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FT: Americans abroad hit by Trump’s new repatriation tax rules
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kuac...@yahoo.com
Feb 11, 2018, 7:11:39 AM2/11/18
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Americans abroad hit by Trump’s new repatriation tax rules
Critics say individuals are being treated the same as big corporations
Andrew Edgecliffe-Johnson in New York
Financial Times
February 5, 2018
Expatriate Americans face unexpected tax bills on their overseas business interests under repatriation rules Congress designed to persuade the likes of Apple and Google to bring back to the US profits they had accumulated in lower taxed countries.
Tax experts in Washington, Tel Aviv and London told the Financial Times large numbers of their clients would be hit by a clause in the tax reforms signed into law by President Donald Trump in December.
The Tax Cuts and Jobs Act imposes a one-time “deemed repatriation tax” of 15.5 per cent on the profits businesses have accumulated overseas, whether or not they choose to repatriate them as Apple has with its pledge to bring $38bn back to the US.
Any individual US citizen or green card holder owning more than 10 per cent of a “controlled foreign corporation”, or CFC, will be forced to pay this tax within eight years, according to an analysis by Charles Bruce, a former tax counsel at the Senate finance committee who now serves as legal counsel to American Citizens Abroad, an advocacy group in Washington. A CFC is an overseas business in which US shareholders control more than 50 per cent of the voting rights.
“The problem is, the way the law is worded treats every American citizen and green card holder in the world [operating through a foreign corporation] the same as Google,” said Monte Silver, a US tax attorney and senior counsel at Eitan Mehulal Sadot in Israel. “There’s going to be some sort of uproar” as more expats and their advisers learn about their exposure, he predicted, but “the problem is expats have no political clout”.
The state department estimated last year that 9m US citizens live abroad, but advisers said there were no reliable figures on how many taxpayers overseas will be caught by the new repatriation rules. “I know hundreds just in Israel,” Mr Silver said.
Many self-employed Americans abroad created foreign corporations to avoid paying US social security, Mr Silver noted. One Washington-based consultant added that a high number of these were wealthy individuals who had never repatriated any of their offshore earnings.
In his analysis, Mr Bruce noted that many individuals caught by the repatriation tax would not have the cash on hand to pay it. Unlike US corporations, however, they could not claim a deduction on any dividend their foreign corporations distributed to cover the bill.
“At this point there is little that any taxpayers can do to mitigate the ‘repatriation’ tax — it is a corporate provision that sweeps up individual US taxpayers as well,” said Richard Cassell, a tax partner at London law firm Withers, which has analysed the new law’s impact on expatriate Americans.
Advisers said expats with foreign-sourced income would also not qualify for a deduction on pass-through income provided for some businesses by the new law.
Some groups advocating for Americans abroad hope that what appear to be unforeseen effects of the tax bill on expats will add impetus to their campaign to make Americans overseas subject to residency-based taxation, rather than citizenship-based taxation.
“The good thing about this is that it really highlights that the taxation of Americans overseas is just not right,” Mr Bruce said. “The problem is that people don’t think about Americans overseas . . . There’s no congressman representing Americans in France.”
Letter in response to this article:
Americans abroad have voting rights in the US / From Linda Carrington, Morristown, NJ, US
https://www.ft.com/content/cb6762f4-09b9-11e8-8eb7-42f857ea9f09
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COMMENTS (137)
JC Double Taxed 5 days ago
Sophie in 't Veld EU parliament member, tweets against US tax policies: Please RT/Like on Twitter.
Taxation without representation?... Impact of US Tax Policies on EU citizens and businesses #FATCA #GILTI @ACAVoice #accidentalamericans Questions to EU Commission and Council by @SophieintVeld and @TCornillet @ALDEgroup
https://twitter.com/SophieintVeld/status/960886285002051584
NearMotcomb 5 days ago
Responding to "JC Double Taxed", based on their website and many submissions to Congress, American Citizens Abroad is pushing as hard as possible to replace current rules with residency-based taxation. Look at all the stuff on its website. www.americansabroad.org. Full stop. Other groups like Republicans Overseas, Democrats Abroad, ARRO, FAWCO, Americans for Tax Reform, various American Chambers of Congress, and others also are pushing hard and smartly for a change. Look down and ask yourself, what am I doing to make switching from citizenship-based taxation to residency-based taxation happen? Really. What are you doing that will, realistically, advance the cause? Good luck and all the best.
JC Double Taxed 5 days ago
@NearMotcomb
I have given money to lawsuits.
There has been analysis of ACA Residence Based Taxation proposal ( http://isaacbrocksociety.ca/2017/04/17/aca-rbt-proposal-feedback-karen-alpert-2/ ) This is nothing like the RBT as practiced by other countries as there is a five year waiting period, and FBAR still then applies. Plus no acknowledgement and exemption of Accidentals.
IMO, ACA would boost its esteem among Americans Abroad if ACA calls out as unjust treatment of Accidental Americans, and advocate for them easy exemption from the compliance maze. Support of repeal of FATCA would be another good one, as the threat of bankrupting penalties on FFI have caused them to shun business with Americans. Yet I believe ACA supports a "same country exemption" which would involve lots more paperwork for the banks and with continuance of the Sword of Damocles penalties which may only lead to more shunning of Americans abroad.
Of the groups you mention only RO puts issues of shift to Residence Based Taxation and repeal of FATCA as the #1 priority. FAWCO probably best of the rest. DA is obsessed with Homeland American issues to the effective crowding out of attention to their advocacy for RBT (and they still want FATCA).
Monte 5 days ago
@NearMotcomb Hi Near and JC - I am in touch with some of the organizations you mention, and with others. On the limited subjects of the 15.%% and Gilti, as well as the $60,000 foreigner estate tax exemption - mark my words - within a year from now, I will spearhead a global grassroots advocacy effort. If I was not sure of it, I would not set myself up in this public forum
I say no more. I am quite an energetic person well versed in global alliance building
If you or someone wants to keep in touch - m...@silvercolaw.com
JC Double Taxed 6 days ago
The article quotes from the organization called Americans Abroad. This entity only narrowly "represents" American Abroad mostly those who have been away for a few years (while most have been gone a decade or more). Additionally, this entity has a cosy relationship with the compliance industry, so they are more about continuing the compliance imbroglio rather than declaring it unjust and advocating for Residence Based Taxation as practiced by all other OECD nations. Thus far they have failed to call out the injustice of the U.S. claim of tax jurisdiction over Accidental Americans.
Truth on the double taxation of U.S. Persons may be found here: http://citizenshiptaxation.ca/
Interesting video: https://www.youtube.com/watch?v=vRT7pvOxVvE
The Isaac Brock Society is another good one: http://isaacbrocksociety.ca/. The moto there is: Liberty and justice for all United States persons abroad.
The article is only part of the story of the increasing numbers of Americans Overseas who have felt forced to renounce U.S. citizenship just to live a normal live. That is right the word "forced" is used. Most are not happy about it. Americans are taught at an early age that America is about "liberty and justice for all." One might think that U.S. citizenship should be about the greatest liberty in the world. Instead it is increasing become associated with 2nd class status and disadvantage, compared to other nationals, as a result of U.S. government over-regulation.
Quoting from Jacqueline Bugnion (former Director of Americans Abroad) and her comment on another article:
The article's title and premise that Americans abroad are wealthy and that the wealthy are renouncing their citizenship is simply WRONG. Americans abroad are renouncing because their local banks (foreign banks for the US) refuse to deal with them due to FATCA, because FBAR reporting requirements on accounts over which they have just signature authority block them from career opportunities, because the cost of compliance is a multiple of that for US residents due to the complicated international filing, because the tax code leads to double taxation and taxation on phantom capital gains, - in sum because the law is unjust and discriminatory against Americans abroad.
JC Double Taxed 6 days ago
Purple Expat is another good one just getting organized: https://purpleexpat.org/wp/
No other country in the world treats its expat citizens like this. Not Russia, China, North Korea, Syria... Despite the hype, being American and living abroad means that you will be punished, your children will be punished, your non-American Spouse will be punished, your business will be punished. Your career will be limited. All because of Citizen Based Taxation that was designed to punish Americans overseas during the Civil War.
The Purple Expat
BigBloatedGovt 6 days ago
The article is similar to most US government and citizens - that US citizens abroad are all "Mark Rich"(es) and that we all make lots of money and only live abroad to avoid taxes. In today's world, in general, nothing could be further than the truth. It is double taxation, often taxation without representation and this latest tax just puts salt in the wound. Unfortunately, there are no more "Clarence Darrows" in the US, who just want to "Do the Right Thing". Most are motivated by personal monetary or political gain. Championing to "Do the Right Thing", in this case, is not going to get anyone re-elected (the average citizen hasn't a clue about the facts or cares). A sad statement and example of my country and it's current trajectory. And this has nothing to do with partisan opinions... It has been a constant for years, both democrats and republicans.
Monte 6 days ago
@JC Double Taxed Hey Purple, if you feel passionate about the subject, that is good. If a bunch of similarly situated people feel that way, then there is what to do and there is hope that something can happen. A bunch of well-placed people do feel this way, and I do too. Its called smart effective advocacy on focused things that are achievable
3 replies
X.Y.Z. 6 days ago
They are also potentially subject to the Global Intangible Low Taxed Income rules. The acronym says it all about Americans who are unpatriotic enough to have anything to do with alien places.
Quietly Waiting 5 days ago
@X.Y.Z.
Is your statement intended as a parody or are you really that provincial?
