128 thoughts on “Ending U.S. Citizenship-Based Taxation”
Anyone coming here for simple answers will be totally confused by this constant arguing of irrelevant minutiae.
ND , we all appreciate your off the wall humour but your past situation as far as I can see was pretty unique and really not helpful to newbies unless one proffers the same set of circumstances.
I think you guys need a break, a hobby or get out a little more. 🙂
ND:
“my US tax has gone up after I renounced, because withholding is taken at the treaty rate and I’m no longer eligible for refunds.”
Exactly.
While you were a USC, you had to file a US tax return in order to use USC tax breaks to reduce your US tax liability.
Whereas (as I understand it) an investor who signs a W8 and doesn’t live in America gets treaty tax breaks: tax withheld at the treaty rate.
US tax breaks for US Persons; treaty tax breaks for non-US-persons. Change status and change tax breaks.
That’s my understanding of that particular aspect of the wretched US tax game. ICBW
@plaxy
Correct, W8 allows treaty rates or even O if that is the in US/resident country treaty.
That is why TTFI will be a problem as all treaties will need to be renegotiated.
One can avoid investment in the US, (which many outsiders will if TTFI is passed) but one cannot remove a US pension .
Heidi – the way I look at it – no point worrying about possible changes to US withholding rates. It’s perhaps not that likely. as it would probably upset an awful lot of very rich people! 🙂
“W8 allows treaty rates or even O if that is the in US/resident country treaty.”
If it’s in the treaty, that’s the treaty rate.
I pay zero US tax on my US SS pension, but it’s not because I signed a W8 in order to get a treaty rate of withholding. It’s a different treaty benefit – one which allows US SS to be taxed by the residence country.
As I mentioned to you before, if your pension is classed as a government pension, you may be benefitting from treaty treatment of government pensions. In which case, there’s extremely unlikely to be any change in the treaty treatment.
It may be worth asking your tax agency whether your pension is being taxed as a government pension.
“Anyone coming here for simple answers will be totally confused by this constant arguing of irrelevant minutiae.”
The distinction between US benefits and tax treaty benefits is not irrelevant, for US-born individuals who live outside America but receive US-source income. It’s why there’s FATCA, and is also why there’s a saving clause – to try to deter US-born individuals from claiming both. (“Double non-taxation”, as the Americans call it)
This is exactly why the European banks are required to quiz all US-born customers, rather than merely all US citizen customers: a person with a US birth certificate is a person who can claim USC benefits, if no CLN is on file.
So, very relevant – though not for those born outside America.
@plaxy
It is NOT a government pension.
It is TIAA cref, a fortune 100 financial service for the acaedemic, medical and research fields.
It was the chosen company of my University hospital Dept. At present the tax treaty with Switzerland( and also the UK )with a W8 submitted is at 0%.
It IS a big worry as I know from past experience that the Swiss tax authority will not want to give up their negotiated right to tax my US pension, I live here and benefit from all that entails. TTFI states that pensions will be taxed at source country.
Not talking about the irrelevance of your contributions Plaxy but of ND who takes us all off at a tangent.
“It is NOT a government pension.”
Right – then it’s presumably being taxed according to the provisions of the Pensions article in the US-Swiss treaty. It really would be advisable to study the article and see what it says.
“ND who takes us all off at a tangent.”
Which turned out to be quite fruitful, it seems to me, as it now seems clear that ND has been under the impression that renouncing led to him paying a higher rate of tax, which is actually not the case.
“It IS a big worry as I know from past experience that the Swiss tax authority will not want to give up their negotiated right to tax my US pension, I live here and benefit from all that entails. ”
But but but … if you’re happy with the status quo, would it not be sensible to stop worrying? After all, US tax policy is simply not a thing you can control, or even influence.
@Plaxy
I have studied the US/Swiss pension treaty. Watcher found it for me. It can be terminated by either party at any time. These things take a long time to renegotiate. The US have a tendency to act first and to hell with the consequences.
I am very worried. I am worried about my pension being double taxed. I am worried about Brexit as I derive my health care in Switzerland from the EU common agreement ( qualifying through a UK gov pension from working 10 yrs in the NHS), as many UK retirees in Spain and elsewhere do.
As a UK/SWISS citizen retiree I now risk my pension being double taxed and my right to live in Switzerland (no healthcare). The shit certainly is at risk of hitting the fan.
“I have studied the US/Swiss pension treaty. Watcher found it for me. It can be terminated by either party at any time. ”
But at present neither party is saying they want to terminate it.
