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Stop Imposing Taxation On Residents Of Other Countries



Some of you may be interested in the “short letter” that I sent by regular mail to the “powers to be” in Washington who are working on “Tax Reform”.

A “Town Hall” interview with Speaker Ryan suggests that Tax Reform is going to happen. The question is whether individuals will also be considered. In January of 2017 Republicans Overseas proposed “territorial taxation” for individuals. This week the Republican National Committee adopted a resolution from Republicans Overseas urging that “territorial taxation” for individuals be adopted.

Both U.S. corporations and U.S. citizens are “U.S. persons”. If the United States moves to “territorial taxation” for corporations then “territorial taxation” for individuals should follow.

The United States would be will advised to stop imposing U.S. taxation on the tax paying residents of other countries.

What follows is my “short letter”. A PDF copy of the letter is here:


Re Tax Reform 2017

Recommendation: The United States must stop imposing U.S. taxation on the citizens and residents of other countries. After all, other countries do NOT impose taxation on U.S. residents.

I am a lawyer based in Toronto, Canada who assists individuals living outside the United States in surviving the effects of U.S. extra-territorial tax policies. I emphasize that I work with “individual people” who live in and pay taxes to countries outside the United States.

Yes it’s true. The Internal Revenue Code imposes U.S. taxation on certain people (as though they were U.S. residents) who live in other countries and who pay taxes to those other countries (where they live).

Q. Why is the United States imposing full taxation, according to U.S. tax rules, on the worldwide income of certain people who live in other countries?

A. Because those people were born in the United States and/or because of the “circumstances of their birth” are U.S. citizens.

The United States is the only advanced country in the world that deems “citizens” to be “tax residents” even though these “citizens” do NOT live in the United States.

What the United States calls “citizenship-based taxation” is actually a system where the United States imposes the Internal Revenue Code (both the tax and reporting requirements) on certain people who live in other countries.

The GENERAL effects of imposing taxation on the citizens of other countries:

It creates unnecessary and complicated work for the Internal Revenue Service. Why should the Internal Revenue Service (which is grossly overworked and understaffed) be forced to allocate its resources to implementing  U.S. tax rules (which are uncertain in their application) on the residents of other countries?

It means that provisions of the Internal Revenue Code that might be reasonable when applied to U.S. residents are being applied unfairly to the residents of other countries who are ALSO subject to the tax systems of other countries. (See Subchapter N of the Internal Revenue Code – “Tax Based on Income From Sources Within or Without the United States” (with particular reference to sources “Without the United States”).

It creates a situation where the United States uses the Internal Revenue Code to transfer “after tax paid” capital from other countries to the United States. (An example would include imposing capital gains taxes on the sale of the principal residence owned by Canada U.S. dual citizen living in Canada.)

Some SPECIFIC effects of imposing U.S. taxation on U.S. citizens living abroad who are subject to the tax systems of both the United States and the tax system of their country of residence:

It subjects this unfortunate group of people to the possibility and reality of “double taxation” (which is NOT fully mitigated) by the “foreign tax credit“ rules.

Those unfortunate individuals are denied the opportunities to plan rationally for their retirement and invest for their futures. Most financial planning is based on the use of retirement planning vehicles that are subject to punitive taxation by the United States.  The imposition of U.S. tax rules on them makes it virtually impossible for them to participate in retirement planning that operates on the principle of tax deferral (virtually all retirement planning options).

The detrimental “long term effect” on the United States of imposing taxation on the residents of other countries:

Since 2014, the United States has been enforcing the policy of “citizenship-based taxation” through FATCA. It is (and understandably so) creating a hatred of the United States on the part of residents of other countries.

It is causing Americans who live outside the United States to renounce their U.S. citizenship. The numbers of those renouncing U.S. citizenship continue to grow at a fast rate.

In the past Americans who have moved from the United States have been “Ambassadors” of American values. Their attitude to America has been instrumental in shaping the world’s attitude toward America. The result of U.S. tax policies (which are now being aggressively enforced on Americans abroad) is that Americans abroad are now the fastest growing and most articulate voices of  “anti-Americanism”.  It would be a great mistake for the United States to BOTH (1) destroy the community of American ambassadors and (2) fan the flames of “anti-Americanism”.

Individual people are “U.S. Persons” too!

The detrimental effects of “worldwide taxation” are now being considered in relation to U.S. corporations (who are considered to be “U.S. persons”). I urge you to consider the problem of “U.S. extra-territorial taxation” and the detrimental effects of  “worldwide taxation” in relation to individuals –  DNA “U.S. Persons” – as well.