X.Y.Z. 5 days ago
Can't be parody as I was not imitating another work. Therefore, I must be really that provincial.
Brian Lillis 6 days ago
I'm not a tax expert. However it seems to me that this will only be a potential problem for individual overseas citizens who have not declared their foreign earnings (in an incorporated entity or not) in a U.S. tax return each year, taken a credit for the local taxes and settled the difference (if any) each year. The new transition tax is aimed at U.S. corporations who, having declared foreign earnings in a U.S tax return each year & taken the local tax credit, then take advantage of a tax deferral on actual payment of the difference each year pending repatriation. Small businesses who were unwisely advised to defer tax payment are unfortunately caught by the new law.
Monte 6 days ago
@Brian Lillis Brian, this is not the case. Specifically, you focus on those people "who have not declared their foreign earnings (in an incorporated entity or not) in a U.S. tax return each year, taken a credit....
The expats mostly have relatively small businesses. They are not the focus of the law. Multinationals who were holding $3 trillion were the focus, period. The media and congress talked only of them.
As an American based company, the shareholder/owner earns a salary and pays full social security and income taxes. The profits earned and kept in the corporation are taxed at 21% US corporate taxes. But the retained earnings are not taxed personally to the US based shareholder!!
As an expat with a foreign company. the corporate income tax outside the US is higher than 21%. In many cases, the individual tax rates abroad are higher too. So these expats pay their full taxes abroad - on salary, dividends and social security.
Yet the expat is now required to personally pay the 15.5% tax on the corporate earnings.THIS IS NOT THE CASE WITH AN AMERICAN BASED BUSINESS!!
Monte
m...@silvercolaw.com
Brian Lillis 6 days ago
@Monte @Brian Lillis Thanks for that insight. I guess my point is that a tax deferral of some kind is involved and should have been reflected as a deferred tax liability?
Mitchell 6 days ago
@Brian Lillis @Monte The corporation has already paid tax locally on any income retained in the corporation. Why see this as deferral?
12 replies
Angry Pig 6 days ago
green card holders can just give it up;
tough for US citizens, to get unamerican.
PurpleExpat 6 days ago
It is amazing, to me as an expat to read some of these comments. If someone moves overseas and wants to open a taco stand, they are hit with this. It would mean bankruptcy for many. I am not rich. 99% are not rich. You have a lot of former military, etc. They will get their pension double taxed, bank accounts cancelled, etc. When I grew up, I was taught that the US stood for people's freedom of choice where they live. There was nothing about being punished for it. For those who think that people move overseas for tax reasons, I have never met anyone that does that. In fact, their local taxes are usually higher than the US. Many are actually trying to correct our trade deficit. No other country does this to their expats. Get off of the stereotype that we are all rich tax avoiders. It is not true at all.
In the know 5 days ago
@PurpleExpat For the GOP this is just collateral damage for the far more important task of ensuring their donors get tax cuts as quickly as possible.
Harry Haller 6 days ago
Give up citizenship, it’s a merdehole country anyway.
Boiled Coffee 6 days ago
I'm sorry but this is just nonsense. First, the number of people this probably effects is in the thousands, if that. Second, the primary reason they would find themselves in this situation is their own prior tax avoidance strategies. I'm not sure why this is even a "problem" that needs fixing.
TigerBear 6 days ago
@Boiled Coffee Nope, your second reason is not correct. My company is over 50% owned by US citizens working in Europe. We have built-up earnings and profits and reinvested them in the business rather than distributing them. It looks like they will now be obliged to pay tax on the undistributed earnings. I, a non-US person not doing any business with, near or close to the US, now have to go through a rearrangement of our business to find the cash to pay out the US persons and me in the process. This is to the detriment of expanding our business. Haven't worked out how we are going to do this but it is a massive pain the arse.
Monte 6 days ago
@TigerBear @Boiled Coffee Happy to discuss solutions I have devised.
BigBloatedGovt 6 days ago
@BoiledCoffee. You are clueless. Do you even own a passport?? For sure, you do not live overseas, so until you "walk in our shoes", stop throwing stones...
5 replies
Trecar 6 days ago
I suppose this could be seen as an example of Trump looking to increase US influence abroad.
Mitchell 6 days ago
@Trecar and failing...
NearMotcomb 6 days ago
The solution for Americans resident abroad is enactment of residency-based taxation putting them under same type of rules applied in almost every other country. Like US corporations, under the new Tax Cuts and Jobs Act, individuals would not be taxed on "foreign" income. The need to file tax forms would just about go away. Their accounts with foreign banks would be carved out of FATCA. RBT is on the table and adoption is definitely possible. Listen to this colloquy -- https://www.c-span.org/video/?c4692161/congressman-holdings-comment-rbt. Right now is the time to get serious, get educated and put a shoulder to the wheel. A good place to start is with the ton of information posted on the American Citizens Abroad website.
Monte 6 days ago
@NearMotcomb Their is a wise saying: God - grant me the courage to change what I can, the ability to accept what I cant change, and the wisdom to tell one from another.
As a specialist in US tax of expats, my personal belief is that the residency solution is not attainable in near term. Tweeking the repatriation tax is possible I believe as do others I am discussing this with.
PurpleExpat 6 days ago
@Monte @NearMotcomb Monte, then I guess that there is no problem. There won't be Americans outside of the US. Good solution. Another solution is that everyone just quits playing the game - stop filing protesting in front of Embassies, etc. As for quitting the USA, the numbers should come out in a few days. Already dual nationals are making a lot of noise with their local governments. And, as of late, even the beaten dog Swiss are starting to comment, in the press, that this was a mistake to cooperate. Why isn't the US providing reciprocity? Why is the US a tax haven now? Why don't they join CRS? Seems like the world is starting to finally clue in. If the US doesn't change this, there will be consequences. Watch the numbers in the next few days.
taxprof 6 days ago
I would just point out that the consequence of US tax reform described above has been a feature of the "repatriation tax" provision in every discussion draft for US tax reform published in the last 6 years. So to the extent the wealthy American expats operating through controlled foreign corporations thought they had good tax advice, they should reconsider that assessment. Because a good advisor would have seen this coming and told them to change their structure.
PurpleExpat 6 days ago
@taxprof most people who this impacts could not afford the tax advice that you are talking about. They have to maneuver their local tax issues, then try to find and pay for really good US tax advice. Most of the time, those two systems are not compatible. Many ask question, should I set up my business to work in the local country where I live? Or do I ignore that and set it up without regard to their local country and adapt to the US tax system and how it would develop in the future? Sorry, that is a pretty sophisticated topic for a mom and pop shop. As for the wealthy ones optimizing tax positions, most of them seem to have made adjustments (i.e. moving back to the US) before FATCA was rolled out. What is left are the non-rich business owners who are truly connected to the country where they live. Repatriation tax is completely unfair because these people are likely never going to repatriate.
Monte 6 days ago
@PurpleExpat @taxprof This is not so. Assume a small expat family business with $150,000 If run via a foreign cheap S-corp-like company, the savings in US SS is $22,500!! A YEAR. And that family does never want, nor can it even legally seek US SS benefits.
Most expats are simply people like you and me.
John Richardson 6 days ago
@taxprof
Thank you for reminding readers that the idea of a "repatriation tax" has been a feature of "tax reform". With reference specifically to:
"So to the extent the wealthy American expats operating through controlled foreign corporations thought they had good tax advice, ..."
As PurpleExpat points out the overwhelmingly majority of people impacted by this are:
1. Not "wealthy" - they are just normal people trying to make a living, but more importantly;
2. They are NOT "EXPATS" at all. They are dual citizens who consider themselves to be primarily citizens and residents of the country the live in. They are living permanently outside the United States. This is not an issue of "repatriating" money to the United States.
3. Citizens and residents of other countries do NOT (understandably) think of terms of running their lives through the U.S. tax system. In many cases, they have discovered their U.S. tax filing obligations only through FATCA or through recent education from the media.
Therefore, I respectfully suggest that the notion of framing this as issue of "wealthy" American "expats" operating through "controlled foreign corporations" misses the mark.
4 replies
GodfreySF 6 days ago
You have to actually "pay" into the Social Security system for a sustained period of time, to get a benefit. Benefits are calculated based on your last three years of contributions. So these individuals are not eligible for any benefits.
Skalk 6 days ago
@GodfreySF Exactly - these are anyway relatively wealthy individuals. Doubt their plan is to live off social security.
JB 6 days ago
@GodfreySF Please check facts before posting. Per SSA website: "Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most. We apply a formula to these earnings and arrive at your basic benefit" .
Monte 6 days ago
@GodfreySF Hi Godfrey, when you say wealthy, consider this: If an expat makes 150,000$ in many countries, the expat pays 15% SS there, and 30% local income tax. That leaves the person with $82500. Take another 15% US SS on the 150, and that leaves $60,000
Is that expat wealthy? It simply means that it is worth running the business via a foreign company and not having to pay the $22500 in US SS, which the expat does not need, as he/she has a local SS pension.
Monte Silver
US tax lawyer
m...@silvercolaw.com
Sarasota Bill 6 days ago
" Many self-employed Americans abroad created foreign corporations to avoid paying US social security, Mr Silver noted."
Maybe these people should have paid their Social Security tax. I'll bet they are planning to file for SS benefits when the time comes.
Cheeseberg 6 days ago
Or like any sane taxation system, don’t ask non-residents to pay tax on overseas income.
