Introduction: As Goes Tax Reform For US Multinationals, So Escalates The Harm To Individual Americans Abroad

In the 18th century people were "guilty". In the 21st century people are #GILTI. pic.twitter.com/ItGBwKStFw

— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) April 14, 2021

The Problem: The proposed changes in International Tax (mostly in relation to corporations) will affect numerically more individuals than corporations. The effects on Americans abroad, who run small businesses outside the United States, will be absolutely devastating.

Two Solutions: Suggestions for how to protect individuals (including Americans abroad) would be to make changes to the Subpart F regime – GILTI, etc. There are at least two ways this change can be achieved:

1. To NOT apply Subpart F to INDIVIDUALS who are shareholders of CFCs.

2. If Subpart F is to apply to individual shareholders of CFCs, it should NOT apply to those individual Americans abroad who meet the residence requirements to use the S. 911 Foreign Earned Income Exclusion. (I.e. people who are almost certainly tax residents of other countries.)

March 25, 2021 – The Senate Finance Committee Held A Hearing Described As:

“How U.S. International Tax Policy Impacts American Workers, Jobs, and Investment”

(A video of the Senate Finance hearing – which didn’t even mention individuals – is here.

Any discussion of tax reform for corporations will affect Americans abroad.

Think of it this way: every individual American abroad is treated as though he/she were a mini-multinational.

Much of the focus of the hearing was on the GILTI provisions found in IRC 951A. A particularly good discussion of the proposed changes to GILT may be read here.

The hearing was about US taxation of corporations doing business outside the United States. At face value one can say that the proposals are:

1. To increase the US corporate tax rate generally (28%); and

2. To double the tax rate on GILTI;

3. To end the exclusion from GILTI the first 10& return on income from fixed assets.

Any of these proposals would – for different reasons – be very damaging to individual Americans abroad. The increase in the US corporate rate to 28% would mean that the “high tax GILTI kickout” rate would increase from 18.9% to to 25.2%. In other words, raising the corporate rate would mean that income currently excluded from the definition of GILTI income, would now be included as GILTI income. It is likely that doubling the tax rate on GILTI income would result from doubling the amount of income subject to the GILTI tax. Finally, it is obvious that ending the 10% return on fixed assets exemption from GILTI, will increase US taxable income for all CFCs. Each of these proposals will independently have a very bad tax and compliance result for Americans abroad.

For Further Explanation Of How These Proposals To Increase GILTI and/or the Corporate Tax Rate Will Be Devastating For Individuals (including Americans Abroad):

First, the podcast:

What's bad for corporations is worse for those #GILTI #expats: The Senate Finance Committee holds hearings affecting Mini-MultiNationals AKA #AmericansAbroad https://t.co/S1snhHvSQu

— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) April 14, 2021

Second, the written post.

Third, SEAT (“Stop Extraterritorial American Taxation”) Submission To the Senate Finance Committee

SEAT prepared the following comprehensive submission to the Senate Finance Committee

http://seatnow.org/wp-content/uploads/2021/03/SenateFinance2021-SEAT-submission.pdf