The U.S. tax code discriminates against ALL THINGS AMERICAN. Both Apple and Americans abroad suffer from the archaic U.S. tax code. The following article from the RenounceUScitizenship blog canvasses this issue.
Introduction …
The U.S. tax system is premised on the assumption that it can levy taxes on economic activity in other nations. This simple premise applies to both corporations and to individuals.
In the case of individuals: The taxation of economic activity in other nations takes place at the time that the money is earned.
In the case of corporations: The taxation of the economic activity, the taxation takes place when the money is returned to America.
In any case, the United States discriminates very strongly and punitively against all things American. The views of Apple CEO Tim Cook has some interesting comments on this issue.
Apple CEO Tim Cook testifies before the Levin Committee in 2013 – explains how the US tax system hurts US business https://t.co/mgrIATnJhQ
— U.S. Citizen Abroad (@USCitizenAbroad) December 24, 2015
Apple CEO Tim Cook interviewed on 60 Minutes 2015 …
”This is a tax code, Charlie, that was made for the industrial age, not the digital age,” he said. “It’s backwards. It’s awful for America. It should have been fixed many years ago. It’s past time to get it done.”
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If the rest of the world operates under the territorial regime, how did we end up with such a messed up tax system? https://t.co/h5ukzXlR07
— U.S. Citizen Abroad (@USCitizenAbroad) December 24, 2015
In an article titled:
Apple CEO Tim Cook Is Absolutely Right (And Wrong) On U.S. Corporate Tax Policy
Forbes writer Todd Ganos answers as follows:
If the rest of the world operates under the territorial regime, how did we end up with such a messed up tax system? Just about 100 years ago, a business owner in Texas had a separate business in Mexico. He paid income tax to Mexico on Mexican-sourced profits. The IRS asserted a U.S. tax liability on the Mexican-sourced profits. It went to court.
I’ve been a legal researcher at an appellate court and I must say that this particular court in this particular case pulled a holding out of its . . . ear. It is one thing for a court to issue a holding based on a rule of law from an established string of cases. This is when you see “it is well settled that . . . “ in a court’s opinion. It is a completely different thing for a U.S. court to issue a holding that directly quotes an English court case in the 16th century (with no string of cases in the middle). And, that is exactly what happened in the case of the Texas business owner.
If you are a subject of the King and the King’s protections extend to you anywhere in the world, then the King may tax you anywhere in the world. That’s the gist of it. Okay, fine. That was 400 years ago (at the time of the Texas business owner’s case) but how is the King taxing income today? The King is taxing income under the territorial regime. (Perhaps this case defines “activist court.”) The upshot is that the mess we are dealing with stems from this initial court case on foreign-sourced business profits.
The OECD has been complaining to the U.S. for years about this practice. Why does the OECD care? The OECD seeks to harmonize policies among governments – including trade and taxation – in an effort to level the world’s business playing field. (In prior articles, we’ve discussed all of the global economic problems that the Bretton Woods conference was attempting to solve. In essence, to prevent wars, all countries need to play on a level field. The OECD’s existence ultimate stems from the intentions of the Bretton Woods conference.)
There is no doubt that Mr. Ganos is referring to the case of Cook v. Tait. There is no doubt that Cook v. Tait is now creating problems for the world. Mr. Ganos explains this by saying:
Yes, it’s true. In fact the U.S. tax code punishes both Apple and Americans abroad. This post is reposted from the RenounceUScitizenship blog.
The vast majority of countries in the world operate under the territorial regime. The United States is one of a handful of countries that operate under the domiciliary regime. But, it is not that simple. The U.S. applies the domicile rules to U.S. companies only. It applies the territorial rules to non-U.S. companies. The result is to tax U.S. companies on their worldwide income and to tax non-U.S. companies on their U.S.-earned profits. In essence, the U.S. is playing on both sides of the street.
Both U.S. Companies and U.S. citizens are “renouncing U.S. citizenship” …
See:
U.S. corporate mergers end "US personhood" and #IRS discount – increase value https://t.co/D0mDeE9M3j via @USCitizenAbroad
— U.S. Citizen Abroad (@USCitizenAbroad) December 24, 2015
and
The "inversion" issue is about whether the U.S. can tax income of other countries NOT patrioti… https://t.co/hGri3rmLk7 via @USCitizenAbroad
— U.S. Citizen Abroad (@USCitizenAbroad) December 24, 2015
How apropos. Being taxed as a subject. This analogy could possibly serve to wake up a few people. Though this idea of “protection of the King” certainly is dying a very slow death. Interesting parallel the founding fathers did not see (?) fit to protect the people from in the Constitution.