Sarasota Bill 6 days ago
@Cheeseberg When the individual is still eligible for benefits from the system, like Social Security, they still have a responsibility to pay into the system.
GodfreySF 6 days ago
@Sarasota Bill
You have to actually "pay" into the Social Security system for a sustained period of time, to get a benefit. Benefits are calculated based on your last three years of contributions.
So these individuals are not eligible for any benefits.
2 replies
TheSentinel 6 days ago
No taxation without representation. Start a revolution.
Monte 6 days ago
@TheSentinel After talking with a few people and organizations, the issue of tax advocacy on the specific subject of repatriation tax appears to be interesting.
@bigrabbit 6 days ago
And Am I suppose to be feeling sorry for These expats living abroad to avoid paying social security ? Hell no , make them pay their fair share !
Superfluous 6 days ago
@@bigrabbit The land of the free owns you. Even if you don't live in the land of the free.
Monte 6 days ago
@@bigrabbit Not sure what you are saying. If expats do not contribute to US SS, they do not get SS benefits.
You must understand that expats pay high social security taxes in their countries of residence. As there are no SS tax treaties to avoid double taxation, being subject to both SS (15% each), would be a serious hardship and quite unfair
Monte Silver
m...@silvercolaw.com
US tax attorney
Sarasota Bill 6 days ago
@Superfluous @@bigrabbit No, if you want the privilege that comes with being a citizen you must contribute to the system or it ceases to function. How many of these expats who are avoiding the payment of Social Security tax will, or have, signed up for the benefits when the time comes?
Living in the USA, or any of the democracies of the world, is a wonderful circumstance but it is not free.
I have no sympathy for people who tried to avoid taxes and got caught. Karma can be brutal.
11 replies
John Richardson 6 days ago
Interesting article that demonstrates the impact of the U.S. tax policy of (1) exporting the Internal Revenue Code to other countries and (2) using the Internal Revenue Code to impose direct taxation on the "tax residents" of those other countries.
Some thoughts on this:
1. Different countries have different "cultures" of financial planning and carrying on businesses. The U.S. tax culture is such that an individual carrying on a business through a corporation is considered to be a "presumptive tax cheat". This is NOT so in other countries. For example, in Canada (and other countries), it is normal for people to use small business corporations to both carry on business and create private pension plans. So, the first point that must be understood is that (if this tax applies) it is in effect a "tax" (actually it's confiscation) of private pension plans!!! That's what it actually is. The suggestion in one of the comments that these corporations were created to somehow avoid "self-employment" tax (although possibly true in countries that don't have totalization agreements) is generally incorrect. I suspect that the largest number of people affected by this are in Canada and the U.K. which are countries which do have "totalization agreements".
2. None of the people interviewed, made the point (or at least it was not reported) that this "tax" as applied to individuals is actually higher than the "tax" as applied to corporations. In the case of individuals the tax would be about 17.5% and not the 15.5% for corporations. (And individuals do not get the benefit of a transition to "territorial taxation".)
3. As Mr. Bruce notes people will not easily be able to pay this. There is no realization event whatsoever. It's just: ("Hey, we see there is some money there, let's take it). Because there is no realization event, this should be viewed as an "asset confiscation" and not as a "tax".
4. Understand that this is a pool of capital that was NEVER subject to U.S. taxation on the past. Therefore, if this is a tax at all, it should be viewed as a "retroactive tax".
5. Under general principles of law, common sense and morality (does any of this matter?) the retained earnings of non-U.S. corporations are first subject to taxation by the country of incorporation. The U.S. "transition tax" is the creation of a "fictitious taxable event" which results in a preemptive "tax strike" against the tax base of other countries. If this is allowed under tax treaties, it's only because when the treaties were signed, nobody could have imagined anything this outrageous.
6. It is obvious that this was NEVER INTENDED TO APPLY TO Americans abroad. Furthermore, no individual would even imagine that this could apply to them without "Education provided by the tax compliance industry". Those in the industry should figure out how to argue that this was never intended to apply to Americans abroad, that there is no suggestion from the IRS that this applies to Americans abroad, that there is no legislative history suggesting that this applies to Americans abroad,and that this should not be applied to Americans abroad.
7. Finally, the title of this article refers to "Americans abroad". This is a gross misstatement of the reality. The problem is that these (so called) "Americans abroad" are primarily the citizens and "tax residents" of other countries - that just happen to have been born in the United States. They have no connection to the USA. Are these citizen/residents of other countries (many who don't even identify as Americans) expected to simply "turn over" their retirement plans to the IRS???? Come on!
Peacenik 6 days ago
@Richard Thompson: your comment is as informative as the article. Thank you!
OBJ1010 6 days ago
@John Richardson Excellent comments. The answer to question 7 for the IRS is yes. These people-- and the politicians-- have no clue about the impact of their policies.
Expats being shafted 6 days ago
Absolutely correct.
8 replies
Peacenik 6 days ago
The bureaucratic harassment that Americans abroad have to put up with as a result of FATCA and other monstrosities may only change when the number of Americans renouncing their citizenship is in the tenthousands per year. But two possible scenarios are then possible: a) the US increases the penalties for those renouncing US citizenship, which already includes the provision that any US citizen children get taxed at the higest possible applicable rate on any inheritance. b) the US finally changes to a territorial tax system as the article points out, and reforms FATCA.
I am suprised that Americans abroad have not launched law suits against banks that do not accept US citizens as customers. The FATCA agreements signed by many countries with the US include the stipulation that US persons residing in the country that is a party to FATCA - in many cases also dual citizens of the US and the country of residence - will not be discriminated against, though this is clearly the case today.
Now you have on top of the insults from FATCA the new provisions for taxing controlled foreign corporations. E.g. Americans who have real estate holdings in a corporate entity will be further punished. Many may decide that enough is enough and renounce US citizenship despite an exit tax - the American version of the Reichsfluchtsteuer - and hefty fees for the processing of the application to renounce US citizenship.
OBJ1010 6 days ago
@Peacenik Banks for the most part are private institutions. They can refuse to take you on as a customer. With respect to dual citizens- that doesn't always offer much protection either under the current rules. I am also a citizen of the country I live in and because they discovered "indications of Americanness" (in my case, birth in the US) they have threatened to close my account multiple times. This is the consequence of crap legislation and idiotic politicians.
FT Moderator FT6 days ago
@Monte Comments deleted. Promotion of services is in breach of our guidelines. Please review them over here: https://help.ft.com/help/article-queries/commenting-on-an-article/commenting-guidelines/
Peacenik 5 days ago
@OBJ1010: are you saying that the non-discrimination clause in FATCA agreements is worthless? It has not been tested in courts!
The Sinner 6 days ago
If you are a GC holder abroad just ignore this and cut your financial ties to the US (simple).
If you are a ‘accidential american’ so born abroad to US parents but have no connections to the US. Ignore this, carry on as normal.
Isnt FATCA worse than this?
The Sinner 6 days ago
I think only if you file US tax and care about keeping a GC. Most dont... so simple to ignore. At least that is what I have seen.
JC Double Taxed 6 days ago
This video covers this taxation: John Richardson Interviewed by IRS Medic, as posted on The Isaac Brock Society.
Key message: U.S. imposition of tax and reporting obligations on the citizens and residents of other countries is immoral.
http://isaacbrocksociety.ca/2018/01/30/john-richardson-interviewed-by-irs-medic/
Monte 6 days ago
@JC Double Taxed Unfortunately, the tax and reporting obligations on US citizens and greencard holders living abroad are allowable under the savings clause of all US tax treaties.
So even if a person has never lived in the US, he/she is liable for US taxes on foreign income, subject to certain exemptions and limitations of course.
PurpleExpat 6 days ago
@Monte @JC Double Taxed Yes, Monte, you are correct. But does that make it right? The biggest issue is that you have a government thousands of miles away from you making decisions on how you are taxed. They judge everything based on the US. The $100K FEIE assumes a lot of money for the US, but the poverty line in Switzerland is $36K. Also, if you live and work in a local currency, why should a dollar currency exchange rate have any impact on calculating tax obligations? The point is, yes it is law. It needs to change.
Mitchell 6 days ago
@PurpleExpat @Monte @JC Double Taxed This law is also unenforceable, especially when it comes to long term/permanent emigrants. The only ones hurt are those who comply. Why do they comply? Out of a misguided sense of patriotism? Or because they have been scared into compliance by the compliance mafia?
For those with no US assets, no need to travel to the US, and who are tax-compliant where they live, the IRS is toothless. All of the big $$$ FBAR penalties have been on US residents. All of the extradition cases for taxes have also involved fraud or money laundering. The typical dual citizen living outside of the US is out of reach for the IRS.
The new repatriation tax and GILTI tax are going to lead to a drop in compliance among affected individuals as it is really impossible to comply.
1 reply
W_G 6 days ago
I guess the question is how this tax is handled under the existing tax treaties. Can you therefore deduct it from your 'foreign' country taxes and break even. That is the idea of tax treaties???
JC Double Taxed 6 days ago
@W_G This appears to avoid any credits allowed by tax treaties:
1) Source profits is in the country of residence (not in the U.S.)
2) Only if the country of residence has an identical tax (answer no).
Obamacare NIIT is another one that escapes credits allowed by tax treaties because of 1) and 2) above.
OBJ1010 6 days ago
@W_G Except for it doesn't always work that way. For example, France and the US have a social security agreement. Living in France I pay into French SS. In the US my SS payments are considered taxes paid. As a US citizen resident in France my SS payments are not considered taxes according to the US (although there is a current lawsuit against the IRS for this very reason). As the SS taxes are high-- 23%-- it makes a big difference.
