Media and Blog Articles Open for Comments – Part 5 of 11 (Year 2018)

1,714 thoughts on “Media and Blog Articles Open for Comments – Part 5 of 11 (Year 2018)”

1. Thanks @Portland for clarifying that.

2. After the royal wedding, will Meghan Markle have to rein in her activism?
   by Karla Adam and William Booth May 18

   Please uptick:
   https://www.washingtonpost.com/world/europe/after-the-royal-wedding-will-meghan-markle-have-to-rein-in-her-activism/2018/05/17/66eeeb42-5880-11e8-9889-07bcc1327f4b_story.html?outputType=comment&commentId=5d494140-bc16-4e48-8212-540ed89f58a1

   https://www.washingtonpost.com/world/europe/after-the-royal-wedding-will-meghan-markle-have-to-rein-in-her-activism/2018/05/17/66eeeb42-5880-11e8-9889-07bcc1327f4b_story.html?noredirect=on&utm_term=.cacea322c8cb

3. Interesting twitter retort from Solomon Yue to a tweeter marketing Dominican Republican citizenships:

   “TTFI passage could hurt your business.” (My translation from twittish)

   TTFI = the US gaining control over USC expat access to foreign tax credits?

   At present USC expats have full access to USC benefits (and the US market), plus restricted treaty benefits (controlled by the Saving Clause plus the LoB article). But the US can’t stop USC expats from claiming the biggest treaty benefit of all: FTCs. Hence the elaborate SubPart F rules aimed at circumventing the right to FTCs.

   Under TTFI, if I understand correctly, USC expats who register as non-US-resident would have unrestricted access to treaty benefits and no access to USC benefits (and no access to US markets). And the US would have their signature over a PoP jurat.

   While USCs who don’t register as non-USC-resident (those who are currently trying to comply with CBT) will continue to file and continue to have full access to USC benefits (and the US markets), and limited treaty benefits including FTCs and of course FEIE.

   And the US would be able to accelerate the commodification of US citizenship, leaving sellers of other citizenships (such as D.R.) in the dust, and thus hauling in lots more dirty capital to the world’s soon-to-be-biggest tax haven.

   While those expats who aren’t interested in either set of benefits could continue to choose to renounce, or choose to ignore the whole business.

4. @Plaxy: I’m not sure I understand your objections, other than to the idea of commodifying US citizenship. If I elect to be treated as non-USC resident, and therefore not subject to US tax filing, then why would it matter if I’m no longer eligible for FTC or FEIE? Those would become irrelevant to me in any case.

   I also don’t understand why a non-resident USC would no longer have access to US markets. We’re talking individuals, not businesses. If I elect to become a non-resident USC, I can still accept employment or freelance work from US-based businesses. I’d then be taxed by the USA on that US-based income…quite rightly, I should add. It would then be my burden to claim a FTC on the US tax paid from my local country-of-residence taxes (if they tax my worldwide income)…again, quite rightly. And such foreign tax credits aren’t necessarily dependent upon treaties. I’ve been looking, for example, at one European country that taxes residents on worldwide income and allows a FTC on all foreign taxes paid…except those from so-called “tax havens”–that is, very-low-tax jurisdictions. While I consider this exception unfair, it isn’t a treaty issue.

   Maybe I’m reading your interpretation of TTFI wrong. But at the moment I see nothing objectionable on the issue of FTCs, or lack thereof, for declared non-residents. I will happily admit my ignorance if you can explain my misconception.

5. Barbara – I’m not objecting, just trying to understand why they seem to want to do this (ditch cbt).

   “foreign tax credits aren’t necessarily dependent upon treaties. ”

   Indeed not. As I understand it, countries (especially the US) “allow” credit for foreign tax paid faute de mieux – because they can’t withhold. The source country generally can> withhold, and generally does, absent treaty agreement to the contrary. So the non-source country (usually the US) credits the foreign tax paid in order to be able to apply US tax on top (mainly effective against USCs in low-tax jurisdictions.)

6. “I also don’t understand why a non-resident USC would no longer have access to US markets. We’re talking individuals, not businesses. If I elect to become a non-resident USC, I can still accept employment or freelance work from US-based businesses. I’d then be taxed by the USA on that US-based income…quite rightly, I should add. ”

   A USC resident in my (European) country would be taxed on worldwide income, most definitely including income earned from a US-based business. The country of residence normally has primary taxing rights on earned income. It’s investment income the US (and other countries of course) want to be able to tax. Especially MNE investment income.

7. This snippet is a quote from Taxlaw360’s daily e-mail, but am not a subscriber so I don’t have access to the full thing. Anyone able to find out more?
   “IRS Found To Exceed Cap On Penalty For Offshore Reporting
   The Internal Revenue Service went beyond the cap on civil penalties it can assess for undisclosed offshore bank accounts, a Texas federal judge has ruled, rejecting the agency’s argument that regulations limiting the amount are implicitly invalid.”