Whereas:
“I am worried about Brexit as I derive my health care in Switzerland from the EU common agreement ( qualifying through a UK gov pension from working 10 yrs in the NHS), ”
That really is an imminent threat. But as with US tax policy, unfortunately there’s nothing you can do about it. Sorry to hear you’re in that situation.
@Plaxy
TTFI does include pensions so I guess that equates to the fact they want to terminate all tax treaties, if they have thought that far ahead.
There is nothing I can do about either situation.
Sorry for the rant but I am angry, I have worked damn hard all my life in a very stressful job and I don’t need this in my retirement.
It’s a US-source pension, and the US has not only the right but the power to tax it. Switzerland has no such power.
However, although you can’t do anything to change that, there is one thing you could do:
If the US were to withdraw from the agreement and go back to withholding tax, Switzerland might allow credit for the US tax paid. Thus, you would still be paying tax to only one country.
I say “might” because although I know that that would be the case in the UK, I don’t know if that’s actually the case in Switzerland. Your tax agency may be able to tell you. It’s worth finding out, if that would put your mind at rest.
@plaxy
I went through the hoops to prevent them double taxing my SS, up I had to find the tax treaty (thanks to watcher) and demonstrate they were legally bound to it. Without a treaty, I don’t hold out much hope. Not sure I want to live in a post Brexit UK!
“Without a treaty, I don’t hold out much hope.”
Up to you.
“Not sure I want to live in a post Brexit UK!”
I thought you lived in Switzerland. Never mind, doesn’t matter.
@Plaxy
No, not up to me, up to the Swiss tax authorities.
Yes, I do live in Switzerland, but if I lose my Swiss healthcare (granted through the EU reciprocal agreement) I may have to return to the UK after 35 yrs. I can’t live in Switzerland without healthcare. A retiree cannot get any private insurance company to take them on even if healthy, we are not financially worth the risk.
I wonder if the UK , NHS , re housing etc are prepared for all those EU expats to return to the UK?
“not up to me, up to the Swiss tax authorities.”
Up to you whether you want to make enquiries as to whether Switzerland would allow credit for foreign tax paid, should your fears materialise.
@Plaxy, Heidi
The previous incarnation of TTFI — that is, the one doing the rounds in the maelstrom of the TCJA at the end of last year — contained a provision that would render US pensions taxable to the US and require the US to renegotiate the treaty to allow that. What we don’t know, of course, is whether the current incarnation of TTFI contains this or anything like it, since the previous incarnation is the only one so far revealed.
If it doesn’t, we can breathe easily. If it does, then once renegotiated there probably should not be any double-tax here. Private pension taxing rights in both the UK and Swiss treaties are currently exclusively to the ‘residence’ country. If that changes, it would be either exclusively to ‘source’ country or, at worst, both countries but with one providing a credit for the tax applied by the other. Not double-tax, but potentially ‘top-up’ tax.
(If taxing rights flip-flop from exclusively residence country to exclusively source country, that could turn into a tax cut for UK residents holding US pensions and in UK tax brackets above 30%. Clearly that’s not everyone though. And I don’t know how things would shake out in Switzerland.)
The really interesting question is what happens before or during renegotiation. The US has a reputation for overriding or reneging on treaties using the ‘last in time’ rule. If it chooses to do so here then the situation could become unpleasant for a while. Other countries that have not agreed to treaty changes may continue to tax pensions as if the treaty still applied and give no credits for any tax that the US unilaterally takes via ‘withholding’ on payments.
That may sound far-fetched, but the US has form. The ‘exit tax’ is arguably a treaty override, since it taxes US pensions immediately on renunciation or green card abandonment, yet if later drawn in a treaty country such as the UK or Switzerland the withdrawals are fully taxable locally, but with no credit at all for US tax paid years or decades earlier on ‘deemed’ (yup, that word again!) distributions. That is indeed pure double-tax, and comes about because of the wide time period between the two taxes being applied.
With that in mind, if TTFI is still as originally described, this would be a far more egregious and wide-ranging tax treaty override than a mere ‘exit tax’ for what is clearly just a bunch of evil and undeserving rich people (in reality, of course, just people who saved diligently for retirement and owned a home for a decade or two, but that’s not how congress views them). No country complained about the ‘exit tax’ treaty override, but it seems unlikely they would stay so silent over a more or less complete abandonment of all treaties.
So personally I find it hard to imagine that happening. It also seems unlikely that congress would vote for anything that is so clearly disruptive to the vital flow of money into the US from outside, so my guess is that the need to renegotiate virtually every clause of every tax treaty means that this bunch of provisions may no longer exist in the current TTFI incarnation. Further, my suspicion is that these clauses are what sank the previous TTFI attempt in the first place.