So no, 'normalization' agreements don't always work if governments apply different standards or interpretations as is currently the case of the US govt. And even if you did really "break even" you never do because of the time and expense of compliance. Hence the reason why so many people are tossing those blue passports (albeit reluctantly) in the bin.
Forte 6 days ago
When Pelosi keeps blurbing out ‘Crumbs!’, she meant to say let them eat cake. How’d that turnout?
AJR 6 days ago
Has Boris Johnson renounced his US citizenship yet? Oh, I do hope not...
John Richardson 6 days ago
@AJR Yes, his name appears to have been on the "Name and shame list" of people who have renounced.
Ostrich 6 days ago
Trump’s tax bill was designed with one constituency in mind: very rich Americans living in the US. Nobody else matters in his mind. Surprised?
WildKiwi 6 days ago
Renounce your US citizenship, pay up to compensate for the years of social security avoidance you’ve enjoyed, move on.
Cheeseberg 6 days ago
But the tax system is wrong in the first place.
BigBloatedGovt 6 days ago
Social security tax I've avoided??? I pay more into the local SS system, as there is no max, so am overfunding the system with no benefit, but that's the way it works. And you want me to pay US SS tax on top?? How about my 3 children who have never lived in the US or my husband who is not a US citizen. Have you even a clue what you are talking about??
PurpleExpat 5 days ago
@WildKiwi Why should people abroad pay for your retirement?
Bjorn Again Rastamouse 6 days ago
Quick. I need to look for the world's smallest violin.
Gendarme 6 days ago
So accidental Americans are to be blamed for their place of birth? Do your research before you post! https://m.youtube.com/watch?v=t_Il-rL5TiI
Shaz 6 days ago
Americans set up companies in the Middle East to have an entity to sponsor their residence visa, a rather essential requirement to live and work here. Tax on remittance was an incidental issue, until now.
Fisher of Men 6 days ago
Saul Goodman work with you?
Monte 6 days ago
My name is Monte Silver, and I am a US tax attorney living in Israel, with the Israeli firm Eitan Mehulal Sadot. Formerly with the IRS estate and gift tax and US tax court. I can across this story when two of my clients came to me 2 weeks ago with this problem.
One of the major provisions of the US Tax Reform forced large U.S. companies like Apple and Google to pay a sizable tax on profits they held outside the U.S. in their foreign subsidiaries (called CFC –controlled foreign corporations). Under the reform, all profits of these CFCs that accumulated between 1986 through December 31, 2017 are treated as income to their U.S. parent company (Apple and Google, for example) and taxed at 15.5% for profits held in cash form, and 8% for profits held in non-cash form.
This new law has major unintended consequences for American individual expats (U.S. citizens or Green Card holders) living outside the U.S. who own or have interests in companies incorporated outside the USA. Why? The US reform treats such individuals exactly the same way as it treats large U.S. corporations. Therefore , if an American expat owns at least 10% of a foreign corporation, and over 50% of that foreign corporation is owned by Americans, that corporation is a CFC for purposes of the tax. Accordingly, the individual U.S. expat will pay the same tax as Apple on accumulated profits.
Monte Silver, an experienced US tax lawyer working at the Israeli law firm Eitan Mehulal Sadot, first uncovered this issue. Monte, who previously worked at the I.R.S. and the US Tax Court, is working on finding solutions to the problem, and advocating to change this unintended consequence.
Many American expats conduct their business through companies in their countries of residence. For expats, working through a CFC has several income tax and U.S. social security-related benefits. While Trump and the U.S. congress were focusing on multinational corporations, they simply did not notice that U.S. expats were subject to the same penalty.This provision does not only impact the super wealthy. No matter what the size of the CFC, its accumulated profits are subject to a huge 15% tax.
There are also serious questions as to whether this tax, payable to the U.S. starting 31 December 2017, will be entitled to tax credit in the expat's country of residence. Or alternatively, whether the expat will be able to avoid the U.S. tax by having the CFC distribute a post-2017 dividend, paying personal income tax on the distribution in the country of residence, and then seeking a foreign tax credit against this new U.S. tax. This opens the very real possibility that despite tax treaties, expats will effectively pay tax twice on this money – to the U.S. now, and later to the country of residence when the CFC distributes dividends.”
I can be reached at mon...@ems-legal.com
Karl M 6 days ago
@Monte
Do you do accident injury stuff too?
Or maybe they did not let you advertise on hospital bulletin boards?
Fisher of Men 6 days ago
Saul Goodman work for you?
Triple750 6 days ago
If this applied to me, why would I want to add a large legal bill to my large tax bills? I generally find the best way to sleep well at night is first to quantify my tax bill and them pay it. I feel much better afterwards.
1 reply
JC Double Taxed 6 days ago
Many self-employed Americans abroad created foreign corporations to avoid tax: this is a blatant mischaracterization. They form corporations as that is smart business in the countries where they live and that is what people do in the countries in which they live.
In regards to avoiding tax: ~91.5% of the Americans overseas live in equal or higher taxing countries than the U.S. places like the U.K., Canada, Australia and others. If they were really out to avoid taxation those countries are not the places to go.
There are tax treaties and there is a FEIE (foreign earned income exclusion) which only covers earned income. However, there are plenty of Catch-22 gotchas where the U.S. tax code does not line up with the tax code of your country of residence. These have been called tax treaty gaps, where double taxation may flow through. Some are because the U.S. has a different name for the same type of tax, or has a different tax that one's home country does not. If you live overseas there is no way possible to have a "qualified" pension fund in your country as the U.S. tax code says these have to be in the U.S., and local law would prohibit/not recognize 401K style plan as those U.S. laws are not legal locally.
The U.S. tax code is complex in itself. When it is overlayed on top the code of other countries it becomes unfathomable with the best tax breaks cancelled out by the other country. The cost and complexity is many multiples of a similarly situated U.S. person. Plus they are under threat of bankrupting penalties for form crime - not reporting financial accounts and providing extra forms that U.S. residents are NOT required to provide for their local accounts.
Also the article characterizes the 9 million Americans Abroad as wealthy. They are very much part of the 99%. Democrats Abroad did a research study called: "FATCA: Affecting Everyday Americans Every Day" Does "Everyday Americans" sound like the rich? NOT.
Of most significance is that the U.S. double tax claim of residents of other countries is not justified, as the U.S. does not provide any services in exchange or for the protection of local property or rights. It is all one way. It is against the Founding Principles of America and worse than in the times of King George III. It has been called Tributary Slavery.
User_7955 6 days ago
@JC Double Taxed
Wasn't it this type of taxation that gave birth to the USA in the first place? ...
Monte 6 days ago
@User_7955 @JC Double Taxed Very nice comment!!
PurpleExpat 6 days ago
@JC Double Taxed Perfectly described!
Karl M 6 days ago
Well someone has to pay for the tax handout to corporations. And most people here are too poor.
SpeakingUp 6 days ago
Well they have extra money in their pockets now the legislation has been passed.
Bjorn Again Rastamouse 6 days ago
@SpeakingUp True. Those USD1.5/week do add up.
JC Double Taxed 6 days ago
The U.S. government treats its 9 million U.S. persons living overseas very poorly with over regulation:
The U.S. has built a virtual Financial Berlin Wall to keep U.S. persons in by punishing harshly those who have left – even those gone decades. FATCA is part of this new Berlin Wall.
JFK famously said in Berlin 'we don't need to build walls to keep our people in.' Fast forward to the present day, and the US has done precisely that. U.S. tax and compliance laws apply Kafkaesque double taxation with the U.S. tax code assuming all U.S. persons are tax residents of the U.S. (even those who live overseas and comply and pay tax to their countries of residence), with extra U.S. penalties, restrictions, and disincentives for money, accounts, pensions, and investments in countries other than the US; even if you live permanently overseas and your accounts are local to you.
Once resident overseas one does not receive U.S. government services provided to U.S. residents such as roads, unemployment, food stamps, etc. So there are no services in exchange for the double taxation. Thus the double tax claim is unjustified and un-American.
In an increasingly global and mobile world the US should not punish US persons living, working overseas, and expanding US influence and trade overseas. This is in complete contrast to all other OECD nations, thus disadvantaging those with US Citizenship.
The US should join the OECD and adopt Residence Based Taxation. To align the terminology in Congress in regards to tax reform for U.S. companies and U.S. persons, Republicans Overseas is advocating for “territorial taxation” for INDIVIDUALS. Companies already have this.
Any U.S. persons overseas caught up in this must visit the message boards of The Isaac Brock Society, Facebook Citizenship Based Taxation and American Expatriates Groups, citizenshiptaxation dot ca, and FixTheTaxTreaty dott org and purpleexpatorg
OBJ1010 6 days ago
@JC Double Taxed So true. The funniest part, if there is anything funny in this, is that what you get in return from the US is so crappy it is useless. Other countries are far more generous with pensions, health care, etc.
Gendarme 6 days ago
Worse still - the situation of Accidental Americans who, whilst having no real ties to the US, find themselves stuck in the middle of the alphabet soup of misery the US inflicts upon its diaspora, FATCA, FBAR, CBT. Time for the EU Commission to wake up to the issues and defend its citizens. https://m.youtube.com/watch?v=t_Il-rL5TiI
Math107 6 days ago
@Gendarme Thanks for the link, Gendarme.
