My comment on the superb article about the plight of #Americansabroad by @Laurasn1000 https://t.co/OPflDEmehD … Calling the other Laura – @Saunderswsj
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) February 18, 2018
Recently an excellent article Think you can leave the US? Think again!
appeared on the Thom Hartmann site.
Written by an expat laurainparis , it is one of the best summaries/sources of information available. This post is based on a comment to the article.
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Laura, this is one of the very best articles I have seen about the reality of this situation.
At the outset, I would like to explain that what most people call U.S. “citizenship-based taxation” (sounds kind of patriotic) is the U.S. policy of “imposing worldwide taxtion on the “tax residents” of other countries who do NOT live in the United States” (which is what it really is). In other words, let’s call it like it really is. It is NOT restricted to “so called Americans abroad”. The vast majority of people impacted by this are the citizen/residents of other countries.
You explain what it means when the United States claims the right to impose “worldwide taxation” on the residents of other countries. This of course means (as you know first hand) that a resident of France must pay U.S. tax on his/her French income. In addition (as you point out) the penalty regime imposed on assets that are local to the resident of France but “foreign” to the USA are draconian and completely idiotic.
I would also like to point out that although this discussion is frequently framed in terms of “taxation”, what this is really about is the United States exporting the Internal Revenue Code to other countries. This exports certain U.S. cultural values, reporting requirements and penalties on those who “commit personal finance outside the United States”. In other words, this is about much more than taxation.
There was an attempt to effect change, but it failed
The previous comment above by “PetLover” outlined and reinforced many of your points. PetLover also commented on the efforts made by various groups to effect legislative change. These efforts failed.
I would like to comment on why (I believe) these efforts failed and suggest what should be done on a “going forward” basis.
Why the efforts on the part of Americans abroad failed
On an organizational level the efforts were led by “Republicans Overseas” and “Americans Citizens Abroad – ACA”.
On an “individual level”, hundreds of individuals affected by this wrote to the House Ways and Means Committee in 2013 and the Senate Finance Committee in 2015. I mean 100s!! In fact the largest number (by far) of submissions on International Tax Reform came from Americans abroad. These submissions were acknowledged but basically ignored.
Tax “reform” (if you want to call it that) came to fruition on December 22, 2017. It included benefits for corporations, a few temporary benefits for U.S. resident individuals, no effort to improve the situation for Americans abroad and a possible worsening of the situation for Americans abroad who are self-employed.
There is a suggestion that the new “transition tax” applies to the small businesses owned by indivdual Americans abroad. If this is true, the U.S government would (if you believe the compliance community) confiscate approximately 20% of the retained earnings of small businesses owned by certain Americans abroad. If this is true (and I do NOT agree with the prevailing sentiment in the tax compliance community), it would mean that NOT only did Congress NOT assist Americans abroad but they made it even worse for them! In my view, the possible applicability of the “transition tax” is the final straw and those who can afford to renounce U.S. citizenship need to renounce “quick time”. But, back to the question, why did the efforts fail?
1. It’ s about the message – After all this time, most people do NOT make the distinction between FATCA and “citizenship-based taxation” (which is the U.S. tax policiy of taxing residents of other countries). Some were urging the repeal of FATCA. Some were urging a change in U.S tax policies. FATCA and tax policies are not the same thing. In fact, if the U.S were to change its policy of imposing taxation on the “tax residents” of other countries, FATCA would be far less of a problem. This is becaue those who resided in other countries would cease to be U.S. “tax residents”.
FATCA is a law that essentially “hunts” for people who are U.S. “tax residents”. It is U.S. tax law that imposes “worldwide taxation” on the tax residents of other countries. The former is an extreme irritation. It’s the latter that makes life untenable for “tax residents” of other countries.
The focus should have been on changing the U.S. tax policies and less on the repeal of FATCA. But, this requires that people NOT treat “FATCA” and U.S. tax laws as being the same.
So, the message needed to be: Stop imposing U.S. “worldwide taxation” on the “tax residents” of other countriese who do NOT live in the United States!
2. Partisanship – The inability of Americans abroad to behave in a non-partisan way. FATCA may be a partisan issue. But, the U.S. policy of imposing “worldwide taxation” on the “tax residents” of other countries is NOT partisan at all. It’s been around since the 1800s (as the article points out).