Of course, I could be wrong on all counts. Until the details of the current TTFI proposal are revealed — and so far I don’t believe they have been, which is pretty unhelpful in and of itself — all we can do is speculate.
Watcher – “If that changes, it would be either exclusively to ‘source’ country or, at worst, both countries but with one providing a credit for the tax applied by the other. Not double-tax, but potentially ‘top-up’ tax.”
Yes, that’s what I think too, and I also think HMRC would be obliged under UK law to give credit for US tax paid. I don’t know about Switzerland.
But personally, I don’t tend to worry about things which I can’t control or influence, and which to me seem unlikely.
@watcher
Thanks so much for your always helpful input.
@plaxy.
Re enquires.
I don’t think the Swiss tax authorities would have time for enquires about as yet a hypothetical situation.
Regarding the exit tax, in my view it’s a tax on non-existent income. Credit for foreign tax paid simply doesn’t arise, since no taxable income has been received.
Heidi – “Re enquires.
I don’t think the Swiss tax authorities would have time for enquires about as yet a hypothetical situation.”
As I say, up to you, obvs. It was just a suggestion – thought it might bring you some peace of mind.
@plaxy
In my past experience, any contact with Swiss tax authorities do not give peace of mind. 🙂
“While you were a USC, you had to file a US tax return in order to use USC tax breaks to reduce your US tax liability.”
No, I did not use any tax breaks. At my level of income, the amount of US tax was zero.
Your assertion that relinquishment results in lower US taxes is true for “the 1%” but not for the rest of us. I gave you an example and you even twist the example. Next time you talk about gobbledegook, look in the mirror.
“I am worried about my pension being double taxed.”
I think you will be able to file Swiss tax returns, and on your Swiss returns you will be able to claim a foreign tax credit for US income tax paid on your US sourced income including US social security.
If Swiss tax is higher, the total of your payments to the US and Switzerland will be the same amount you would pay to Switzerland under the current treaty.
If US tax is higher, you’ll pay Switzerland zero, though your total will go up because the US rate is higher. In monetary terms that would resemble the payments I make to the US which are no longer refundable since I renounced, though the reason is different.
Anyone coming here for simple answers will be totally confused by this constant arguing of irrelevant minutiae.
ND , we all appreciate your off the wall humour but your past situation as far as I can see was pretty unique and really not helpful to newbies unless one proffers the same set of circumstances.
I think you guys need a break, a hobby or get out a little more. 🙂
ND:
“my US tax has gone up after I renounced, because withholding is taken at the treaty rate and I’m no longer eligible for refunds.”
Exactly.
While you were a USC, you had to file a US tax return in order to use USC tax breaks to reduce your US tax liability.
Whereas (as I understand it) an investor who signs a W8 and doesn’t live in America gets treaty tax breaks: tax withheld at the treaty rate.
US tax breaks for US Persons; treaty tax breaks for non-US-persons. Change status and change tax breaks.
That’s my understanding of that particular aspect of the wretched US tax game. ICBW
@plaxy
Correct, W8 allows treaty rates or even O if that is the in US/resident country treaty.
That is why TTFI will be a problem as all treaties will need to be renegotiated.
One can avoid investment in the US, (which many outsiders will if TTFI is passed) but one cannot remove a US pension .
Heidi – the way I look at it – no point worrying about possible changes to US withholding rates. It’s perhaps not that likely. as it would probably upset an awful lot of very rich people! 🙂
“W8 allows treaty rates or even O if that is the in US/resident country treaty.”
If it’s in the treaty, that’s the treaty rate.
I pay zero US tax on my US SS pension, but it’s not because I signed a W8 in order to get a treaty rate of withholding. It’s a different treaty benefit – one which allows US SS to be taxed by the residence country.
As I mentioned to you before, if your pension is classed as a government pension, you may be benefitting from treaty treatment of government pensions. In which case, there’s extremely unlikely to be any change in the treaty treatment.
It may be worth asking your tax agency whether your pension is being taxed as a government pension.
“Anyone coming here for simple answers will be totally confused by this constant arguing of irrelevant minutiae.”
The distinction between US benefits and tax treaty benefits is not irrelevant, for US-born individuals who live outside America but receive US-source income. It’s why there’s FATCA, and is also why there’s a saving clause – to try to deter US-born individuals from claiming both. (“Double non-taxation”, as the Americans call it)
This is exactly why the European banks are required to quiz all US-born customers, rather than merely all US citizen customers: a person with a US birth certificate is a person who can claim USC benefits, if no CLN is on file.