Like the 2nd Amendment, another dumb idea we can count on the Homelanders to perpetuate as an American principle worthy of undying loyalty without seeing the obvious.
It’s really simple. Homelanders must pay the taxes, not companies or individuals based outside the US.
The US needs to stop relying upon income tax and move to a federal consumption (GST/VAT) to fund the federal government.
Instead Levin and other like minded people like him thinks that they can handcuff corporation / individuals to the US tax system.
Corporations / Individuals will continue to resist and fight this mentality.
Nobody is gong to change anything until those roads and train tracks and bridges are repaired with expat money.
Isn’t the number of actual taxpayers in the US something like 41%? Which means there are millions paying nothing.The irony-we already pay in our countries & are expected to pay theirs too.
The stupidity of charging corps 40% tax…if they would make it reasonable in the first place, the US could remain competitive and all this would be so unnecessary.
Typical US gov attitude. ‘you’re screwing us out of a few billion dollars!’ -then they spend 2 trillion on wars and propping up a military industrial complex, maybe they should look into that -crickets chirping.
I’m hearing echoes of Roger Conklin’s wise words regarding the issues he brought forth to Congress re US persons working abroad. Hope Apple’s CEO, Tim Cook, makes better headway for both firms and individuals.
This article does nothing to argue against CBT when the author claims that the plaintiff lived in the US.
Citizenship based taxation is aberration and human right violation. It is also short sighted knee jerk reaction in response to catch few tax cheats based in the USA. It is a bad for US economy and jobs. Most of the companies parking profits abroad are highly profitable, successful companies in the USA earning huge profits by exporting. This short sighted policy is forcing such profitable export companies to expand overseas by hiring and training foreign workers. They can’t hire US citizens because it is extremely costly and impractical. Many successful companies around the world were formed by former employees of US companies. For example, SAP is created by former employees of IBM.
Over 97% of the US citizens and companies don’t mind paying taxes to repatriate profits. To catch the 1% cheaters they are harming 97% of the exporters. This is resulting in huge trade imbalance and shifting jobs to overseas. Exports create jobs and taxes. Apple is not going to pay taxes. The USA can’t stop inversions. The laws passed to stop billions can’t stop billionaires (e.g. co-founder of Facebook), because the exit tax only ended up rewarding him. It is only hurting middle class people who can’t afford tax lawyers or CPAs. When ever they try to shoot a target, it end helping the target at a cost of huge collateral damage.
I would suggest to the USA to divide the countries in to two sections (1) tax havens and (2) high tax countries. In India, we pay 20% taxes on WAT, goods or services, in addition to income tax. No one goes to countries like India to evade taxes. I was a democrat and supported Obama. Now I am praying Republicans to win this time. They are more rational in the context of taxes. Also good to know companies like Apple is taking up this case. Some of my friends in India relinquishing US citizenship to start companies. Also few billionaires (e.g. founder of GVK airports) relinquished US citizenship. I am sure, it is not to avoid taxes but because they are unable to run business or live normal life. No one can stop such billionaires from getting US visa. They can find a loophole or powerful friend. In fact, they got Visa same week they got Indian Passport. Some of my middle class friends say, they don’t really care if they get US Visa or not. It doesn’t make that much difference for them, because they just visit the USA once in 10 years.
Regards,
Raju
@Raju
Very well put. Are you living in the US?
@Patricia, I live in India. I left the USA 20 years ago. The funny thing is, the Exit Tax is helping the very people congress want to punish. For example, if one sells his company for 2 billion, he needs to pay capital gains. Then there is no more Exit Tax. He is free to invents in the USA and earn money tax free. I am sure 99% chance he will get a Visa to the USA (if there is no criminal cases). Look at the Facebook co-founder. He ended up saving lot on taxes, if he still kept his stocks.
Regards,
Arjun V Raju
“Many successful companies around the world were formed by former employees of US companies. For example, SAP is created by former employees of IBM.”
Some successful companies in the US were formed by inversions from Canadian companies. Also some were formed by founders who came from Canada, or from other countries.
