Some of you might remember that during the French presidential campaign both Sarkozy and Hollande were proposing some sort of expat tax – Sarkozy wanted to tax those who “left for tax reasons”, that ever flexible political catch phrase, whilst Hollande wanted to implement a 75% income tax rate on earnings above 1 million Euros – A sure way to send many wealthy French expats flying towards London and Switzerland.
Anyway, I came across an article about the recent parliamentarian elections that have taken place and about how, for the first time, French expats will be represented by 11 deputies representing overseas constitutencies. Here is an article from the Guardian which has an interesting graphic of how they divided the electoral regions up and how many of the 2 million French expats live in each.
I also came across the following article (article in German, see the google translate link) from the Swiss press today which was talking about Claudine Schmid, a resident of Zürich and now also a French deputy. Switzerland isn’t just under pressure from the US – There are 200,000 French citizens resident in Switzerland, many of whom are now very nervous about what Hollande has in store for them. Will they all be seen as living there for “tax reasons”?
Neither Hollande nor Sarkozy talked about going after normal people, just the “tax dodgers”. The problem here of course is would they differentiate between the two and what is to stop them just tacking a flat tax onto the French nationality itself, as Sarkozy called for? Sarkozy already passed a tax apparently which forces French expats to pay at least 19% in capital gains tax on French investments – The instructions for how this would work have yet to be published but it is on the books.
Pay attention to what happens here, because this could be the “Pandora’s Box” moment for letting taxation based on citizenship out of the box- We just don’t realise it yet. The wildcard here will be whether or not this new expat representation will actually be able to fight such measures. What do you think will happen?
I had a conversation with a French tax attorney after Sarkozy’s famous speech praising US citizenship-based taxation. The attorney said that France recently — during the last year or so — imposed a tax on French expats moving abroad, but under certain narrow conditions, meaning that that they had to have been resident in France during the six prior years, and then the tax only applies to the year they moved abroad.
He further thinks there are two big obstacles to full citizenship-based taxation à la Américaine. Firstly EU laws promote mobility of capital between states, which the French idea would contravene. Secondly, it would mean the bilateral renegotiation of over a hundred separate international tax treaties. En bref, he doesn’t see it ultimately happening any time soon.
As countries would increasingly try to double-tax everybody else, the systems and reporting would get so complicated that nobody would be able actually to collect anything. In the meantime the outrage would be so great that nobody would want to cooperate with any tax authorities and governments and then the world economy as we know it would collapse.
French President Francois Hollande wants to renegotiate the tax treaties with EU countries where the French usually put their money to evade taxes: Belgium, Luxemburg and Swizerland. for starters. The Frenh citizen who have the most to lose are “frontaliers”: people living in France and working in Switzeland.
They’re aware that it’s difficult to differentiate between tax evaders and people living abroad.
Yes, I am a little afraid of what they’re going to do. Jerome Cahuzac, the new budget minister was advocating for citizen based taxation a while back. One of the reason they cite for people in the US, is that they think many of them come back to France in the event of a serious illness, which would have serious consequences on their finances there, and therefore using the French medical system that they have not contributed to.
US= what health care system?
Obamacare is not yet fully in effect and may be struck down in whole or in part.
*Can you imagine what a Pandora’s Box this would be, with every bank in the world being requored to provide detailed reports to the tax authorities of 192 countries of the world on their accounts held by persons with citizenship in those countries?
And for those persons who, for reasons of birth, marriage, naturalization, decendency, etc. who are not only dual citizens but are citizens of three or four countries, what a nightmare!
‘klausterfokken’ will not even begin to describe.
Per Obamacare, I honestly hope it gets killed entirely. They don’t ever pay any attention to expats in their “laws”, and when they do, they see us as cash cows. I have zero trust that they won’t try to mandate that junk on us as well. Sorry, I have that “gold plated” world-class healthcare in my country already and it costs me practically nothing.
@ Dan, Yes I have thought the IRS will apply individual mandate to non-residents if they can; in the 2K pages of legislation, there likely is no provision to exclude non-residents. Canadian health, just like the foreign tax credit is waived by Alternate Minimum Tax, is not likely going to count for anything. Glad I’m not a US citizen anymore.