So, very relevant – though not for those born outside America.
@plaxy
It is NOT a government pension.
It is TIAA cref, a fortune 100 financial service for the acaedemic, medical and research fields.
It was the chosen company of my University hospital Dept. At present the tax treaty with Switzerland( and also the UK )with a W8 submitted is at 0%.
It IS a big worry as I know from past experience that the Swiss tax authority will not want to give up their negotiated right to tax my US pension, I live here and benefit from all that entails. TTFI states that pensions will be taxed at source country.
Not talking about the irrelevance of your contributions Plaxy but of ND who takes us all off at a tangent.
“It is NOT a government pension.”
Right – then it’s presumably being taxed according to the provisions of the Pensions article in the US-Swiss treaty. It really would be advisable to study the article and see what it says.
“ND who takes us all off at a tangent.”
Which turned out to be quite fruitful, it seems to me, as it now seems clear that ND has been under the impression that renouncing led to him paying a higher rate of tax, which is actually not the case.
“It IS a big worry as I know from past experience that the Swiss tax authority will not want to give up their negotiated right to tax my US pension, I live here and benefit from all that entails. ”
But but but … if you’re happy with the status quo, would it not be sensible to stop worrying? After all, US tax policy is simply not a thing you can control, or even influence.
@Plaxy
I have studied the US/Swiss pension treaty. Watcher found it for me. It can be terminated by either party at any time. These things take a long time to renegotiate. The US have a tendency to act first and to hell with the consequences.
I am very worried. I am worried about my pension being double taxed. I am worried about Brexit as I derive my health care in Switzerland from the EU common agreement ( qualifying through a UK gov pension from working 10 yrs in the NHS), as many UK retirees in Spain and elsewhere do.
As a UK/SWISS citizen retiree I now risk my pension being double taxed and my right to live in Switzerland (no healthcare). The shit certainly is at risk of hitting the fan.
“I have studied the US/Swiss pension treaty. Watcher found it for me. It can be terminated by either party at any time. ”
But at present neither party is saying they want to terminate it.
Whereas:
“I am worried about Brexit as I derive my health care in Switzerland from the EU common agreement ( qualifying through a UK gov pension from working 10 yrs in the NHS), ”
That really is an imminent threat. But as with US tax policy, unfortunately there’s nothing you can do about it. Sorry to hear you’re in that situation.
@Plaxy
TTFI does include pensions so I guess that equates to the fact they want to terminate all tax treaties, if they have thought that far ahead.
There is nothing I can do about either situation.
Sorry for the rant but I am angry, I have worked damn hard all my life in a very stressful job and I don’t need this in my retirement.
It’s a US-source pension, and the US has not only the right but the power to tax it. Switzerland has no such power.
However, although you can’t do anything to change that, there is one thing you could do:
If the US were to withdraw from the agreement and go back to withholding tax, Switzerland might allow credit for the US tax paid. Thus, you would still be paying tax to only one country.
I say “might” because although I know that that would be the case in the UK, I don’t know if that’s actually the case in Switzerland. Your tax agency may be able to tell you. It’s worth finding out, if that would put your mind at rest.
@plaxy
I went through the hoops to prevent them double taxing my SS, up I had to find the tax treaty (thanks to watcher) and demonstrate they were legally bound to it. Without a treaty, I don’t hold out much hope. Not sure I want to live in a post Brexit UK!
“Without a treaty, I don’t hold out much hope.”
Up to you.
“Not sure I want to live in a post Brexit UK!”
I thought you lived in Switzerland. Never mind, doesn’t matter.
@Plaxy
No, not up to me, up to the Swiss tax authorities.
Yes, I do live in Switzerland, but if I lose my Swiss healthcare (granted through the EU reciprocal agreement) I may have to return to the UK after 35 yrs. I can’t live in Switzerland without healthcare. A retiree cannot get any private insurance company to take them on even if healthy, we are not financially worth the risk.
I wonder if the UK , NHS , re housing etc are prepared for all those EU expats to return to the UK?
“not up to me, up to the Swiss tax authorities.”
Up to you whether you want to make enquiries as to whether Switzerland would allow credit for foreign tax paid, should your fears materialise.
@Plaxy, Heidi
The previous incarnation of TTFI — that is, the one doing the rounds in the maelstrom of the TCJA at the end of last year — contained a provision that would render US pensions taxable to the US and require the US to renegotiate the treaty to allow that. What we don’t know, of course, is whether the current incarnation of TTFI contains this or anything like it, since the previous incarnation is the only one so far revealed.