3. If you don’t ask for what you want, you won’t get what you want: Neither of the primary organizations (Republicans Overseas nor ACA) made the simple and understandable request that:
“The United States stop imposing “worldwide taxation” on the “tax residents” of other countries who do NOT live in the United States.”
How the organizations framed the issue:
Republicans Overseas: Did not focus on the issue of “tax residency”. It did NOT ask that the United States stop imposing taxation on the residents of other countries. Rather, it asked that the United States stop imposing taxation on certain kinds of income earned regardless of residence (asking for territorial taxation for individuals). Republicans Overseas asked that income earned outside the United States be exempt from U.S. taxation. The focus was NOT on “who” was subject to U.S. taxation, but rather on “what” income was subject to U.S. taxation.
American Citizens Abroad- ACA: Did not ask that the United States stop imposing taxation on the “tax residents” of other countries. Rather it asked that certain individuals, under certain circumstances should be exempted from “worldwide taxation” imposed on “nonresidents”. (Keep “citizenship-based taxation” with a carve out for certain people.)
Don’t get me wrong. I DO applaud the efforts of both organizations. It’s just that neither organization asked specifically for the only acceptable solution. What is that solution?
“The United States MUST stop imposing “worldwide taxation” on the “tax residents” of other countries” who do NOT live in the United States!”
Going forward …
I believe that the world (organizations, individuals, foreign governments, etc.) MUST unite behind this SIMPLE principle. No “carve outs”. No exceptions. No confusing the issues. No suggestions that change is complicated. This is the only solution that makes sense. Furthermore, by framing the issue in this way, the real issue is being discussed. It’s direct. It’s clear. It’s honest. It demonstrates how outrageous the situation is. It’s non-partisan. There is NOT a single individual, organization or foreign government that would disagree with this. Because the issue becomes non-partisan, the partisan fighting should stop. There will be no “divide and conquer”. The message will be clear.
Individuals must commit to the overall principle even if they are not individually impacted by all of the aspects of the Internal Revenue Code
For example:
– individuals who do NOT have mutual funds should not say: I don’t have mutual funds. This does not specifically affect me, therefore it is not a problem;
– individuals who have not had to pay capital gains taxes on the sale of their homes should not say: This does not specifically affect me, therefore this is not a problem.
– individuals who do not have small business corporations, should not say: This does not specifically affect me, therefore this is not a problem.
– those individuals who identify strongly as U.S. citizens living abroad, should recognize the impact that U.S. tax policies have on their country of residence. They should not say, this doesn’t affect me, therefore this is not a problem.
– those individuals who are not impacted by the S. 877A “Exit Tax” should not say: If I renounce citizenship, I will not have to pay an “Exit Tax”. They should not say, I don’t have to pay the “Exit Tax” and because it doesn’t affect me, it is not a problem.
Until individuals impacted by outrageous and unjust U.S. policies, unite and support the principle, regardless of how these policies affect them individually, there will be no united voice (only isolated pockets of discontent).
Finally, U.S. citizens living outside the United States are going to have to do some “soul searching” and ask themselves a simple question:
Are they “free” individuals that are entitled to a level of dignity and human rights that individuals in other first world democracies are entitled to? Or are they satisfied to be Americans – essentially the property of the United States government. In other words, are they satisfied to have the lower level of human rights and dignity that are allowed to Americans. Sorry, in the 21st century, the United States is NOT a leader in human rights. Other countries have long since passed the USA in that regard.
The author of this superb article asks:
Q. Why should U.S. residents care? The answer is simple.
A. Because all U.S. residents need to understand their future is to see how the U.S. Government treats its fellow citizens abroad. Their only crime is to have pursued a life (often attempting to sell U.S. products) outside the United States!
@PatCanadian
Not if they drop $6 million for a house in Vancouver it isn’t!
“It`s a complex world we live in.”
Yep, but it seems not complex enough for us from the viewpoint of the USG.
