This is an excellent and thought provoking article.
I would like to comment on your discussion of the renunciations of U.S. citizenship and how it relates to FATCA and uniquely American practice of imposing taxation on the WORLD income of U.S. citizens who live outside the United States.
This is indeed causing renunciations of U.S. citizenship (as it should). Americans abroad are subject to the Internal Revenue Code in its entirety. Broadly speaking the Internal Revenue Code has four characteristics:
- It is hostile to anything “foreign”. Now an American who moves to another country is in a “foreign country”.
- It is hostile to all forms of “tax deferral” that are not specifically sanctioned by the Internal Revenue Code. Financial and retirement planning (in I think all countries) is based on the principle of “tax deferral”. Because Americans abroad are subject to the Internal Revenue Code, they cannot get the benefits of “tax deferral” in their country of residence. Financial and retirement planning becomes very difficult. In some countries Americans cannot even participate in “pension plans” without punitive U.S. taxation.
- It is hostile to “leakage” — the U.S. does NOT want money being able to escape U.S. taxation. As a general principle U.S. citizens married to U.S. citizens can make unlimited spousal transfers. Not so if the U.S. citizen is married to a non-U.S. citizen.This burdens marriages between U.S. citizens and non-citizens (and makes divorce more expensive and complicated).
- The Internal Revenue Code requires massive information reporting to the U.S. government on all financial assets and bank accounts that are “foreign to the U.S.”. As a result Americans abroad are subject to a reporting regime that does NOT apply to Homeland Americans and is very expensive to comply with.
The bottom line is this:
It is no longer possible to live as a “U.S. tax compliant” American outside the United States (unless you maintain a very simple life).
A couple of concluding comments (anticipating pushback here):
- the foreign earned income exclusion and foreign tax credit rules may mitigate double taxation but usually do NOT eliminate it; and
- U.S. tax treaties have a “savings clause” that actually works to guarantee the principle of double taxation and NOT avoid double taxation.
On July 4, 2017 Homeland Americans celebrated their freedom and independence.
On July 4, 2017 I met with 7 different American citizens living outside the United States who were in various stages of renouncing their U.S. citizenship. The reason the were renouncing U.S. citizenship was to achieve the same freedom and independence that Homeland Americans assume to be their birthright!
Thanks again for a great article.
John Richardson
Toronto, Canada