If it doesn’t, we can breathe easily. If it does, then once renegotiated there probably should not be any double-tax here. Private pension taxing rights in both the UK and Swiss treaties are currently exclusively to the ‘residence’ country. If that changes, it would be either exclusively to ‘source’ country or, at worst, both countries but with one providing a credit for the tax applied by the other. Not double-tax, but potentially ‘top-up’ tax.
(If taxing rights flip-flop from exclusively residence country to exclusively source country, that could turn into a tax cut for UK residents holding US pensions and in UK tax brackets above 30%. Clearly that’s not everyone though. And I don’t know how things would shake out in Switzerland.)
The really interesting question is what happens before or during renegotiation. The US has a reputation for overriding or reneging on treaties using the ‘last in time’ rule. If it chooses to do so here then the situation could become unpleasant for a while. Other countries that have not agreed to treaty changes may continue to tax pensions as if the treaty still applied and give no credits for any tax that the US unilaterally takes via ‘withholding’ on payments.
That may sound far-fetched, but the US has form. The ‘exit tax’ is arguably a treaty override, since it taxes US pensions immediately on renunciation or green card abandonment, yet if later drawn in a treaty country such as the UK or Switzerland the withdrawals are fully taxable locally, but with no credit at all for US tax paid years or decades earlier on ‘deemed’ (yup, that word again!) distributions. That is indeed pure double-tax, and comes about because of the wide time period between the two taxes being applied.
With that in mind, if TTFI is still as originally described, this would be a far more egregious and wide-ranging tax treaty override than a mere ‘exit tax’ for what is clearly just a bunch of evil and undeserving rich people (in reality, of course, just people who saved diligently for retirement and owned a home for a decade or two, but that’s not how congress views them). No country complained about the ‘exit tax’ treaty override, but it seems unlikely they would stay so silent over a more or less complete abandonment of all treaties.
So personally I find it hard to imagine that happening. It also seems unlikely that congress would vote for anything that is so clearly disruptive to the vital flow of money into the US from outside, so my guess is that the need to renegotiate virtually every clause of every tax treaty means that this bunch of provisions may no longer exist in the current TTFI incarnation. Further, my suspicion is that these clauses are what sank the previous TTFI attempt in the first place.
Of course, I could be wrong on all counts. Until the details of the current TTFI proposal are revealed — and so far I don’t believe they have been, which is pretty unhelpful in and of itself — all we can do is speculate.
Watcher – “If that changes, it would be either exclusively to ‘source’ country or, at worst, both countries but with one providing a credit for the tax applied by the other. Not double-tax, but potentially ‘top-up’ tax.”
Yes, that’s what I think too, and I also think HMRC would be obliged under UK law to give credit for US tax paid. I don’t know about Switzerland.
But personally, I don’t tend to worry about things which I can’t control or influence, and which to me seem unlikely.
@watcher
Thanks so much for your always helpful input.
@plaxy.
Re enquires.
I don’t think the Swiss tax authorities would have time for enquires about as yet a hypothetical situation.
Regarding the exit tax, in my view it’s a tax on non-existent income. Credit for foreign tax paid simply doesn’t arise, since no taxable income has been received.
Heidi – “Re enquires.
I don’t think the Swiss tax authorities would have time for enquires about as yet a hypothetical situation.”
As I say, up to you, obvs. It was just a suggestion – thought it might bring you some peace of mind.
@plaxy
In my past experience, any contact with Swiss tax authorities do not give peace of mind. 🙂
“While you were a USC, you had to file a US tax return in order to use USC tax breaks to reduce your US tax liability.”
No, I did not use any tax breaks. At my level of income, the amount of US tax was zero.
Your assertion that relinquishment results in lower US taxes is true for “the 1%” but not for the rest of us. I gave you an example and you even twist the example. Next time you talk about gobbledegook, look in the mirror.
“I am worried about my pension being double taxed.”
I think you will be able to file Swiss tax returns, and on your Swiss returns you will be able to claim a foreign tax credit for US income tax paid on your US sourced income including US social security.
If Swiss tax is higher, the total of your payments to the US and Switzerland will be the same amount you would pay to Switzerland under the current treaty.
If US tax is higher, you’ll pay Switzerland zero, though your total will go up because the US rate is higher. In monetary terms that would resemble the payments I make to the US which are no longer refundable since I renounced, though the reason is different.