Critics say individuals are being treated the same as big corporations
Andrew Edgecliffe-Johnson in New York
Financial Times
February 5, 2018
Expatriate Americans face unexpected tax bills on their overseas business interests under repatriation rules Congress designed to persuade the likes of Apple and Google to bring back to the US profits they had accumulated in lower taxed countries.
Tax experts in Washington, Tel Aviv and London told the Financial Times large numbers of their clients would be hit by a clause in the tax reforms signed into law by President Donald Trump in December.
The Tax Cuts and Jobs Act imposes a one-time “deemed repatriation tax” of 15.5 per cent on the profits businesses have accumulated overseas, whether or not they choose to repatriate them as Apple has with its pledge to bring $38bn back to the US.
Any individual US citizen or green card holder owning more than 10 per cent of a “controlled foreign corporation”, or CFC, will be forced to pay this tax within eight years, according to an analysis by Charles Bruce, a former tax counsel at the Senate finance committee who now serves as legal counsel to American Citizens Abroad, an advocacy group in Washington. A CFC is an overseas business in which US shareholders control more than 50 per cent of the voting rights.
“The problem is, the way the law is worded treats every American citizen and green card holder in the world [operating through a foreign corporation] the same as Google,” said Monte Silver, a US tax attorney and senior counsel at Eitan Mehulal Sadot in Israel. “There’s going to be some sort of uproar” as more expats and their advisers learn about their exposure, he predicted, but “the problem is expats have no political clout”.
The state department estimated last year that 9m US citizens live abroad, but advisers said there were no reliable figures on how many taxpayers overseas will be caught by the new repatriation rules. “I know hundreds just in Israel,” Mr Silver said.
Many self-employed Americans abroad created foreign corporations to avoid paying US social security, Mr Silver noted. One Washington-based consultant added that a high number of these were wealthy individuals who had never repatriated any of their offshore earnings.
In his analysis, Mr Bruce noted that many individuals caught by the repatriation tax would not have the cash on hand to pay it. Unlike US corporations, however, they could not claim a deduction on any dividend their foreign corporations distributed to cover the bill.
“At this point there is little that any taxpayers can do to mitigate the ‘repatriation’ tax — it is a corporate provision that sweeps up individual US taxpayers as well,” said Richard Cassell, a tax partner at London law firm Withers, which has analysed the new law’s impact on expatriate Americans.
Advisers said expats with foreign-sourced income would also not qualify for a deduction on pass-through income provided for some businesses by the new law.
Some groups advocating for Americans abroad hope that what appear to be unforeseen effects of the tax bill on expats will add impetus to their campaign to make Americans overseas subject to residency-based taxation, rather than citizenship-based taxation.
“The good thing about this is that it really highlights that the taxation of Americans overseas is just not right,” Mr Bruce said. “The problem is that people don’t think about Americans overseas . . . There’s no congressman representing Americans in France.”
Letter in response to this article:
Americans abroad have voting rights in the US / From Linda Carrington, Morristown, NJ, US
https://www.ft.com/content/cb6762f4-09b9-11e8-8eb7-42f857ea9f09
Please use the sharing tools found via the email icon at the top of articles. Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email lice...@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found at https://www.ft.com/tour.
https://www.ft.com/content/cb6762f4-09b9-11e8-8eb7-42f857ea9f09
COMMENTS (137)
JC Double Taxed 5 days ago
Sophie in 't Veld EU parliament member, tweets against US tax policies: Please RT/Like on Twitter.
Taxation without representation?... Impact of US Tax Policies on EU citizens and businesses #FATCA #GILTI @ACAVoice #accidentalamericans Questions to EU Commission and Council by @SophieintVeld and @TCornillet @ALDEgroup
https://twitter.com/SophieintVeld/status/960886285002051584
NearMotcomb 5 days ago
Responding to "JC Double Taxed", based on their website and many submissions to Congress, American Citizens Abroad is pushing as hard as possible to replace current rules with residency-based taxation. Look at all the stuff on its website. www.americansabroad.org. Full stop. Other groups like Republicans Overseas, Democrats Abroad, ARRO, FAWCO, Americans for Tax Reform, various American Chambers of Congress, and others also are pushing hard and smartly for a change. Look down and ask yourself, what am I doing to make switching from citizenship-based taxation to residency-based taxation happen? Really. What are you doing that will, realistically, advance the cause? Good luck and all the best.
JC Double Taxed 5 days ago
@NearMotcomb
I have given money to lawsuits.
There has been analysis of ACA Residence Based Taxation proposal ( http://isaacbrocksociety.ca/2017/04/17/aca-rbt-proposal-feedback-karen-alpert-2/ ) This is nothing like the RBT as practiced by other countries as there is a five year waiting period, and FBAR still then applies. Plus no acknowledgement and exemption of Accidentals.
IMO, ACA would boost its esteem among Americans Abroad if ACA calls out as unjust treatment of Accidental Americans, and advocate for them easy exemption from the compliance maze. Support of repeal of FATCA would be another good one, as the threat of bankrupting penalties on FFI have caused them to shun business with Americans. Yet I believe ACA supports a "same country exemption" which would involve lots more paperwork for the banks and with continuance of the Sword of Damocles penalties which may only lead to more shunning of Americans abroad.
Of the groups you mention only RO puts issues of shift to Residence Based Taxation and repeal of FATCA as the #1 priority. FAWCO probably best of the rest. DA is obsessed with Homeland American issues to the effective crowding out of attention to their advocacy for RBT (and they still want FATCA).
Monte 5 days ago
@NearMotcomb Hi Near and JC - I am in touch with some of the organizations you mention, and with others. On the limited subjects of the 15.%% and Gilti, as well as the $60,000 foreigner estate tax exemption - mark my words - within a year from now, I will spearhead a global grassroots advocacy effort. If I was not sure of it, I would not set myself up in this public forum
I say no more. I am quite an energetic person well versed in global alliance building
If you or someone wants to keep in touch - m...@silvercolaw.com
JC Double Taxed 6 days ago
The article quotes from the organization called Americans Abroad. This entity only narrowly "represents" American Abroad mostly those who have been away for a few years (while most have been gone a decade or more). Additionally, this entity has a cosy relationship with the compliance industry, so they are more about continuing the compliance imbroglio rather than declaring it unjust and advocating for Residence Based Taxation as practiced by all other OECD nations. Thus far they have failed to call out the injustice of the U.S. claim of tax jurisdiction over Accidental Americans.
Truth on the double taxation of U.S. Persons may be found here: http://citizenshiptaxation.ca/
Interesting video: https://www.youtube.com/watch?v=vRT7pvOxVvE
The Isaac Brock Society is another good one: http://isaacbrocksociety.ca/. The moto there is: Liberty and justice for all United States persons abroad.
The article is only part of the story of the increasing numbers of Americans Overseas who have felt forced to renounce U.S. citizenship just to live a normal live. That is right the word "forced" is used. Most are not happy about it. Americans are taught at an early age that America is about "liberty and justice for all." One might think that U.S. citizenship should be about the greatest liberty in the world. Instead it is increasing become associated with 2nd class status and disadvantage, compared to other nationals, as a result of U.S. government over-regulation.
Quoting from Jacqueline Bugnion (former Director of Americans Abroad) and her comment on another article:
The article's title and premise that Americans abroad are wealthy and that the wealthy are renouncing their citizenship is simply WRONG. Americans abroad are renouncing because their local banks (foreign banks for the US) refuse to deal with them due to FATCA, because FBAR reporting requirements on accounts over which they have just signature authority block them from career opportunities, because the cost of compliance is a multiple of that for US residents due to the complicated international filing, because the tax code leads to double taxation and taxation on phantom capital gains, - in sum because the law is unjust and discriminatory against Americans abroad.
JC Double Taxed 6 days ago
Purple Expat is another good one just getting organized: https://purpleexpat.org/wp/
No other country in the world treats its expat citizens like this. Not Russia, China, North Korea, Syria... Despite the hype, being American and living abroad means that you will be punished, your children will be punished, your non-American Spouse will be punished, your business will be punished. Your career will be limited. All because of Citizen Based Taxation that was designed to punish Americans overseas during the Civil War.
The Purple Expat
BigBloatedGovt 6 days ago
The article is similar to most US government and citizens - that US citizens abroad are all "Mark Rich"(es) and that we all make lots of money and only live abroad to avoid taxes. In today's world, in general, nothing could be further than the truth. It is double taxation, often taxation without representation and this latest tax just puts salt in the wound. Unfortunately, there are no more "Clarence Darrows" in the US, who just want to "Do the Right Thing". Most are motivated by personal monetary or political gain. Championing to "Do the Right Thing", in this case, is not going to get anyone re-elected (the average citizen hasn't a clue about the facts or cares). A sad statement and example of my country and it's current trajectory. And this has nothing to do with partisan opinions... It has been a constant for years, both democrats and republicans.
Monte 6 days ago
@JC Double Taxed Hey Purple, if you feel passionate about the subject, that is good. If a bunch of similarly situated people feel that way, then there is what to do and there is hope that something can happen. A bunch of well-placed people do feel this way, and I do too. Its called smart effective advocacy on focused things that are achievable
3 replies
X.Y.Z. 6 days ago
They are also potentially subject to the Global Intangible Low Taxed Income rules. The acronym says it all about Americans who are unpatriotic enough to have anything to do with alien places.
Quietly Waiting 5 days ago
@X.Y.Z.
Is your statement intended as a parody or are you really that provincial?