@Barbara
Questions of numbers aside, I am sympathetic to the plight of US-only citizens in countries where obtaining another citizenship is difficult or impossible. However, and please don’t take this as sounding arrogant, but I personally would not put myself in a situation where I expected to live out my entire life in a country where I would never have the security of citizenship – metaphorically speaking, I wouldn’t want to be one drunk-driving arrest away from deportation. I know people who’ve lived their entire adult life in Canada but who for whatever strange reason have not bothered to acquire citizenship, which is totally perverse, given that Canadian citizenship is absurdly easy to obtain – simpler than falling off a log. We spent quite a few years in Germany, and I would have happily settled there for the long haul, but if I intended to die there I would have applied for citizenship (though being crafty I would have applied as a US citizen and renounced, as required by the Germans, without telling them anything about the Canadian passport).
Dropping $6million on anything is not easy for most.
Yes, if one has money, all of this is easy.
Why not take a citizenship in the country you live long term?
Most I know from abroad living in Japan, regardless of where we came from, did not plan on staying here. We came for a much shorter term. Myself, I came here for a 3 to 5 year stay. That was twenty years ago.
Most stay on long term because we end up getting married to a local. We keep our native citizenship because we have never actually decided to live out our days here. And keeping the nationality of our birth nation has been a lifeboat for if/when things turn really ugly. It remains so for most, but certianly not for USCs, though we did not know this.
Eventually, we may start to back at our home countries and learn that we can not go back. No credit and driving history are huge roadblocks that I can not surmount. Additionally, I have once again reattained good positions at several institutions that would not translate to anything in the States for employment. So, how would I bring my family back? How could I sponser my spouse for a visa without a position that earns enough?
As much of what we now know was hidden or newly legislated, what we thought was an informed decision turns out to have been based on misinformation and a belief that the US more or less followed its own laws.
Trapped.
@Nononymous:
30 years ago, who’d have imagined this nonsense? Especially a young, excited couple who found the opportunities of their dreams in a fascinating Asian country. Why in the world would we pass up such an opportunity just because citizenship was out of the question? Once we got our permanent residency, with the security of never again having to renew a visa, and having almost all the rights of citizenship, our risk of deportation is rather a trivial consideration.
The point being, we are 100,000 times more worried about grief from our country of citizenship than from our country of residence.
I agree with you wholeheartedly on one point: how on earth any long-term resident of Canada, the UK, Australia, or dozens of other countries, would choose not to obtain local citizenship? The mind certainly boggles.
I too lived in Germany once, as an exchange student. These days I occasionally daydream of what life would be like had I remained with that tall dreamy-eyed Frankfurt boy and become a Deutsche. Can you imagine a life in which you live in total, blissful ignorance of CBT and FATCA? Aaah, if only….. (Don’t breathe a word to my dear hubby, who I wouldn’t trade in for the world).
@Barbara
I do admit that I’m not familiar with the rights and protections of long-term permanent residency, not having had to acquire it anywhere. Possibly in some cases it really isn’t that insecure.
But I have near-zero sympathy for individuals who run into problems because they didn’t take up Canadian citizenship when they had the opportunity. It is not difficult to do so. The most glaring recent example being Dewees, who’s out quite a lot of money due to poor decisions, what sounds like a very stupid lawyer, and ultimately his own failure to become a dual citizen.
I have similar feelings to those who CHOOSE to BECOME dual citizens. Changing citizenship is one thing, taking a new while maintaining another is entirely different.
@JapanT
Not sure what’s so ethically bothersome about passport collection but whatever.
In the specific US-Canada case, playing devil’s advocate here, why would one pay $2350 to get rid of US citizenship if it’s not causing problems? No penalties incurred after becoming Canadian are collectible, no banking restrictions, no FATCA reporting if you know how to answer a simple question – not much ROI to renouncing under current conditions.
One it hepls support the belief that we are all ingrates, receiving the bennies of USCship while hiding behind our second citizenship when it comes to the other side of the coin, responsibilitites.
There are reasons good why nations do not like dual citizenship.
For many of us, citizenship is not a choice suits we change into and out of depending on the situation.
I will amend my previous statement, it today’s climate, taking a second citizenship and not shedding the US one makes a hell of a lot of sense. But those who took a second Cship and did not renounce with the US before all this became known can appear to have done so for other reasons.
I disagree that single citizenship is a laudable goal. If I could, I’d take on 50 citizenships. In 1918 my grandfather left Russia as a penniless refugee without a passport. He freely traveled all over the world–through the Middle East, numerous European countries, and most of Latin America, without a passport, for the next 12 years. He only acquired a new citizenship in 1930, when he emigrated to the USA. Citizenship and passports can be restraining. I prefer a world where passports have as utilitarian a meaning as a driver’s licence. I don’t want to be the property of any country.