@ Roger Conklin
I think they might be trying to create a PROBLEM — a free for all with every country tracking down every citizen it can find outside its borders and hitting them with taxes. They will wait for the inevitable REACTION — outrage. And then miraculously they will step in with the SOLUTION — one world government with one world taxation. PROBLEM — REACTION — SOLUTION. Now where have I heard that before? Of course, anyone who recognizes what they are trying to do will be labeled “conspiracy nut”. The good news is that they are not invincible and they can fail.
@Dan @Petros I heard that the Obamacare bill actually excludes USP’s abroad from the individual insurance purchase mandate. I have a mandate where I live, I have been paying into that system for a long time.
@Em or threaten us with the blockage of international payments if we don’t play ball with their master plan? (They could threaten, but if they actually carried out such threat, I think it would hurt the US badly in economic and PR terms =even more OUTRAGE and then WHAT?). I have heard that the US controls and/or has extraordinary access to the international interbank payment process. We need an alternate international payment process. Why didn’t Europe and Switzerland (perhaps with other non-EU countries in Europe that have bilateral accords with EU countries (e.g. Norway) band together to build an alternate system? I don’t know the details, but I think that Europe missed its chance in that regard. Maybe there were attempts to do such, maybe there is/are fledgling system(s) in place. Does anybody know about this? @Roger?
What is it exactly, this interbank payment process that you are referring to? Is it this?:
http://en.wikipedia.org/wiki/Clearing_House_Interbank_Payments_System
I looked up my banks and they don’t participate in this, so I have no idea what alternative I would be using if I were to send money to the US.
In Europe we use SEPA transfers between EU countries – I’m pretty sure that this has nothing to do with the US. Credit cards seem to be dominated by American companies like Visa and Mastercard, but most of the time when I buy stuff online I use “local payment options”, which bypasses those companies and uses our local banking or EC cards (debit cards) directly.
Would love to know more about this topic myself as it is something that I’ve never really thought about!
*@Jefferson P Thomas; in answer to your question, I am not up on this. Obamacare’s constitutionality is to ruled on by the Supreme Court – Thursday June 28 is the current forecast for this ruling. Don’t know about USP’s overseas but my impression is that, like Medicare, they are excluded. But much hangs on what the Supreme Court ruling is. It’s all up for grabs as of today.
Medicare is optionally available to US Social Security recipients domiciled abroad but they must travel to the US to receive medical care. It does not cover medical costs incurred abroad.
Tricare, which is the medical insurance provided to US military service retirees is available no matter whether they live in the US or abroad.
Sorry to clog up the thread, but I just realised that what I thought were exclusively regional payment options that I have (BanContact & Mister Cash in Belgium and Girocard in Germany) are in fact all co-branded with Maestro, which in turn is a subsidiary of Mastercard. I’ve been trying to see what, if any, European companies offer payment options that aren’t somehow tied to American companies. So far I can only find the Carte Blue from France, but that is only valid within France itself. It looks like there are some Asian alternatives as well (JCB, BC, China UnionPay), but I don’t know anything about them.
It would appear that American companies completely dominate the credit and debit card market here either directly or indirectly through “co-branding”. Remember how Wikileaks lost access to almost all of its funding when Visa, MasterCard, Paypal and the rest suddenly started to block payments under whatever pretext it was that they used at the time? This creeps me out that the US government could potentially wield so much indirect influence over almost all of our payment options here. Don’t even want to think about the interbank payment issue now!
Luckily in Canada we still have our own “homegrown” Interac system. However, you can’t use Interac to buy airlines tickets even on Air Canada or most forms of online shopping. You CAN by VIA Rails tickets with Interac though online. I thought there was going to be a new made in the EU payment card systems starting up shortly to break the Visa Mastercard duopoly.
*my Indian friends informed me today that beginning next year they will have citizen-based taxation/reporting. Certainly there are some Indians following this site who could comment further
@Mark Twain, India has simply reduced the number of days of presence
required to be considered a resident for tax purposes. Before, a person
was considered an Indian resident if present in India for more than 182
days in a year, now a person is also considered a resident if present
for more than 365 days during the previous four years combined. So in
average, a reduction from six months to three months per year. Indian
residents are taxed on worldwide income, while non-residents are only
taxed on income from India, like most countries do. Although Indian
citizens abroad are the ones mostly affected by this change, it has
nothing to do with citizenship.
http://www.morisonmenon.com/has_direct-tax_code_short-changed-the_NRI%20.php
http://ritusays.wordpress.com/2011/01/12/government-issues-clarification-on-dtc-direct-tax-code-clause-for-nris-non-resident-indians/
http://www.tax-news.com/news/New_Indian_Tax_Code_Set_For_2013____55871.html
The French PM has just confirmed that the government will indeed be pressing forward with its plans to tax those earning over €1 Million at a rate of 75%. Mass exodus of French citizens for London and CH about to take place?
http://www.bbc.co.uk/news/world-europe-18693089
@Don Pomodoro, it’s been happening for a while now. London is already France’s sixth largest city. Guess it’s poised to move higher.
