the sovereignty of other nations, you have to grudgingly give the US credit for what they have been able to accomplish. All they need to do is add one more category of taxable individual, namely non-resident aliens who do not now and never have had any connection to the US whatsoever.
Once they figure that out it will be a clean sweep and they’ll claim the right to tax every person in the world. Hopefully, they won’t eliminate the Foreign Earned Income Exclusion but I wouldn’t bet on it.
“When the U.S. “attacks” the family unit via claiming double tax jurisdiction over one or more members then this is also an “attack” on the financial security of non US person family members.”
A point I’ve made many times. And of course, a tax and penalty attack on those family financial units via a US person Trojan horse is a tax and penalty attack on the entire country. Quite a few people suggested that there was no issue with Meghan Markle keeping her US citizenship when she married Harry, she just has to file separately.
The naivety is almost touching.
Frankly, nobody seems to give a damn or of those that do, they are powerless to do anything about it. There seems to be a feeling that this will self resolve eventually, because few people can spend their lives under this regime, a regime that’s getting worse as more and more people realise the dangers of getting too close to a US citizen.
My German friend that cancelled his wedding to the dual US/Belgian(might have been French, she spoke French?) when he found out what he was getting in to has still not spoken of setting a new date.
As to persuading US homelanders that what they are doing is wrong, you might as well save your breath.
They pay taxes as a US citizen, you pay your taxes as a US citizen. That’s the position they take and they take it to the point of utter absurdity, right up to defending the taxation of people who have never set foot in the USA.
As I’ve said before, this will NEVER be stopped until they finally understand that their global human rights abuse is costing them money, jobs, and any respect that the US actually has remaining.
I don’t think they much care for the respect from other nations that they may lose but you would think that they would care about loss of commerce. Those I have have tried that line of thinking on simply do not believe it can happen. The US has by far the best to offer and always will, discussion over.
@maz57
Many homelanders are livid that we can avoid paying our fair share due to the FEIE. Many would dance in the streets shouting “USA USA” if the FEIE were repealed.
“Many homelanders are livid that we can avoid paying our fair share due to the FEIE. Many would dance in the streets shouting “USA USA” if the FEIE were repealed.”
Yup, they would vote for their own imprisonment and for the country to go to hell. The fact this CBT idiocy continues to hurt the USA with the full support of the vast majority of those who even know it exists continues to be the big joke.
The sort of joke that starts with laughter and slowly subsides in to sobbing.
Mike,
I think you sum it up nicely.
The general homeland public is useless, or hopeless, for us. First, 99% will never know. 90% of those who hear about this issue (CBT) will not care. Of those who care, half might understand. Of those, half might be on our side.
I see two avenues.
One is bipartisan comprehensive and thoughtful tax reform that actually addresses our problems.
The other is an effort (that would be denounced by Democrats and the NYTimes as kooky Republicans being extreme — I say this as a Dem and NYTimes reader) by the Freedom Caucus and/or the Trump administration, egged on by Grover Norquist, to singlehandedly slip in FATCA abolition, and/or TTFI (not something I love, but whatever) into a last-ditch legislative effort. Given how crazy things are right now, this is probably our best hope. Unfortunately these efforts could also be undone in the future. That said, the Democratic Wave may not materialize this year, since Trump is quite ably using DACA to underline that Americans are dreamers too and his numbers, and thus Republicans’, are stabilizing.
In other words, nothing is probably going to change, and it is probably best to be making plans to deal with it.
@Fred(B) you are on the right track. It’s you who will change them not them changing anything for you but making it more problematic for you as you saw years go by. We are in year 8 now since this monstrosity passed and fees increased to 2350$ from 0. Two interviews required in almost all consulates of the world except a few countries months apart from each other as they want you to take time and decide. They all tried and failed. Homelanders rejoice against us not with us. A friend had to remove his American wife from his house deed and all bank accounts due to her toxic passport. She does not want to give up and will have to deal with all the associated problems after his death to get bank accounts and properties. As far as I am concerned renounce and rejoice. Wish I had taken this advice 10 years ago and renounced this monstrosity.
“Homelanders rejoice against us not with us.”
On another forum – Should I move from the US to Australia?
The answers –
Sure, don’t let the door hit you in the ass!
Bye, we don’t need your sort!
US homelanders absolutely love that those who leave are suffering for doing so, that’s the reality.
That’s what I don’t get, I used to be a homelander and never would have thought ill of anyone who moved overseas. Then again, if I had it is doubtful I’d be part of the, what 2% of the US population that has gone abroad.
Still, I can not figure out where that attitude comes from.
I think it’s part of the whole massively overblown patriotism thing, “you’re either with us or against us, and leaving this great nation makes you an unpatriotic ingrate”.
Plus, some are just jealous that you can live in a foreign country, because you have to be rich to do that.
And this from a nation built on people leaving other countries. It’s all very bizarre. The whole FATCA, CBT and US hatred of its expats is bizarre.
