The unified message from all should be that: The United States should stop imposing “worldwide taxation” on people who have “tax residency” in other countries and do NOT live in the United States! This is a message that all advocates of tax reform can support. As recently explained in a post from American Citizens Abroad (ACA) the mechanism (RBT vs TTFI) used to achieve this change is less important.
It is no secret that Congressman George Holding is working on a proposal to end the U.S. practice of imposing “worldwide taxation” on those who have “tax residency” in other countries. If successful, this would be a positive change for the United States, U.S. citizens who choose to live outside the United States and the residents including accidental Americans. None of these should be burdened by the extra-territorial application of U.S. tax laws!
The specific content of the Holding proposal is certainly evolving. Regardless of the final content, Karen Alpert, Greg Swanson and I have proposed three core principles against which a final proposal should be measured. (We are not suggesting that these are the only principles.) These principles are found in Karen’s timely post where she discusses a Residence Based Taxation Proposal.
It is one thing for a country to restrict certain opportunities to citizens of that country. For example, many countries restrict voting and certain employment opportunities to citizens. But, most countries do not discriminate among various groups of “non-citizens”. Significantly, U.S. law has created huge incentives for Americans to be discriminated against as both matters of law and matters of practice.
Discrimination Against Americans Prescribed By Law – Think FATCA:
Pursuant to FATCA and the FATCA IGAs imposed on the world, many countries have changed their laws to specifically discriminate against U.S. citizens in the area of financial services generally and banking in particular. It is well- known and documented that U.S. citizenship is now a reason for the denial of “banking privileges”.
Discrimination against Americans because of the dangers of business involvement with Americans – In the last year I have helped several Canadians renounce U.S. citizenship so that they were free to participate in various Canadian business opportunities.
The simple FATCA of the matter is that many who understand that U.S. citizens are ruled by the Internal Revenue Code, will not allow U.S. citizens to become shareholders of smaller businesses.
It’s quite simple really: Sorry, but we cannot have you as a shareholder in our business if you are a U.S. citizen. Therefore, if you want to participate in this business opportunity you cannot be a U.S. citizen! Those who will not allow U.S. citizens to become shareholders in their companies are absolutely right to do so.
By way of example, consider the new U.S. Transition Tax.
The whole point of the Sec.965 U.S. Transition Tax is to confiscate part of the retained earnings of Non-U.S. companies!
(Yes, you read correctly!)
In a general sense, the “confiscation” reflects the percentage of U.S. ownership. For instance, when the greater the percentage of U.S. ownership of the company, the greater the confiscation; and the less the percentage of U.S. ownership, the less confiscation.
If ZERO U.S. ownership then ZERO confiscation!
(See the letter from ACA to U.S. Treasury which outlines “some” of the problems and realities of the “U.S. Transition Tax” that was part of the 2017 U.S. Tax Cuts And Jobs Act )
If you were running a small business outside the United States, would you want a situation where the citizenship of some of your shareholders, could be used as an excuse to confiscate the retained earnings of the company?
The point is a simple one.
The way that the United States imposes taxes on residents of other countries, necessitates that “informed people” limit their interaction with Americans. Sad but true.
Because of the “U.S. Internal Revenue Code”, Americans are just not like citizens of the rest of the world. Best to stay away from them is the message to taxpayers.
Conclusion: The current “U.S. system of imposing “Worldwide Taxation” on those who have “tax residency” in other countries means that Americans will be discriminated against. It is a fact. The discrimination is caused by the Internal Revenue Code of the United States!