X.Y.Z. 5 days ago
Can't be parody as I was not imitating another work. Therefore, I must be really that provincial.
Brian Lillis 6 days ago
I'm not a tax expert. However it seems to me that this will only be a potential problem for individual overseas citizens who have not declared their foreign earnings (in an incorporated entity or not) in a U.S. tax return each year, taken a credit for the local taxes and settled the difference (if any) each year. The new transition tax is aimed at U.S. corporations who, having declared foreign earnings in a U.S tax return each year & taken the local tax credit, then take advantage of a tax deferral on actual payment of the difference each year pending repatriation. Small businesses who were unwisely advised to defer tax payment are unfortunately caught by the new law.
Monte 6 days ago
@Brian Lillis Brian, this is not the case. Specifically, you focus on those people "who have not declared their foreign earnings (in an incorporated entity or not) in a U.S. tax return each year, taken a credit....
The expats mostly have relatively small businesses. They are not the focus of the law. Multinationals who were holding $3 trillion were the focus, period. The media and congress talked only of them.
As an American based company, the shareholder/owner earns a salary and pays full social security and income taxes. The profits earned and kept in the corporation are taxed at 21% US corporate taxes. But the retained earnings are not taxed personally to the US based shareholder!!
As an expat with a foreign company. the corporate income tax outside the US is higher than 21%. In many cases, the individual tax rates abroad are higher too. So these expats pay their full taxes abroad - on salary, dividends and social security.
Yet the expat is now required to personally pay the 15.5% tax on the corporate earnings.THIS IS NOT THE CASE WITH AN AMERICAN BASED BUSINESS!!
Monte
m...@silvercolaw.com
Brian Lillis 6 days ago
@Monte @Brian Lillis Thanks for that insight. I guess my point is that a tax deferral of some kind is involved and should have been reflected as a deferred tax liability?
Mitchell 6 days ago
@Brian Lillis @Monte The corporation has already paid tax locally on any income retained in the corporation. Why see this as deferral?
12 replies
Angry Pig 6 days ago
green card holders can just give it up;
tough for US citizens, to get unamerican.
PurpleExpat 6 days ago
It is amazing, to me as an expat to read some of these comments. If someone moves overseas and wants to open a taco stand, they are hit with this. It would mean bankruptcy for many. I am not rich. 99% are not rich. You have a lot of former military, etc. They will get their pension double taxed, bank accounts cancelled, etc. When I grew up, I was taught that the US stood for people's freedom of choice where they live. There was nothing about being punished for it. For those who think that people move overseas for tax reasons, I have never met anyone that does that. In fact, their local taxes are usually higher than the US. Many are actually trying to correct our trade deficit. No other country does this to their expats. Get off of the stereotype that we are all rich tax avoiders. It is not true at all.
In the know 5 days ago
@PurpleExpat For the GOP this is just collateral damage for the far more important task of ensuring their donors get tax cuts as quickly as possible.
Harry Haller 6 days ago
Give up citizenship, it’s a merdehole country anyway.
Boiled Coffee 6 days ago
I'm sorry but this is just nonsense. First, the number of people this probably effects is in the thousands, if that. Second, the primary reason they would find themselves in this situation is their own prior tax avoidance strategies. I'm not sure why this is even a "problem" that needs fixing.
TigerBear 6 days ago
@Boiled Coffee Nope, your second reason is not correct. My company is over 50% owned by US citizens working in Europe. We have built-up earnings and profits and reinvested them in the business rather than distributing them. It looks like they will now be obliged to pay tax on the undistributed earnings. I, a non-US person not doing any business with, near or close to the US, now have to go through a rearrangement of our business to find the cash to pay out the US persons and me in the process. This is to the detriment of expanding our business. Haven't worked out how we are going to do this but it is a massive pain the arse.
Monte 6 days ago
@TigerBear @Boiled Coffee Happy to discuss solutions I have devised.
BigBloatedGovt 6 days ago
@BoiledCoffee. You are clueless. Do you even own a passport?? For sure, you do not live overseas, so until you "walk in our shoes", stop throwing stones...
5 replies
Trecar 6 days ago
I suppose this could be seen as an example of Trump looking to increase US influence abroad.
Mitchell 6 days ago
@Trecar and failing...
NearMotcomb 6 days ago
The solution for Americans resident abroad is enactment of residency-based taxation putting them under same type of rules applied in almost every other country. Like US corporations, under the new Tax Cuts and Jobs Act, individuals would not be taxed on "foreign" income. The need to file tax forms would just about go away. Their accounts with foreign banks would be carved out of FATCA. RBT is on the table and adoption is definitely possible. Listen to this colloquy -- https://www.c-span.org/video/?c4692161/congressman-holdings-comment-rbt. Right now is the time to get serious, get educated and put a shoulder to the wheel. A good place to start is with the ton of information posted on the American Citizens Abroad website.
Monte 6 days ago
@NearMotcomb Their is a wise saying: God - grant me the courage to change what I can, the ability to accept what I cant change, and the wisdom to tell one from another.
As a specialist in US tax of expats, my personal belief is that the residency solution is not attainable in near term. Tweeking the repatriation tax is possible I believe as do others I am discussing this with.
PurpleExpat 6 days ago
@Monte @NearMotcomb Monte, then I guess that there is no problem. There won't be Americans outside of the US. Good solution. Another solution is that everyone just quits playing the game - stop filing protesting in front of Embassies, etc. As for quitting the USA, the numbers should come out in a few days. Already dual nationals are making a lot of noise with their local governments. And, as of late, even the beaten dog Swiss are starting to comment, in the press, that this was a mistake to cooperate. Why isn't the US providing reciprocity? Why is the US a tax haven now? Why don't they join CRS? Seems like the world is starting to finally clue in. If the US doesn't change this, there will be consequences. Watch the numbers in the next few days.
taxprof 6 days ago
I would just point out that the consequence of US tax reform described above has been a feature of the "repatriation tax" provision in every discussion draft for US tax reform published in the last 6 years. So to the extent the wealthy American expats operating through controlled foreign corporations thought they had good tax advice, they should reconsider that assessment. Because a good advisor would have seen this coming and told them to change their structure.
PurpleExpat 6 days ago
@taxprof most people who this impacts could not afford the tax advice that you are talking about. They have to maneuver their local tax issues, then try to find and pay for really good US tax advice. Most of the time, those two systems are not compatible. Many ask question, should I set up my business to work in the local country where I live? Or do I ignore that and set it up without regard to their local country and adapt to the US tax system and how it would develop in the future? Sorry, that is a pretty sophisticated topic for a mom and pop shop. As for the wealthy ones optimizing tax positions, most of them seem to have made adjustments (i.e. moving back to the US) before FATCA was rolled out. What is left are the non-rich business owners who are truly connected to the country where they live. Repatriation tax is completely unfair because these people are likely never going to repatriate.
Monte 6 days ago
@PurpleExpat @taxprof This is not so. Assume a small expat family business with $150,000 If run via a foreign cheap S-corp-like company, the savings in US SS is $22,500!! A YEAR. And that family does never want, nor can it even legally seek US SS benefits.
Most expats are simply people like you and me.
John Richardson 6 days ago
@taxprof
Thank you for reminding readers that the idea of a "repatriation tax" has been a feature of "tax reform". With reference specifically to:
"So to the extent the wealthy American expats operating through controlled foreign corporations thought they had good tax advice, ..."
As PurpleExpat points out the overwhelmingly majority of people impacted by this are:
1. Not "wealthy" - they are just normal people trying to make a living, but more importantly;
2. They are NOT "EXPATS" at all. They are dual citizens who consider themselves to be primarily citizens and residents of the country the live in. They are living permanently outside the United States. This is not an issue of "repatriating" money to the United States.
3. Citizens and residents of other countries do NOT (understandably) think of terms of running their lives through the U.S. tax system. In many cases, they have discovered their U.S. tax filing obligations only through FATCA or through recent education from the media.
Therefore, I respectfully suggest that the notion of framing this as issue of "wealthy" American "expats" operating through "controlled foreign corporations" misses the mark.
4 replies
GodfreySF 6 days ago
You have to actually "pay" into the Social Security system for a sustained period of time, to get a benefit. Benefits are calculated based on your last three years of contributions. So these individuals are not eligible for any benefits.
Skalk 6 days ago
@GodfreySF Exactly - these are anyway relatively wealthy individuals. Doubt their plan is to live off social security.
JB 6 days ago
@GodfreySF Please check facts before posting. Per SSA website: "Social Security calculates your average indexed monthly earnings during the 35 years in which you earned the most. We apply a formula to these earnings and arrive at your basic benefit" .
Monte 6 days ago
@GodfreySF Hi Godfrey, when you say wealthy, consider this: If an expat makes 150,000$ in many countries, the expat pays 15% SS there, and 30% local income tax. That leaves the person with $82500. Take another 15% US SS on the 150, and that leaves $60,000
Is that expat wealthy? It simply means that it is worth running the business via a foreign company and not having to pay the $22500 in US SS, which the expat does not need, as he/she has a local SS pension.
Monte Silver
US tax lawyer
m...@silvercolaw.com
Sarasota Bill 6 days ago
" Many self-employed Americans abroad created foreign corporations to avoid paying US social security, Mr Silver noted."
Maybe these people should have paid their Social Security tax. I'll bet they are planning to file for SS benefits when the time comes.
Cheeseberg 6 days ago
Or like any sane taxation system, don’t ask non-residents to pay tax on overseas income.