As I conclude this “short letter”, I am reminded that George Bernard Shaw once apologized for having written a “long letter” (saying he hadn’t had time to write a “short letter”). If you find my eight points of interest and value, then I invite you to read the “longer letter” (detailing the carnage) which may be found generally at:

http://www.box.com/citizenshiptaxation

and for 192 pages of comments from Americans abroad detailing specific carnage

https://app.box.com/v/citizenshiptaxation/file/28745871102

Conclusion

I wish you the best in your deliberations! As the tax historian Charles W. Adams has noted: The rise and fall of civilizations has often been a function of their tax policies.”

Stop imposing U.S. taxation on the residents of other countries!

Please!! I sincerely hope that you see the wisdom of making the need for my professional services obsolete.

Contact John Richardson

The Reality of U.S. Citizenship Abroad

My name is John Richardson. I am a dual citizen. I am a lawyer – member of the Bar of Ontario. This means that, any counselling session you have with me will be governed by the rules of “lawyer client” privilege. This means that:

“What’s said in my office, stays in my office.”

I am also a member of the American Citizens Abroad Professional Tax Advisory Council (PTAC). This is an advisory panel focused on assisting American Citizens Abroad in an FBAR and FATCA world.

The U.S. imposes complex rules and life restrictions on its citizens wherever they live. These restrictions are becoming more and more difficult for those U.S. citizens who choose to live outside the United States.

FATCA is the mechanism to enforce those “complex rules and life restrictions” on Americans abroad. As a result, many U.S. citizens abroad are renouncing their U.S. citizenship. Although this is very sad. It is also the reality.

12 comments

  1. Janell meccage says:

    Thanks for the short and long letter. I can think of a few other issues caused by USA.

  2. John says:

    Thank you John.

    I gave up my U.S. citizenship in 2013, not because I am a tax cheater but because it is impossible to live under two regimes. What one hand gives you, the other takes away.

    Taxing us who are permanently abroad is morally wrong. One hundred percent of my income is foreign as are my investments and every government service I receive.

    My feelings and the feelings of all who have lived through this situation and fight tooth and nail against it, sometimes with each other, is nearly identical to Americal colonists who went to war for their independence. My independence is not in forming a new country but in living freely in the country of my choice.But I can’t.

    Congress, please stop the bleeding of citizens from the fold, please do what’s right for freedom.

  3. User says:

    Short version of my usual comment about how this is only a problem for those who choose to comply. If you can, stay off the radar. Lie to your bank to beat FATCA and never enter the US tax system.

  4. JB says:

    If the US Government is turning energy of patriotism into anti-Americanism, then there something seriously wrong with the US Government.

    I lived overseas 19 years, and I can confirm citizenship based taxation (CBT) and FATCA make me very angry. They make more angry than anything else in my life. When people support these laws, you support discrimination against me and my family. I will fight for my family.

    My daughter who wasn’t even born in the USA and has the unfortunate event of being claimed as a US citizen, will be discriminated against while her peers are free to prosper.

    She’ll have to give up her privacy rights under FATCA, she’ll have banks refuse her thanks to FATCA, she’ll have jobs refused to her thanks to FATCA and CBT, she’ll have to pay tax twice thanks to CBT, she can’t start a business easily or make it thrive thanks to FATCA and CBT.

    Why should my daughter much less myself have this burden simply because we are Americans?

    I’ve helped hundreds of people go on vacation in the USA, I’ve helped people immigrate to the USA, I’ve helped establish business connections with the USA, all for free. Never again.

    My thank you from the USA is to be threatened, burdened and have opportunity lost. I already pay 43% out of my paycheck and 19% sales tax, yet the supporters of CBT and FATCA want more.

    I can tell you this, history repeats itself. The anger that those people felt during the Boston Tea party is alive and well in US citizens abroad. We are the true American patriots, while those living in the USA that support CBT and FATCA are just like England. We all know how that ended.

  5. Semesiente says:

    CBT is destroying families. Destroying middle class and lower middle class families trying to live their lives as normal people in other countries, where they file their taxes and pay them if they must do it.

    For many, just the cost of hiring international tax lawyers and accountants implies a good portion of their income. We have to choose between hiring an accountant or providing education to our sons.

  6. @user

    Thanks for your comment which includes:

    “Short version of my usual comment about how this is only a problem for those who choose to comply.”

    You are focused ONLY on the individual “potential” taxpayers.

    Part of my point is that this is a problem for ALL countries in the world. Under the guise of “citizenship-based taxation” the USA is claiming the right to transfer the “after tax paid capital” of other countries to the USA (presumably for better use).

    In other words, by imposing taxation on the residents of other countries, the USA is stealing from those countries.