8. Publius – more here:

   http://federaltaxcrimes.blogspot.co.uk/2018/05/district-court-caps-irs-authority-to.html?m=1

   See badger’s comment yesterday at http://isaacbrocksociety.ca/expat_tax/

9. And @Publius, this also;
   https://www.angloinfo.com/blogs/global/us-tax/can-you-claim-a-refund-of-your-willful-fbar-penalty/

10. For those who understand these issues in depth (and I am not one of them), this article might provide some avenue to raise online and comment on how the Trump tax reforms affect individuals and those with small incorporated businesses who are actually expats born/= and/or living’abroad’;

    ‘Tax Reform, Round One
    Understanding the real consequences of the new tax law’
    by Mihir A. Desai
    May-June 2018
    https://harvardmagazine.com/2018/05/mihir-desai-tax-reform
    ex.
    “…………….We should expect a significant response from other nations in the form of challenges and policy moves in reaction to the TCJA provisions that have tenuous underpinnings under international agreements and treaties. These legal challenges may be particularly problematic at a time when the U.S. government seems eager to turn its back on international treaties and norms. The consequential moves by the United States to slash the statutory corporate tax rate and try to enact a minimum worldwide tax rate will narrow the corridor of desirable tax rates for other countries to between 13 percent and 21 percent—a dynamic that could lessen the tax competition that was present under the previous regime, in which corporations sought ever-lower tax rates with their overseas income…….”……………

11. Territorial taxation for individuals, should it magically appear, would, I believe, create a range of new problems stemming from the fact that it will contrast with the way other countries tax.

    First, as Plaxy says, if you reside in, say, like me, the EU, and have US-based income (even fictitious, such as an empty home), you need to declare it to your country of residence, and pay tax on it. Currently, if you are a US person, I’m not sure what you do, but if you are not, you will, I understand, just pay tax where you live. With TTFI one must hope the treaties work, or will be adapted, so that you don’t pay taxes on US-based income (territorially based) both in the US and where you live (residency based).

    Second, if you live in the US, and it decides not to tax income from foreign sources (TTFI), you have just created an incentive for sourcing your income anywhere else in the world, and living in the US. If the country where your income is based practices residency-based taxation, it will let your income leave tax free. And, as the TTFI White Paper points out, the money will be welcome, tax-free, in the US.

    So TTFI opens the doors for double taxation of people living abroad with US income, and zero taxation of people living in the US with foreign income. Basically, someone well-organized and weathly enough could legally put their income abroad, just about anywhere, and bring it all back to the US tax free. This could work conceptually if all other countries switched to TTFI, but they won’t. Since, as usual, this “loophole” will be widely abused, expect a whole industry to rise up in the US dealing in TAFIUTTFI (tax avoidance for individuals using TTFI).

    Please let me know if I’m wrong.

12. Fred (B):

    “With TTFI one must hope the treaties work, or will be adapted, so that you don’t pay taxes on US-based income (territorially based) both in the US and where you live (residency based).”

    As I understand it (could be totally wrong), the treaties wouldn’t have to be amended. A USC who registers as a non-filer would be like a NRA, for treaty purposes.

    “If the country where your income is based practices residency-based taxation, it will let your income leave tax free.”

    That’s not what happens now. The treaty determines whether the source or residence country taxes passive cross-border income.

13. More on estate taxes for NRAs owning US stocks. We have seen this before.
    https://www.theglobeandmail.com/investing/globe-wealth/article-the-little-known-irs-rule-that-may-have-some-wealthy-canadians/

    I checked with my guy at Scotia Mcleod- he claimed he had never seen it applied. Another example of don’t ask don’t tell.

14. Fred (B)

    1) TTFI (at least the version that appears to be under discussion) applies only to non-resident US citizens – not US residents. Much like the “Territorial” taxation for corporations, it’s not really what it says on the label.

    2) As plaxy says, a US citizen electing nonresident treatment under TTFI would be taxed as a nonresident alien.

    So, how are NRAs taxed on US-source income? For most regular income (dividends, interest, royalties, rents, etc), the US payor withholds tax (30% unless reduced by treaty), then the NRA can usually claim the US tax as a credit against their home country tax. If their local tax rate is more than 30% (or the treaty rate), then they pay a bit more to their home country. If their local tax rate is less than 30% (or the treaty rate), then tough luck. In either event, you pay no more than the higher of the two tax rates and you’re not really double taxed.