Sarasota Bill 6 days ago
@Cheeseberg When the individual is still eligible for benefits from the system, like Social Security, they still have a responsibility to pay into the system.
GodfreySF 6 days ago
@Sarasota Bill
You have to actually "pay" into the Social Security system for a sustained period of time, to get a benefit. Benefits are calculated based on your last three years of contributions.
So these individuals are not eligible for any benefits.
2 replies
TheSentinel 6 days ago
No taxation without representation. Start a revolution.
Monte 6 days ago
@TheSentinel After talking with a few people and organizations, the issue of tax advocacy on the specific subject of repatriation tax appears to be interesting.
@bigrabbit 6 days ago
And Am I suppose to be feeling sorry for These expats living abroad to avoid paying social security ? Hell no , make them pay their fair share !
Superfluous 6 days ago
@@bigrabbit The land of the free owns you. Even if you don't live in the land of the free.
Monte 6 days ago
@@bigrabbit Not sure what you are saying. If expats do not contribute to US SS, they do not get SS benefits.
You must understand that expats pay high social security taxes in their countries of residence. As there are no SS tax treaties to avoid double taxation, being subject to both SS (15% each), would be a serious hardship and quite unfair
Monte Silver
m...@silvercolaw.com
US tax attorney
Sarasota Bill 6 days ago
@Superfluous @@bigrabbit No, if you want the privilege that comes with being a citizen you must contribute to the system or it ceases to function. How many of these expats who are avoiding the payment of Social Security tax will, or have, signed up for the benefits when the time comes?
Living in the USA, or any of the democracies of the world, is a wonderful circumstance but it is not free.
I have no sympathy for people who tried to avoid taxes and got caught. Karma can be brutal.
11 replies
John Richardson 6 days ago
Interesting article that demonstrates the impact of the U.S. tax policy of (1) exporting the Internal Revenue Code to other countries and (2) using the Internal Revenue Code to impose direct taxation on the "tax residents" of those other countries.
Some thoughts on this:
1. Different countries have different "cultures" of financial planning and carrying on businesses. The U.S. tax culture is such that an individual carrying on a business through a corporation is considered to be a "presumptive tax cheat". This is NOT so in other countries. For example, in Canada (and other countries), it is normal for people to use small business corporations to both carry on business and create private pension plans. So, the first point that must be understood is that (if this tax applies) it is in effect a "tax" (actually it's confiscation) of private pension plans!!! That's what it actually is. The suggestion in one of the comments that these corporations were created to somehow avoid "self-employment" tax (although possibly true in countries that don't have totalization agreements) is generally incorrect. I suspect that the largest number of people affected by this are in Canada and the U.K. which are countries which do have "totalization agreements".
2. None of the people interviewed, made the point (or at least it was not reported) that this "tax" as applied to individuals is actually higher than the "tax" as applied to corporations. In the case of individuals the tax would be about 17.5% and not the 15.5% for corporations. (And individuals do not get the benefit of a transition to "territorial taxation".)
3. As Mr. Bruce notes people will not easily be able to pay this. There is no realization event whatsoever. It's just: ("Hey, we see there is some money there, let's take it). Because there is no realization event, this should be viewed as an "asset confiscation" and not as a "tax".
4. Understand that this is a pool of capital that was NEVER subject to U.S. taxation on the past. Therefore, if this is a tax at all, it should be viewed as a "retroactive tax".
5. Under general principles of law, common sense and morality (does any of this matter?) the retained earnings of non-U.S. corporations are first subject to taxation by the country of incorporation. The U.S. "transition tax" is the creation of a "fictitious taxable event" which results in a preemptive "tax strike" against the tax base of other countries. If this is allowed under tax treaties, it's only because when the treaties were signed, nobody could have imagined anything this outrageous.
6. It is obvious that this was NEVER INTENDED TO APPLY TO Americans abroad. Furthermore, no individual would even imagine that this could apply to them without "Education provided by the tax compliance industry". Those in the industry should figure out how to argue that this was never intended to apply to Americans abroad, that there is no suggestion from the IRS that this applies to Americans abroad, that there is no legislative history suggesting that this applies to Americans abroad,and that this should not be applied to Americans abroad.
7. Finally, the title of this article refers to "Americans abroad". This is a gross misstatement of the reality. The problem is that these (so called) "Americans abroad" are primarily the citizens and "tax residents" of other countries - that just happen to have been born in the United States. They have no connection to the USA. Are these citizen/residents of other countries (many who don't even identify as Americans) expected to simply "turn over" their retirement plans to the IRS???? Come on!
Peacenik 6 days ago
@Richard Thompson: your comment is as informative as the article. Thank you!
OBJ1010 6 days ago
@John Richardson Excellent comments. The answer to question 7 for the IRS is yes. These people-- and the politicians-- have no clue about the impact of their policies.
Expats being shafted 6 days ago
Absolutely correct.
8 replies
Peacenik 6 days ago
The bureaucratic harassment that Americans abroad have to put up with as a result of FATCA and other monstrosities may only change when the number of Americans renouncing their citizenship is in the tenthousands per year. But two possible scenarios are then possible: a) the US increases the penalties for those renouncing US citizenship, which already includes the provision that any US citizen children get taxed at the higest possible applicable rate on any inheritance. b) the US finally changes to a territorial tax system as the article points out, and reforms FATCA.
I am suprised that Americans abroad have not launched law suits against banks that do not accept US citizens as customers. The FATCA agreements signed by many countries with the US include the stipulation that US persons residing in the country that is a party to FATCA - in many cases also dual citizens of the US and the country of residence - will not be discriminated against, though this is clearly the case today.
Now you have on top of the insults from FATCA the new provisions for taxing controlled foreign corporations. E.g. Americans who have real estate holdings in a corporate entity will be further punished. Many may decide that enough is enough and renounce US citizenship despite an exit tax - the American version of the Reichsfluchtsteuer - and hefty fees for the processing of the application to renounce US citizenship.
OBJ1010 6 days ago
@Peacenik Banks for the most part are private institutions. They can refuse to take you on as a customer. With respect to dual citizens- that doesn't always offer much protection either under the current rules. I am also a citizen of the country I live in and because they discovered "indications of Americanness" (in my case, birth in the US) they have threatened to close my account multiple times. This is the consequence of crap legislation and idiotic politicians.
FT Moderator FT6 days ago
@Monte Comments deleted. Promotion of services is in breach of our guidelines. Please review them over here: https://help.ft.com/help/article-queries/commenting-on-an-article/commenting-guidelines/
Peacenik 5 days ago
@OBJ1010: are you saying that the non-discrimination clause in FATCA agreements is worthless? It has not been tested in courts!
The Sinner 6 days ago
If you are a GC holder abroad just ignore this and cut your financial ties to the US (simple).
If you are a ‘accidential american’ so born abroad to US parents but have no connections to the US. Ignore this, carry on as normal.
Isnt FATCA worse than this?
The Sinner 6 days ago
I think only if you file US tax and care about keeping a GC. Most dont... so simple to ignore. At least that is what I have seen.
JC Double Taxed 6 days ago
This video covers this taxation: John Richardson Interviewed by IRS Medic, as posted on The Isaac Brock Society.
Key message: U.S. imposition of tax and reporting obligations on the citizens and residents of other countries is immoral.
http://isaacbrocksociety.ca/2018/01/30/john-richardson-interviewed-by-irs-medic/
Monte 6 days ago
@JC Double Taxed Unfortunately, the tax and reporting obligations on US citizens and greencard holders living abroad are allowable under the savings clause of all US tax treaties.
So even if a person has never lived in the US, he/she is liable for US taxes on foreign income, subject to certain exemptions and limitations of course.
PurpleExpat 6 days ago
@Monte @JC Double Taxed Yes, Monte, you are correct. But does that make it right? The biggest issue is that you have a government thousands of miles away from you making decisions on how you are taxed. They judge everything based on the US. The $100K FEIE assumes a lot of money for the US, but the poverty line in Switzerland is $36K. Also, if you live and work in a local currency, why should a dollar currency exchange rate have any impact on calculating tax obligations? The point is, yes it is law. It needs to change.
Mitchell 6 days ago
@PurpleExpat @Monte @JC Double Taxed This law is also unenforceable, especially when it comes to long term/permanent emigrants. The only ones hurt are those who comply. Why do they comply? Out of a misguided sense of patriotism? Or because they have been scared into compliance by the compliance mafia?
For those with no US assets, no need to travel to the US, and who are tax-compliant where they live, the IRS is toothless. All of the big $$$ FBAR penalties have been on US residents. All of the extradition cases for taxes have also involved fraud or money laundering. The typical dual citizen living outside of the US is out of reach for the IRS.
The new repatriation tax and GILTI tax are going to lead to a drop in compliance among affected individuals as it is really impossible to comply.
1 reply
W_G 6 days ago
I guess the question is how this tax is handled under the existing tax treaties. Can you therefore deduct it from your 'foreign' country taxes and break even. That is the idea of tax treaties???
JC Double Taxed 6 days ago
@W_G This appears to avoid any credits allowed by tax treaties:
1) Source profits is in the country of residence (not in the U.S.)
2) Only if the country of residence has an identical tax (answer no).
Obamacare NIIT is another one that escapes credits allowed by tax treaties because of 1) and 2) above.
OBJ1010 6 days ago
@W_G Except for it doesn't always work that way. For example, France and the US have a social security agreement. Living in France I pay into French SS. In the US my SS payments are considered taxes paid. As a US citizen resident in France my SS payments are not considered taxes according to the US (although there is a current lawsuit against the IRS for this very reason). As the SS taxes are high-- 23%-- it makes a big difference.