That may be BUT it adds to the belief that one who maintains multiple citizenships is milking the system for as many benifits as they can get from each while dodging the responsibilities that come with each.
Nations do not like it for various good reasons.
But yes, passports are only to be issued as an aid in crossborder travel. My British friend were shocked to learn of the recent passport revocation law in the US.
Generally speaking, there are no benefits to milk. I don’t understand why people find this so difficult to grasp. The benefits are very abstract – you can go back to country X one day. The “rescue” business is overrated.
Canadians are very guilty of this after the business in Lebanon 12 years ago. (https://en.wikipedia.org/wiki/Canadians_of_convenience) Needless to say a combination of truth and exaggeration in these complaints, which led to some changes regarding transmission of citizenship.
Be that as it may, the common voter thinks otherwise. As I said, it “adds to the belief…”．
But, it does undercut a nations immigration policy if only one ctitzenship is decalred when traveling as visa requirements are often different for different nationalities.
I know of a few American citizens and residents, some relatives who understand the restrictions that Fatca will place on them if in the future they may want to work, live, retire or fall in love abroad yet they steadfastly refuse to even contemplate taking up a second citizenship even though they are able to do so through a parent or grandparent. It is as though I have uttered a sacrilege to dare mention it, it is an affront to the sanctity of that little blue book. This is in direct contrast to Europeans I know who now (after Brexit) can see the advantages of having a second passport. There is no allegiance swearing or chest saluting brainwashing to their home country, just a quiet feeling of belonging tempered with practicality.
I am told by older relatives that my great great grandmother would not allow anyone in the family be given a name from the old country saying that it was behind them, that were Americans now and would give “American” names only to the children born in America. Thus no Kanutes nor Orloffs in that branch if the family.
While I may not have to change my name to a Japanese name, I would have to accept a Japanese spelling which would change my name.
Yes, a second citizenship would indeed be convenient, (wished I had one myself) but there are reasons why nations and many of those with only one citizenship don’t like it. Japan does not allow dual citizenship. Others also do not. Voting in the national elections of different countries strikes many as odd, to give just one example.
I would note vote in an election in a country in which I was not resident and most countries I believe would not permit one to vote except within prescribed exit time limits.( Brexit had a 15yr exit limit) and in fact many countries have resident requirements along with citizenship for voting rights
Jus sanguis has always been the standard way of granting citizenship and of course will continue to be conferred by most countries by either parent wherever the child is born, and sometimes along with a grandparent attribute or so.
It’s the jus soli that courses all the problems.
Yes, but USCs who left the US in adulthood can, or at least enough can to make the existence of DA and RA worth while.
Worthwhile to whom, it looks like it’s only to themselves. Certainly not to any of the powers of influence in Washington
Fundraising.
They wouldn’t have much chance of fundraising and voter registration etc. if USCs abroad could not vote.
Not a big deal, just offered it as evidence that at least a portion of USCs living abroad vote. Homelanders may not like the idea that a dual can vote in the US while not resident AND vote in the country of their residence and other citizenship.
Well I guess Americans abroad can always say they have the right to vote as they are paying their fair share 🙂
Funny that. If the had their wish, we would have to pay but not be able to vote.
For those who were discussing bitcoin.
“Coinbase tells 13,000 users their data will be sent to the IRS soon”
Isn’t it, rather, that there are two distinct categories affected by FATCA – those who want US citizenship and those who don’t.
a) For the first group, CBT is indeed the problem, complicated by the fact that not all US expats want to get rid of CBT. Some make use of USC tax breaks and don’t want to lose them; some simply ignore the whole business and will never get involved.
A carve-out might be a reasonable compromise, though it obviously would not please all.
b) For the second group (those who don’t want US citizenship), the problem is the reluctance of international bodies such as OECD to agree a standard definition of tax-residency.
It’s not at all difficult to leave the US and CBT, provided you can scrape up the fee. What’s difficult is that one’s non-USP status is not legally recognized internationally and stamped into one’s passport right next to the cursed US birthplace.
This unfair situation should change, but isn’t likely to. (IMO)