15. Portland,
    There are ways to get around this – for shares, US estate tax on NRAs will apply only to directly owned assets. So, if an NRA owns shares in a Canadian-domiciled mutual fund that has exposure to US equities, they don’t own the US shares directly and they will not be covered by the US Estate tax. Similarly if the shares are owned by a private Canadian corporation. Using a non-US corporation in this manner is often advised for those who wish to own US real estate – that way there’s no change in the title to the real estate on the death of the beneficial owner – only the title to the shares of the “foreign” corporation change hands.

16. Thanks, Karen. I hope you are right. However, the TTFI White Paper on the RO site, which I have just re-accessed to be sure, has a “comparison chart” where “Profit on any business engaged without the U.S.” (meaning “outside” I suppose) is under the current tax system: A. “Fully taxed for Citizens and Resident Alien Individuals” and B. “Not taxed for NonResident Alien Individuals”.

    Under the “Proposed Territorial Tax System”, A. “Not taxed” and B. “No change”. Meaning that the new system, in this White Paper at least (and perhaps not in the currently discussed version in the House or wherever) does propose to make business profits (“any business”) no longer taxable for US citizens and Resident Aliens (I therefore suppose this includes US-resident US citizens).

    I also note that to make taxation territorial, “Profit on any business engaged within the U.S.” for NRAs (“Income of Non-Resident Alien individual not effectively connected to U.S. Trade or Business are not taxed under most treaties”) will be taxed. To do this they write: “Remove treaty benefits and Tax in the same manner as US business owned by US Citizen.” Remove treaty benefits? Doesn’t that require the other party to the treaty to agree? So basically, they want to remove treaty benefits, that perhaps prevented double taxation…

17. “Remove treaty benefits? Doesn’t that require the other party to the treaty to agree?”

    Indeed. Which is one of many reasons to think that’s probably not the model that’s under discussion.

    What’s in a name…

18. Fred (B) – yes, their original proposal was closer to a true territorial tax. But the latest proposal that came from Representative Holding’s office was “territorial” for nonresidents only.

    What we really need is to see the actual text of a bill. Until we see the actual legislative language, no one can really be sure what is being proposed.

19. @Karen says:

    you pay no more than the higher of the two tax rates and you’re not really double taxed.

    That reminds me of the U.S. Treasury Department definition of preventing double taxation which it does not, as currently the different taxes are in silos preventing credits to flow from areas taxed at a much higher rate (excess home (“foreign”) country tax on earnings/VAT/GST that can not be used to extinguish other U.S. tax liabilities). Plus, as discussed a true definition of preventing double taxation (assuming all income/assets are NOT in the U.S.) :: is that there is no additional U.S. tax to pay OR forms to send in to the U.S. = RBT like all other nations.

    Beyond that, I have this point of information: Let’s say the U.S. withholding is 30% on dividends the same as your home country = no higher than the highest rate, 30% right? That depends what other taxes are in play that get added on top that are not called “tax on dividends.” A fine example is the Obamacare NIIT 3.8% that may get added on, if thresholds are met, and that does a “run around” the tax treaties because no other country has Obamacare NIIT tax.

20. We are double taxed in that we must comply with two tax codes.

    While the inability of supporters of the US tax code MAY be forgiven for not understanding this point, the fact that we must always pay the higher of the two should be understood as wrong. But when one is on the receiving end of the tax code, getting the money, it must be hard to see things from the perspective of those paying it.

21. JC and JapanT – I was talking about the taxation of NRAs on US source income, not what the US currently does to nonresident citizens. Most of the US source income paid to NRAs is interest/dividends etc – what the IRS calls FDAP (Fixed, Determinable, Annual or Periodic) and is subject to withholding at source. The 30% (or lower treaty rate) is your final US tax. No need to file a return unless there’s a mistake in withholding. No Obamacare NIIT (that applies only to citizens or residents). The FTC is granted by your home country, not the US (we’re talking about US source income) – so would be subject to home country rules, if any, about FTC baskets, etc.

    I totally agree that US citizens under the current rules are double taxed – and that the double compliance is impossible in many cases.

22. @Karen

    Sorry for the confusion. Thanks for the clarification.

23. Thanks, Karen. Indeed, hard to analyze something that hasn’t been made available yet.

24. As to why the Republicans are choosing to launch their proposal in Hong Kong, Solomon Yue says (or seems to say, in a particularly typographically-messed-up tweet) that it’s all about competitiveness (cost of employing a USC versus cost of employing a non-USC).

    https://mobile.twitter.com/SolomonYue/status/997605261433958400

    Which is surely, as Yue says, a better tactic for getting a bill passed than rubbing Congressional faces in CBT injustice. Fingers crossed for a successful launch and eventual passage into law.

25. Plaxy: which is of course why some people are good at politics and others not so much. Hopefully he is right and we’ll get something out of all this. Hopefully it gets passed before Democrats win back Congress.

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