@Don, I guess they don’t want rich people to spend money in France. I don’t understand why the politicians don’t get it. Overtaxing the rich to pay for the deficit is not the solution. At 75%, yes, they’ll leave. And then what: France will move to citizenship based taxation, so that they’ll still tax them after they left the country? What do they think?
This just proves one thing. All extremes are bad. Republicans wanting to lower taxes with the level of debt the US have, and the US already having a pretty low tax rate is a dumb move also.
Interesting that the article also mentions gay marriage, which doesn’t have anything to do with finances. I don’t even understand why this is an issue on both sides of the Atlantic. The problem is simple: yes, gay people should have the same rights and legal protection. I thought the French solved the problem with the PACS (Pacte Civil de Solidarite).
http://en.wikipedia.org/wiki/Civil_solidarity_pact
And let the church decides if they can get “married”.
Separation of church and state.
Thanks, Watcher. Very interesting article.
*The new French president wants to institute cizenship-based taxation on the French who live abroad. He may succeeed because the majority back home is eager to search out someone else to pay their bills. And he is going to need the additional revenue to pay the pensions of those whose retirement age he had already reduced by a couple of years.
But the French abroad at least have representatives in their national legislature representing and elected directly by their overseas citizens who can and will stand up and be heard. US citizens have no such representatives in Washington to look out for their interests. Those representing French citizens abroad have only to point to the example of the United States and what citzenship based taxation does to exports which create jobs and prosperity at home.
Contrary to what everyone here seems to believe, it will neither be easy nor convenient for the French government to tax its citizens abroad. For one thing, they must bilaterally renegotiate all their tax treaties. Also they are still interested in staying in the EU, I believe, and taxation of citizens abroad contravenes EU capital mobility principles. The French are big on talk about grandes idées but at the end of the day, they are pragmatic like everyone else.
If and when they do institute American-style citizenship-based taxation, it will be after many years. By that time, many French will have had the chance to prepare for it (like giving up their nationality).
The BBC article from Don makes clear that the PM’s speech, among the first of the new government, has little to do with finance and everything to do with politics. If anything, it upholds the typical Socialist Party platform of eating the rich and confirming equality for all (focusing this time on gay couples), while reducing dependence on “bad” energy like nuclear and increasing the power of the State by swelling its ranks. None of this of course will help solve the real problems but for now reform takes a back seat to politics.
It’s going to be increasingly difficult for anyone to keep dual citizenship. Acquiring the citizenship of the country where you reside might be the only solution in the future, if one does not want to be double taxed.
Yeah, reducing the age of retirement was dumb. They’re just not realistic. With life expectancy going up, that’s the only solution if they don’t want social security to go bankrupt.
Christophe, I have a feeling that PS adherents don’t live in reality 😉
As many errors as Sarkozy made (I certainly don’t wish him well after he gave his stupid speech in praise of American-style citizenship-based taxation), one must admit he at least gave lip service to reform. For the new PM to blame the previous government for all the problems is pretty darn cynical and blind. After all, how could successive RPR and UMP governments even dream of rolling back the socialist teat of Mitterrand, which the French have now grown to jealously guard and adore.
When judging French proposals of citizenship-based taxation as announced in the media, it will be important to dig for details. So far, articles on the subject have been long on talk but short on details of implementation (what, how, who), only stating (at most) that “legislation is proposed” but tellingly never revealed. I wonder how much of this is political posturing to begin with.
@Wellington. What I’ve read about citizenship based taxation is that the new government want to renegociate tax treaties with the European countries that are known for hosting French tax evaders. They specifically listed 3: Belgium, Luxembourg and Switzerland.
From what I understood, they want to tax people that have a residence in France, but move their money in those countries. No details have been provided as for thresholds or anything like that.
The people that might suffer the most are those who live in France, next to the borders of these countries and work in these countries. Who knows what additional tax document they are going to have to file, and the theshold that would make them pay taxes in both countries.