So no, 'normalization' agreements don't always work if governments apply different standards or interpretations as is currently the case of the US govt. And even if you did really "break even" you never do because of the time and expense of compliance. Hence the reason why so many people are tossing those blue passports (albeit reluctantly) in the bin.
Forte 6 days ago
When Pelosi keeps blurbing out ‘Crumbs!’, she meant to say let them eat cake. How’d that turnout?
AJR 6 days ago
Has Boris Johnson renounced his US citizenship yet? Oh, I do hope not...
John Richardson 6 days ago
@AJR Yes, his name appears to have been on the "Name and shame list" of people who have renounced.
Ostrich 6 days ago
Trump’s tax bill was designed with one constituency in mind: very rich Americans living in the US. Nobody else matters in his mind. Surprised?
WildKiwi 6 days ago
Renounce your US citizenship, pay up to compensate for the years of social security avoidance you’ve enjoyed, move on.
Cheeseberg 6 days ago
But the tax system is wrong in the first place.
BigBloatedGovt 6 days ago
Social security tax I've avoided??? I pay more into the local SS system, as there is no max, so am overfunding the system with no benefit, but that's the way it works. And you want me to pay US SS tax on top?? How about my 3 children who have never lived in the US or my husband who is not a US citizen. Have you even a clue what you are talking about??
PurpleExpat 5 days ago
@WildKiwi Why should people abroad pay for your retirement?
Bjorn Again Rastamouse 6 days ago
Quick. I need to look for the world's smallest violin.
Gendarme 6 days ago
So accidental Americans are to be blamed for their place of birth? Do your research before you post! https://m.youtube.com/watch?v=t_Il-rL5TiI
Shaz 6 days ago
Americans set up companies in the Middle East to have an entity to sponsor their residence visa, a rather essential requirement to live and work here. Tax on remittance was an incidental issue, until now.
Fisher of Men 6 days ago
Saul Goodman work with you?
Monte 6 days ago
My name is Monte Silver, and I am a US tax attorney living in Israel, with the Israeli firm Eitan Mehulal Sadot. Formerly with the IRS estate and gift tax and US tax court. I can across this story when two of my clients came to me 2 weeks ago with this problem.
One of the major provisions of the US Tax Reform forced large U.S. companies like Apple and Google to pay a sizable tax on profits they held outside the U.S. in their foreign subsidiaries (called CFC –controlled foreign corporations). Under the reform, all profits of these CFCs that accumulated between 1986 through December 31, 2017 are treated as income to their U.S. parent company (Apple and Google, for example) and taxed at 15.5% for profits held in cash form, and 8% for profits held in non-cash form.
This new law has major unintended consequences for American individual expats (U.S. citizens or Green Card holders) living outside the U.S. who own or have interests in companies incorporated outside the USA. Why? The US reform treats such individuals exactly the same way as it treats large U.S. corporations. Therefore , if an American expat owns at least 10% of a foreign corporation, and over 50% of that foreign corporation is owned by Americans, that corporation is a CFC for purposes of the tax. Accordingly, the individual U.S. expat will pay the same tax as Apple on accumulated profits.
Monte Silver, an experienced US tax lawyer working at the Israeli law firm Eitan Mehulal Sadot, first uncovered this issue. Monte, who previously worked at the I.R.S. and the US Tax Court, is working on finding solutions to the problem, and advocating to change this unintended consequence.
Many American expats conduct their business through companies in their countries of residence. For expats, working through a CFC has several income tax and U.S. social security-related benefits. While Trump and the U.S. congress were focusing on multinational corporations, they simply did not notice that U.S. expats were subject to the same penalty.This provision does not only impact the super wealthy. No matter what the size of the CFC, its accumulated profits are subject to a huge 15% tax.
There are also serious questions as to whether this tax, payable to the U.S. starting 31 December 2017, will be entitled to tax credit in the expat's country of residence. Or alternatively, whether the expat will be able to avoid the U.S. tax by having the CFC distribute a post-2017 dividend, paying personal income tax on the distribution in the country of residence, and then seeking a foreign tax credit against this new U.S. tax. This opens the very real possibility that despite tax treaties, expats will effectively pay tax twice on this money – to the U.S. now, and later to the country of residence when the CFC distributes dividends.”
I can be reached at mon...@ems-legal.com
Karl M 6 days ago
@Monte
Do you do accident injury stuff too?
Or maybe they did not let you advertise on hospital bulletin boards?
Fisher of Men 6 days ago
Saul Goodman work for you?
Triple750 6 days ago
If this applied to me, why would I want to add a large legal bill to my large tax bills? I generally find the best way to sleep well at night is first to quantify my tax bill and them pay it. I feel much better afterwards.
1 reply
JC Double Taxed 6 days ago
Many self-employed Americans abroad created foreign corporations to avoid tax: this is a blatant mischaracterization. They form corporations as that is smart business in the countries where they live and that is what people do in the countries in which they live.
In regards to avoiding tax: ~91.5% of the Americans overseas live in equal or higher taxing countries than the U.S. places like the U.K., Canada, Australia and others. If they were really out to avoid taxation those countries are not the places to go.
There are tax treaties and there is a FEIE (foreign earned income exclusion) which only covers earned income. However, there are plenty of Catch-22 gotchas where the U.S. tax code does not line up with the tax code of your country of residence. These have been called tax treaty gaps, where double taxation may flow through. Some are because the U.S. has a different name for the same type of tax, or has a different tax that one's home country does not. If you live overseas there is no way possible to have a "qualified" pension fund in your country as the U.S. tax code says these have to be in the U.S., and local law would prohibit/not recognize 401K style plan as those U.S. laws are not legal locally.
The U.S. tax code is complex in itself. When it is overlayed on top the code of other countries it becomes unfathomable with the best tax breaks cancelled out by the other country. The cost and complexity is many multiples of a similarly situated U.S. person. Plus they are under threat of bankrupting penalties for form crime - not reporting financial accounts and providing extra forms that U.S. residents are NOT required to provide for their local accounts.
Also the article characterizes the 9 million Americans Abroad as wealthy. They are very much part of the 99%. Democrats Abroad did a research study called: "FATCA: Affecting Everyday Americans Every Day" Does "Everyday Americans" sound like the rich? NOT.
Of most significance is that the U.S. double tax claim of residents of other countries is not justified, as the U.S. does not provide any services in exchange or for the protection of local property or rights. It is all one way. It is against the Founding Principles of America and worse than in the times of King George III. It has been called Tributary Slavery.
User_7955 6 days ago
@JC Double Taxed
Wasn't it this type of taxation that gave birth to the USA in the first place? ...
Monte 6 days ago
@User_7955 @JC Double Taxed Very nice comment!!
PurpleExpat 6 days ago
@JC Double Taxed Perfectly described!
Karl M 6 days ago
Well someone has to pay for the tax handout to corporations. And most people here are too poor.
SpeakingUp 6 days ago
Well they have extra money in their pockets now the legislation has been passed.
Bjorn Again Rastamouse 6 days ago
@SpeakingUp True. Those USD1.5/week do add up.
JC Double Taxed 6 days ago
The U.S. government treats its 9 million U.S. persons living overseas very poorly with over regulation:
The U.S. has built a virtual Financial Berlin Wall to keep U.S. persons in by punishing harshly those who have left – even those gone decades. FATCA is part of this new Berlin Wall.
JFK famously said in Berlin 'we don't need to build walls to keep our people in.' Fast forward to the present day, and the US has done precisely that. U.S. tax and compliance laws apply Kafkaesque double taxation with the U.S. tax code assuming all U.S. persons are tax residents of the U.S. (even those who live overseas and comply and pay tax to their countries of residence), with extra U.S. penalties, restrictions, and disincentives for money, accounts, pensions, and investments in countries other than the US; even if you live permanently overseas and your accounts are local to you.
Once resident overseas one does not receive U.S. government services provided to U.S. residents such as roads, unemployment, food stamps, etc. So there are no services in exchange for the double taxation. Thus the double tax claim is unjustified and un-American.
In an increasingly global and mobile world the US should not punish US persons living, working overseas, and expanding US influence and trade overseas. This is in complete contrast to all other OECD nations, thus disadvantaging those with US Citizenship.
The US should join the OECD and adopt Residence Based Taxation. To align the terminology in Congress in regards to tax reform for U.S. companies and U.S. persons, Republicans Overseas is advocating for “territorial taxation” for INDIVIDUALS. Companies already have this.
Any U.S. persons overseas caught up in this must visit the message boards of The Isaac Brock Society, Facebook Citizenship Based Taxation and American Expatriates Groups, citizenshiptaxation dot ca, and FixTheTaxTreaty dott org and purpleexpatorg
OBJ1010 6 days ago
@JC Double Taxed So true. The funniest part, if there is anything funny in this, is that what you get in return from the US is so crappy it is useless. Other countries are far more generous with pensions, health care, etc.
Gendarme 6 days ago
Worse still - the situation of Accidental Americans who, whilst having no real ties to the US, find themselves stuck in the middle of the alphabet soup of misery the US inflicts upon its diaspora, FATCA, FBAR, CBT. Time for the EU Commission to wake up to the issues and defend its citizens. https://m.youtube.com/watch?v=t_Il-rL5TiI
Math107 6 days ago
@Gendarme Thanks for the link, Gendarme.
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