  7. @Semesiente

    Homeland Americans and members of the tax community generally do not understand that CBT is destroying families. Your comment is so true on so many levels.

    Assuming the destruction of families includes divorce, it’s also true that a divorce between a “U.S. citizen” and an “alien” is likely to be much more expensive. This is in part due to the tax implications of transferring property to non-citizens.

    I was once on a panel where this question came up. A CPA estimated that it was about three times for expensive for a U.S. citizen in Canada (married to a pure Canadian) to get a divorce.

    Re: your comment about the cost of hiring professional help. It is a big big problem. Many “tax professionals” are urging Americans abroad to “come into compliance” and “file those U.S. tax returns”. For many people, filing U.S. tax returns is the first step to renunciation of U.S. citizenship. They just don’t know it at the time. In the long run compliance is very difficult.

  8. @JB

    Great comment. This situation cannot be sustained in the long run. With respect your point about paying taxes to your country of residence:

    “I already pay 43% out of my paycheck and 19% sales tax, yet the supporters of CBT and FATCA want more.”

    They don’t actually want more. To the extent that Homeland American realize that you actually do taxes to your country of residence, they often think that these taxes are mitigated by foreign tax credits and the foreign earned income exclusion. Of course the elimination of U.S. taxes is NOT (in many cases) complete and there is tremendous potential for double taxation.

  9. @John you write:

    “My feelings and the feelings of all who have lived through this situation and fight tooth and nail against it, sometimes with each other, is nearly identical to Americal colonists who went to war for their independence. My independence is not in forming a new country but in living freely in the country of my choice.But I can’t.”

    You are absolutely correct. U.S. citizens who leave the USA are required to live in exactly the same way as a Homelander American.

    Your comments reminds me of an earlier article at Tax Connections:

    https://www.taxconnections.com/taxblog/how-to-live-outside-the-united-states-in-an-fbar-and-fatca-world/#.WbLYYoopCgQ

  10. @Janell

    The good news is that tax reform is taking place. It’s important to make your views known to those who can influence the debate. At the very least it’s important to educate enough people so that the USA understands that. it is imposing taxes on the residents of other countries.

  11. GhostOfWK says:

    As an ‘accidental American’ (Canadian parents going to school in USA thought it was a bonus they birthed me there..hahaha), I don’t consider myself to be ‘American’. Yet, paradoxically, USA treats me like some sort of tax cheat for leaving in my nappies, never to return again.

    People like myself are classic examples of why ‘CITIZENship based taxation’ doesn’t make sense, to put it mildly.

    What is a CITIZEN? What should it mean to be a CITIZEN?

    To be a US CITIZEN can mean nothing more than one was born on US soil. It means people who think of USA as a foreign country are US CITIZENS. USA may as well have GREENEYED based taxation – it makes as much sense. If the US must insist on ‘citizenship based taxation’ then perhaps a redefinition of the term CITIZEN is in order.

  12. @GhostOfWK

    Thanks for your comment.

    Regardless of the definition of “citizenship”, it seems to me that that the USA should NOT be imposing U.S. taxation on the residents of other countries.

    That said, U.S. “citizenship taxation” is particularly outrageous in the situation you describe. In fact, it would be comical if it weren’t causing so much grief and despair in people’s lives.

    It’s almost as though any person who was “Born In The USA” is a “tax cheat by birth”.

    In any event, you are correct that a big part of the problem is “citizenship” and the fact that U.S. citizenship is so easy to obtain and so hard (and expensive) to get rid of.

    U.S. citizenship, although defined in the Immigration and Nationality Act, follows from the 14th amendment to the U.S. Constitution which includes:

    “Section 1. All persons born or naturalized in the United States, and subject to the jurisdiction thereof, are citizens of the United States and of the State wherein they reside.”

    This has been interpreted to mean that the mere fact of a U.S. birthplace makes you a U.S. citizen. The language “and subject to the jurisdiction thereof” is understood by some to mean that mere birth on U.S. soil is insufficient to automatically confer citizenship.

    The problem is that both citizenship and taxation have evolved over the last 100 years of so. The evolution has been that:

    – citizenship has become easier to get and harder to lose; and

    – taxation has gotten far more punitive and complex.

    These points remind of the following earlier articles at TaxConnections.com

    https://www.taxconnections.com/taxblog/cook-v-tait-1924-the-evolution-of-citizenship-taxation-and-citizenship-taxation-part-1-john-richardson/#.WbQ-g4opA_U

    https://www.taxconnections.com/taxblog/cook-v-tait-1924-the-evolution-of-citizenship-taxation-and-citizenship-taxation-part-2-john-richardson/#.WbRANIopA_U

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