It’s so bizarre that I am careful who I speak to about it now, because their initial reaction to a few facts you give them is that they think you have lost your bloody marbles because the whole situation is unreal and unbelievable.
No, not me losing my marbles, but try looking at the US government…..
Funny thing, though, the US is probably the last tax haven. With CRS and all, the EU is truly hellish now, at least for the middle class, or anything less than the top 1%. Only an account in the US can be sheltered. Pretty ironic.
Latest written question to the EU Parliament from MEP Sophie in’t Veld again raises effects of US extraterritorial actions on ‘Accidental Americans’ and EU residents;
http://www.europarl.europa.eu/sides/getDoc.do?type=WQ&reference=E-2018-000298&format=XML&language=EN
“Parliamentary questions
19 January 2018
E-000298-18
Question for written answer
to the Commission
Rule 130
Sophia in ‘t Veld (ALDE)
Subject: Implementation of Payment Accounts Directive (PAD) and FATCA
The Payment Accounts Directive (Directive 2014/92/EU) establishes the right of access to a payment account with basic features for all consumers legally resident in the Union. However, as has been reported repeatedly to the Commission and to national authorities, so called ‘Accidental Americans’, many of them EU citizens, are increasingly facing difficulties caused by many banks refusing to accept them as customers as a consequence of FATCA.
This is a clear breach of the terms of the PAD. In its reply to Written Question E-005680-16, the Commission indicated it would assess the implementation of the PAD following the expiry of the deadline for its transposition (September 2016) and launch infringement proceedings where necessary.
1. Has the Commission carried out the announced assessment of the PAD and when will it publish the results?
2. Has the Commission included the situation of Accidental Americans in its assessment and can the Commission name those countries where there are reports of Accidental Americans encountering difficulties in obtaining access to financial services?
3. Has the Commission launched any infringement proceedings against Member States and if so against which?
Last updated: 2 February 2018”
Sophie is an absolute star, a hero. Held! The commission in the meantime are just concerned with “the project” and a few EU citizens thrown to the US is a price to pay.
The EU disgusts me as does the capitulation of the government that considers me a citizen. I wonder if I too will soon be property.
Will make direct responses later, up all night coughing. But will relay one event I recently learned of. I think I have mentioned in another thread that at least two friends from Great Britian living here in Japan have recently had to provide their Japanese My Number to their portfolio managers and banks back in Great Britain.
The new information comes from a Japanese friend who just returned from five year stay in Germany. While living in Germany, their bank in Germany required they provide their Japan My Number to continue banking there. My friend closed that account.
@Mike
“I think it’s part of the whole massively overblown patriotism thing, “you’re either with us or against us, and leaving this great nation makes you an unpatriotic ingrate”.
Plus, some are just jealous that you can live in a foreign country, because you have to be rich to do that.”
For me, it has been the exact opposite. Most of the expat community I know in Japan, which includes Canadians Brits, Aussies, and a few Americans, either dislike or hate the US. At almost every meeting before I learned of FATCA I used to be bombarded with accusations and demanded to answer for this or that policy. One of the latest was the NSA scandal. It is these people who, after I finally gave complaint against a policy that directly affects myself and my family and indirectly them and our clients, do not want to hear anything of it.
The few homelanders that I know who are sympathetic are definately patriotic, as I too am.
“It’s so bizarre that I am careful who I speak to about it now, because their initial reaction to a few facts you give them is that they think you have lost your bloody marbles because the whole situation is unreal and unbelievable.”
Yep, but can you blame them? How did you react when you were first told of this? Depending on the situation, I no longer speak of this to most. When I meet a fellow USC, I keep quiet. I am now of the beliefe that we are all in the net just waiting to be hauled aboard and cooked. No use in ruining whatever time they have left with their families with news that it will soon end when there is nothing they can do about it.
Those I do speak of it to are those who are planning to go overseas or send people overseas. I spoke of it to my Japanese friend who returned from Germany recently only because they asked if I have taken my children “home” to meet their grandparents. As this friend knows my parents and I their’s, I though I should tell the truth. They were very understanding and tracked down the Japanese language version of the FATCA letter my bank gave me.
My British friends thought I was off my rocker, they laughed. Now that they have to give their My Number to their banks back in GB, they are not yet sobbing, but speak of the issue in hushed tones.
Not enough will know or care until it is too late to do anything about it. I wish I was completely ignorant of this issue. The quick “death” of suddenly learning I must say “goodbye” to my family would be better than this slow drawn out death trying to avoid it.
@Fred
“Funny thing, though, the US is probably the last tax haven. With CRS and all, the EU is truly hellish now, at least for the middle class, or anything less than the top 1%. Only an account in the US can be sheltered. Pretty ironic.”
Probably not a coincidence.
Sharing this comment from Mark Fitzpatrick on Twitter:
Non Resident Taxation is a great solution for the CBT problem. CBT has its well-known issue of being already in use and, what’s more, it focuses on a false sense of duty –> with citizenship comes rights and obligations, which is specious reasoning that both Red and Blue will blindly embrace.