— U.S. Citizen Abroad (@USCitizenAbroad) January 8, 2020
The article referenced in the above tweet – published in 1985 by Richard Pomp of the University Connecticut School of Law – was posted at one of Facebook groups here. The Facebook post includes some interesting commentary and begins with:
The Experience of the Phillipines in Taxing Its Nonresident Citizens:
I’ve often wondered about the process the Philippines went through when adopting a CBT system then going to one based on residency.
This study was written in 1985 to help determine whether CBT would be effective in deterring “brain drain” from less developed countries (LDCs). Although it was written prior to the Philippines adoption of residency-based taxation, it demonstrates very clearly the problems the Philippines had with enforcing CBT, problems that are strongly mirrored in the US today (complete with amnesties, passport revocation and the like). Unfortunately the US at this point doesn’t know there is a problem that needs to be addressed like the Philippines did as long as 50 years ago! I do think though the biggest difference between the Philippians then and the US now, is that the Philippines valued it emigrants in ways that the US does not.
As it began in the Philippines, they only taxed on citizenship because the US did!
“The early Philippine reliance on citizenship as a basis for tax jurisdiction reflects more the country’s colonial legacy from the United States than a carefully developed policy. Initially, Philippine citizens were taxed under the U.S. Revenue Act of 1913. This Act, adopted shortly after ratification of the sixteenth amendment in the United States, taxed the worldwide income of U.S. and Philippine citizens, regardless of their residence. Thus, early in its history, the Philippines incorporated citizenship jurisdiction into its own law following the U.S. model.”
When that didn’t work for reasons similar to what the US is currently experiencing, they went to a flat rate system one can compare to Eritrea’s, but with a deduction for taxes paid where one lives. It still didn’t encourage compliance.
The article is lengthy and the pdf is too big to upload here. But, you can download it yourself at this link.
I haven’t had time to read the article in any detail. But, if you look at the conclusion you will see all kinds of discussion about enforceability and the co-operation of other countries in enforcing the tax. The article was written in 1985 in a Pre-FATCA world.
This is an interesting article that may well shed light on why the Phillipines abandoned citizenship-baed taxation.
It would be interesting if Brockers were comment on:
1. Aspects in which you think the Phillipines situation is different from the U.S. situation.
2. Assuming automatic information exchange (FATCA and CRS) existed in 1985, how might the author have included this into the analysis.
For those who like to read the conclusion before reading Professor Pomp’s article, see: