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!
“In my opinion this happens because so-called diplomats are just ordinary people who have been appointed to their positions as opposed to having truly earned their assignment through diligence.”
Some diplomats buy their positions by making campaign contributions. They are not ordinary people, do not understand ordinary people, and do not care about ordinary people.
“it’s a mutual exchange of information to prevent the British hiding money in the USA and Americans hiding money in the UK”.
Well it is. Just like screwing is a mutual exchange of DNA information to perpetuate the species.
The vast majority of diplomats are career professionals, foreign service officers. Some, but certainly not all, ambassadors are political appointees, rewarded for fundraising and political connections.
@Mike
Did you set the guy straight? How did the conversation continue?
Switzerland was on the spot and had to sign because it was a thorn in the side of everybody as a tax haven. Switzerland had no allies. (Even back then somebody at Aljazeera wrote that America was just trying to get Switzerland`s clients, which turns out to be true.) One has the impression that everybody was blinded by the nobel effort to crack tax havens at the time. Seemed like such a good idea. But again one could ask: when will everybody WAKE UP and see that what might have started as a good idea has turned into a “we can do whatever we want with this loaded gun in our hand” mentality.
“Did you set the guy straight? How did the conversation continue?”
Well, I began to set him straight, and after about 20 seconds he had clearly decided I was completely out of my mind and should get back in the corner with my tin foil hat.
You can’t blame him, the truth is unbelievable.
@Mike
“You can’t blame him, the truth is unbelievable.”
Precisely. I didn’t believe it myself the first time a friend told me that I should have continued to file US tax returns all the 40 odd years since I left the US. Only those who experience it personally really get just how counter-intuitive and how much of a human rights violation it really is. And if it doesn’t affect you personally, you won’t bother to take the time to do the research it takes to become fully educated about the subject.
Only those who have their personal information sent to a faraway country they haven’t lived in for years or possibly have never lived in get it. Only those who are refused banking privileges based solely on where they were born get it. Only those who are denied the basic tax-sheltered retirement accounts or garden variety mutual funds that their fellow citizens take for granted get it. Only those who are required to re-register every year with the Financial Crimes Enforcement Network like they are a paroled criminal get it. And so it goes, on and on, all of it unbelievable.
Even the average Congressman is totally unaware what the IRS requires from someone who lives outside of the US so its no wonder we get no help or sympathy from any of them and we will never get any help or sympathy from any of them. They don’t know, they aren’t interested in finding out, and they don’t care.
Your so-called “friend” is the one who should be wearing a tin-foil hat so he can be certain there is absolutely no chance that any shred of truth will ever penetrate his thick skull.
(End of rant.)
@maz57. If you try to tell anyone about your ordeal, they will simply tell you look at your US passport. It says right there in black and white that you are liable for paying taxes anywhere in the world. The problem is CBT law an antiquated law that no other country except Eriteria practices. Eriteria does not have any teeth such as US has and it cannot force or threaten banks overseas. Most of Congressman know about the plight of expats overseas but they can’t sympathize with us openly (Some have only to be ignored ) as they are afraid of being called tax cheat helpers by homelanders who call us traitors for simply choosing to leave USA.
At least Eritrea’s is a modern CBT. It asks the person to declare what their income is and levies a flat 2% on that number. Simple. No life control, no form crime, no punishment for certain types of investments, and no complication.
If a person pays Eritrea’s CBT, the Eritrean government will leave that person alone to live their life wherever they go on the face of the planet.
If a person pays US CBT they wind up in a worse position than if they had ignored it. That’s because US CBT is not only designed to collect tax, it is designed to punish the individual for living outside of the US. This is accomplished by requiring the filing of endless complicated forms over and above any actual tax owed. Each of these forms is filed under penalty of perjury and threatens crippling penalties for the slightest mistake or omission; many can only be properly filled out by hiring a professional.
So if I were going to pay CBT (which I absolutely refuse to do), I’d choose Eritrea’s because once you’ve paid the 2% they at least leave you alone. Most US Congressmen who know about US CBT like it exactly the way it is and I’ll be very surprised if they ever lift a finger to change it. And you are right, if one of them advocates for changing to residence based taxation they will be branded by all the others as being soft on tax evasion.
Again the hypocrisy of it is mind-blowing, because the world condemns Eritrea for taxing its citizens abroad. Take away all the thumb screws- and the rest of the world would condemn USA for the same.