“Over 97% of the US citizens and companies don’t mind paying taxes to repatriate profits.”
When we are or were US citizens, i.e. not companies, some of us even paid US taxes on earnings earned in countries were we live and work and already paid taxes, which don’t even get “patriated” to the US. Some of us even paid without complaining, but we still get abused for being honest.
“I would suggest to the USA to divide the countries in to two sections (1) tax havens and (2) high tax countries.”
Good suggestion. But after the USA puts the USA in section (1) since the USA is the world’s biggest tax haven, what should it do next?
@Arjun
From what I have heard, the U.S. did consider drawing up a list. If you look at the legislation Senator Carl Levine proposed, he was big on having designated tax havens. The problem is that there is no clear way of separating out high and low tax countries. The U.K., where I live, has high VAT and high income tax, but taxes are set up to lure foreigners in as temporary residents in the hope that they will splash their cash around. Some Americans have described it as a tax haven for that reason, but it sure isn’t for me. Italy does have a tax haven list, but critics say that it doesn’t take countries off the list fast enough when they reform. Fortunately, Italy is not terribly powerful and does not tax its diaspora. Countries would lobby pretty hard to stay off a U.S. list.
@Raju
Thank you for your comments which display a rare combination of understanding and practicality. Would you be willing to explain/explore your comments about the Exit Tax a bit more.
On your first post you say:
On your second post you elaborate by saying:
Is it the payment of the Exit Tax that is helping people or is it that the fact that because they are no longer U.S. persons they are able to take advantage of the fact that the United States is the number one tax haven in the world?
Would appreciate your thoughts.
@Raju
bahut dhunyavad
I believe you mean (and please correct me if I am not understanding you properly), is that someone who leaves the US by renouncing and paying the Exit Tax gains later (after leaving) because he is no longer being taxed by the US. Figuring what the tax would be if that person remained in the US, the Exit Tax is a bargain.
I don’t know if one who renounced would turn around and re-invest in the US. Perhaps in the past but given the current atmosphere, I can’t imagine putting one’s wealth at risk.
Do you mean that Dr. GVK Reddy had US citizenship? Would you be comfortable explaining why you were in the US and whether CBT, FBAR etc were reasons you left? You certainly have a very good understanding of the awful effects of US tax policy.
I’m not Raju but I think it’s clear what he meant.
“Is it the payment of the Exit Tax that is helping people”
No, it’s the definition of what is included and what is not included in the Exit Tax:
“is it that the fact that because they are no longer U.S. persons they are able to take advantage of the fact that the United States is the number one tax haven in the world?”
That is indeed a fact, and that is what helps billionaires. As Raju (and the rest of us) know, the US cites the 1% as its justification for abusing the 99%, while not abusing the 1%.
Wait, what? We’re supposed to be responding to Arjun. Where did the name Raju come from?
“I don’t know if one who renounced would turn around and re-invest in the US.”
I do. But I’m not a billionaire. I own a few shares of Intel.
@norman
He signed himself as Raju in his first comment.
@Miss. Moon: I was told, face book founder paid capital gains tax at a valuation of ‘X’ when he expatriated. Then he sold his stocks as valuation of 3X (after its IPO). He don’t need to pay taxes on the 2X gains. If that is true, it in effect helped him. Also he don’t need to pay taxes on interest.
On the other hand, we ex-pats need to pay exit-tax on our investments in foreign country. Then we need to pay tax again when we sell the property (e.g. our house), because we can’t take tax credit for gains on the property located in our country of residency. In effect, exit tax rewarding the property earned in the USA, while punishing property earned abroad.
Also I am not saying, that other countries don’t have great companies. While US companies are put in disadvantage to hire US citizens, companies in Germany or Japan gaining competitive advantage by hiring their citizens. Because of this US citizens loosing opportunity to expose to overseas markets. For example, many of the software companies started in India are former employees of US companies such as IBM, Oracle or Microsoft. If the US companies hired few US citizens, some of them should have such companies instead of Indian citizens. The knowledge and experience most Indians gained can’t be practical without working for US companies. People worked on Oracle tools and applications started export companies to serve US customers using the Oracle tools and applications.
Thanks,
Raju
Tax Foundation comments:
http://taxfoundation.org/blog/apple-ceo-tim-cook-we-need-tax-code-digital-age?mc_cid=56d37d20db&mc_eid=6f30773d2e