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.
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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.
@Harrison
Yes
CRS is different
It is based on RBT and therefore sends full information to your resident tax country. The scales are balanced, it is fair, there is reciprocity.
FATCA gets US citizens abroad full info but gives little in return.
Because the US is only willing to report interest only, then people can still hide money in non interest accounts in the US and shell companies in Delaware Nevada etc..
@Heidi @JapanT @everyone. As per HK, all other Asian jurisdictions that I visited (don’t know about Japan as I never went to Japan ) bankers stated in emails and direct face to to contacts that all accounts who do not give out their SS number or sign any forms concerning their status of US citizenship or residence under penalty of perjury are being reported to IRS. It depends again on banks and countries but nearly all major or even minor countries such as Azerbaijan to Nepal are reporting.
“CRS is different
It is based on RBT and therefore sends full information to your resident tax country. The scales are balanced, it is fair, there is reciprocity.”
Fair? How is exposing every one who lives outside the land of their birth or nationality to unprecedented risk level of ID theft, fraud, blackmail and kidnapping fair?
@JapanT, the OECD goons wanted Obama to end tax havens and start their bank reporting programs as it wanted to end recession that happened in 2008-2009 and they always wanted to end this offshore banking secrecy. It was part of Obama’s campaign speeches to end this bank secrecy and OECD wanted to end it too. Yes I know JapanT about blackmailing, extortion and theft due to the ending of secrecy as the results are quite obvious to me. Some of the countries you could be a resident of have goons in their tax dept that work privately and I am being told by various people they have become a target of these goons.
Well, I admit, don’t like it, but I meant in context , it’s certainly fairer than FATCA.
@Heidi you are not a citizen of those countries that have private goons to hound you or your family forever if you have little money in your account. Yes they can get you living in HK too if you are citizen of China, India etc who have goons in those depts and if they know anything about your wealth they will come to hound you. You don’t have to be resident of those countries. Similar to IRS only it would be govt agents such as what had happened in Panama years ago when armed IRS agents swarmed on to US citizens living in Panama and not reporting their accounts. Yes it happened as I received an email from Lief Simon a US citizen living in Panama on his offshore newsletter about the armed raid. The private goons are more dangerous as they dont have legal structure behind them,
I wonder if news agencies will link the not so distant future skyrocketing crime rates against expats of all stripes worldwide to FATCA and CRS?
“Well, I admit, don’t like it, but I meant in context , it’s certainly fairer than FATCA.”
Oh, I don’t know. Not sure my neighbors would think it fair that they are subjected to all this risk just because their country allowed folks from overseas to live and bank in their country.
@JapanT. Good luck in getting news agencies to report crimes on expats due to their country of citizenship or a residency at one time or the other in his life and goons inside their tax depts chasing them. I suspect a few millionaires who were picked up by China in HK as reported in HK news and by Indian agents in other countries as reported by Indian expats to be a tax extortion matter. This never made the news only their kidnapping for unknown reasons was reported in news. There were many suicide cases in news but no one could figure out if they were really suicide or not as they had everything they could ask for wealth, young and healthy and drugs free before their suicide. We know that from 2015 and 2016 many countries are getting information bound to be a big problem by extortion rackets utilizing this info obtained from offshore accounts.
This is the main reason for many high net worth Europeans to move away from Europe into safer tax free countries. These are extremely rich people from Eastern European to western EU countries moving to tax free countries,
I would be very surprised if any difficulties to innocent people because of FATCA and/or CRS would ever be linked to these in the press.
“Fair? How is exposing every one who lives outside the land of their birth or nationality to unprecedented risk level of ID theft, fraud, blackmail and kidnapping fair?”
Not just outside of the land of their birth or nationality.
Actually, anyone who lives in their country of birth and nationality are also getting the same treatment if they have finances outside of that country. That includes within the EU.
Yet again, despite all the bluster about people being able to invest and live where they like within the EU single area, having any kind of foreign financial life (such as my foreign pensions and investments that were local to me, ring any bells?) results in privacy invading reporting between countries, and who the hell knows who can get hold of that information?
And again, countries all over Europe are upping the stakes in keeping citizens money within their own borders by applying punitive treatment for as a much as a simple mistake with the reporting.
UK resident citizen fouls up the taxes on his UK second home, slap on the wrist.
UK resident fouls up on the reporting of his Spanish second home, automatic criminal offence with hugely increased penalties and of course, a criminal record.
Personally, I am horrified that so much of what I consider my private financial information is just being shared willy nilly between governments and I have NO IDEA what the hell they are sharing?!
The world has gone bloody mad.