@Polly. You are correct. The attack on Swiss banking was not only to collect penalties from them. It was an attack to get itself the biggest tax haven in the world for foreigners. They didn’t even sign on CRS. Isn’t it obvious that is the most hypocritic nation in the world. After Swiss banking every non US person is investing and banking in US as it is the most safest for foreigners. It destroyed every tax haven in the world. Rest of the world is quiet at all this except a tiny island of Trinidad was having issues with FATCA, a non tax haven. Absolute power corrupts absolutely.
By the way nothing is going to change. It’s going to get worst as IRS is now looking for non compliances all over the world as it is a money tree for them. This is from new information updates.
@Harrison and what exactly are they going to do when they find all this non-compliance? They have little to no power to seize assets outside of the US so not sure how it’s a “money tree” for them other than largely scaremongering people into paying penalties. There are of course some people who are more vulnerable: those with US assets, those who need to return to the States for whatever reason and those without a second passport.
How many of us have second passports, I wonder. I personally know only one such person. All other USCs I know have just the one.
“Accidentals” of course, have another, but there ar ways to get them too. If your banks say that you must provided proof of expatriating from the US or have your account frozen, what would duals do then?
@JapanT
Duals wpuld in that case renounce, obviously.
Yes, which ain’t cheap. Especially if banks demand proof of a “clean” break away. That is how the US can still get such people.
No, it’s not cheap, but if you’re unfortunate enough to live in a country where banks actually care and can’t simply be lied to (i.e. not Canada or Australia) then you might not have much choice.
As for banks demanding proof of a clean exit from the US tax system, I don’t believe we’ve heard of that happening anywhere. There are confirmed reports of banks in Switzerland wanting to see copies of 1040s etc. from US-person customers, to ostensibly prove their compliance, but that seems to have been a number of years ago when the Swiss banks were all in a mass panic after the initial campaign against offshore accounts, and doesn’t seem to be an issue now.
@JapanT Not sure how common this is at all but I have two passports and I’m not accidental. My UK one still lists the US as the place of birth.
I don’t know that there are reliable statistics on this, but I’d expect more duals than not among non-resident US persons. First accidentals, then American expats in Canada, Australia, EU etc. where it’s relatively easy (or at least possible) to acquire citizenship.
Latest Australian census shows that 54% of US-born Australian residents are Australian citizens.
I’m with Japan T: I’ve lived outside the USA for 30 years and I have never once encountered a US citizen with two passports face-to face. the only ones I know of are here on IBS, and I’ve never met any of you. I think IBS is heavily weighted toward residents/citizens of Canada, UK, Switzerland, and France, all places where naturalization is relatively simple (compared to most of the other 190 countries on earth) and, more importantly, attractive. I believe most commenters here have a skewed perception that dual citizenship is somehow the mean. I think you folks are a miniscule but outspoken minority among US citizens around the world.
Not that it matters. This forum and everyone here is intelligent, thoughtful, and cares about the plight of all US persons abroad. I truly love you all. But it does make me wince now and then when people here express amazement at those who have only a single citizenship and (perhaps unintentionally) imply that it’s a no-brainer decision to just get a second passport.
@Alice and Japan T
I agree that some countries are easier to obtain citizenship in than others. My Canadian experience illustrates that it was somewhat difficult to obtain permanent residence here. But much easier than in many other countries. Once obtaining permanent residence, it was easy to obtain citizenship. I have heard that obtaining citizenship in certain other countries is quite difficult and time consuming. Best wishes to you in your process.
For me, there is no “process”. In my current situation, gaining Japanese citizenship is as probable as fly to the moon by flapping my arms.
I’ve been digging into Canadian census stats, not super informative yet, except to confirm that about 1 million (so approx 3% of total population) have dual US-Canada citizenship. No idea yet how many US-only.
I figure a million is a big enough number that banks will think twice before pissing us all off.
It would be interesting, though difficult (probably impossible) to get better numbers on non-resident US abroad. How many dual, how many US-only, broken down by country. To me 7 to 9 million seems like an awfully big number, I would expect the majority of that to be accidental and therefore dual, and single-citizenship expats to be a minority, possibly a small minority. Already 1 million of the total are Canadian duals.
My anecdotal evidence is of course nothing but duals, so there you go.
Yes, I’ve heard that obtaining Japanese citizenship is quite difficult. As well it is more difficult for Asians to obtain Canadian citizenship than for US citizens to do this. It`s a complex world we live in.