@Mike ditto. To add insult to injury if you are living outside US it is a nighthmare to deal with offshore banks local to you as they deny you just for your toxic passport or want you to lie on their forms that you have nothing to do with US something I find unappealing to me. Previously this wasn’t the case when I had opened the accounts even after 2010 but now it’s a requirement to keep the accounts or get frozen by the banks to sign the paper. Once they find your US taint they immediately ask you to close the account and move to some other bank with huge compliance teams retained for this type of reporting. As of now if you are U.K /EU citizen having a HK ID and living in HK they will still report you to UK/EU as they want UK/EU tax agencies to determine your tax status. This was from a top bank in HK as they are required to collect data and sent it to HK tax dept to send data to respective govts.
Mike, the whole world has gone mad now as too much data transferred here and there is bound to get abused, hacked and used for nefarious purposes.
@Mike,
Yep but also those who live in their native land and have all their banking there, if the have the misfortune of choosing a USC as a parent.
We are witnessing the beginnings of a brave new world.
“Mike, the whole world has gone mad now as too much data transferred here and there is bound to get abused, hacked and used for nefarious purposes.”
My wife is an IT data person and she has always said that the potential for abuse of data is gigantic. She has always said that systems as powerful as they are now and will be are ripe for abuse.
Well, we can see it’s not just ripe for abuse by criminals but by governments as the US government has clearly proved in its human rights abusing hunt for taxation among the residents and citizens of other nations.
At least if criminals try and extort money out of you using this information you can call the police, who do you call when it’s the U.S. government?
And I DO wish they would quit reassuring me that this information will be kept secure and private, because it is not secure or private if it’s being handed to governments around the world!
Honestly, I despair I really do.
Mike,
It is interesting that you bring that up. Many of the folks I worked with last are also in IT. They have the exact same misgivings over the use, overuse and misuse of the very products and services they are working on as I do, only they are even more concerned than I am.
The Omish were right.
Good lord, that should read
The Amish were right.
Fair?!
You guys are using a word taken out of context. Of course I don’t think it is damn well fair that our personal, once private, financial accounts are now sent out over an insecure internet. I have been on Brock long enough for anyone to know that.
I used the word ‘fair’ in this context to describe an agreement where both sides receive the same information, unlike FATCA. Please stop making argument for argument sake.
Recipricacitiy doesn’t make it fair. Two wrongs don’t make a right.
It would in no way help me to know that Japanese in the US are having their banks send their data to Japan.
I do not see a shred of fairness in they having to suffer what I suffer. Especially just to have the US live up to its promish of reciprocacity.
OK, I will, substitute the word fair for balanced, the crs arrangement is balanced, each get the the same info, Fatca is not. Neither is fair to the people it reports, how’s that, shall we call it a day?
“Some of the countries you could be a resident of have goons in their tax dept that work privately and I am being told by various people they have become a target of these goons.”
In two cases you don’t even have to be a resident of the countries that have goons in their tax department that “work” privately and you could become a target of these goons.
In one of those two cases, I don’t know if goons have actually “worked” privately or only actually worked in accordance with their job descriptions, getting their ambassadors expelled.
In the other of those two cases, the Treasury Inspector General for Tax Administration has reported on arrests of some of those goons who “worked” privately but the ring leaders haven’t been caught yet. It seems the ring leaders might not be in that country’s tax dept but might be in that country’s “Justice” dept.
“the crs arrangement is balanced, each get the the same info, Fatca is not. Neither is fair to the people it reports, how’s that”
So CRS is balanced, that’s not good. I am rather happy US banks are not honoring their FATCA obligations, wish Japanese banks would follow suit.
The purpose I see for bringing up the fact that the US is not ricipracating is to try to give our nations more of a cause to fight FATCA.
Balanced is not a good thing here.
Goons!
@japanT
I thought I was giving you some useful information that could at some point may be used to extract your country and others from the Fatca agreement yet you choose to throw it back in my face. I give up on you.
Heidi, Heidi, Heidi,
So much to comment on but I will focus on just one.
The wound has already been inflicted. My banks have been reporting on me and all other US persons in Japan since mid 2014. The IRS already knows who my main employer is as well as all my other employers. Unless Japan opts to suffer the 30% withholding on all its FIs operating in the US before May of this year, the IRS will soon know who my four newest employers are.
Countries backing out of FATCA, something they just are not going to do, will not cause the data the IRS has on us to disappear.
The damage has already been done, we just have not felt the effects yet.
“The damage has already been done, we just have not felt the effects yet.”
There are still millions of people out there who have yet to have their OMG moment. The banks are still looking for them, the IRS will eventually get around to writing to them, often in a language they cannot be expected to understand.
The worst has very much yet to come in my opinion.