Will U.S. expats, accidentals finally make progress in 2023, with their anti-CBT fight?
A little over one month into the new year, a global challenge to the United States' citizenship-based tax regime is emerging on several fronts, as awareness continues to grow of the tax regime's major role in the many problems U.S. expats and so-called accidental Americans continue to struggle with.
Whether it is likely to be enough to bring about change, however, remains to be seen, according to some observers involved in the years-long battle.
This, they say, is because the changes in Washington lawmakers' attitudes to the alternative to CBT – usually known as residence-based taxation, or RBT – that are necessary, if the needed changes are to be introduced, remain daunting.
On a certain level this is, of course, surprising, given that the U.S. regime of citizenship-based taxation is all but unique in the world; and because it dates back to the early months of the U.S. Civil War (1861), when it was introduced to ensure that the country's wealthiest people weren't able to avoid their obligations during a time of crisis.
(After the war ended, the U.S. kept its tax regime based on place of birth, while other countries evolved in the direction of basing tax obligations on the basis of where they live ("residence"), and, it's assumed, benefit from the services that their tax monies pay for.)
Famously, the only other country besides the U.S. that has anything resembling a citizenship-based tax in force these days is Eritrea.
Two other compelling arguments in favor of a move to RBT include the widely-acknowledged unfairness of expecting people who are only considered to be American because they were born there, or were born abroad to an American parent; and the sheer numbers of expats that are continuing to renounce their citizenships every year – which wasn't the case until FATCA, the law that made being an expatriate American difficult and costly, was signed into law in 2010.
Pro-RBT demo planned for DC
Among the elements of what now seems likely to be a wave of anti-CBT action in 2023 is a protest planned for June 15 in Washington, DC, which was recently announced by the Democrats Abroad Taxation Task Force. As reported, some observers have suggested that related events take place in front of U.S. embassies and consulates elsewhere on the same day, to reinforce the message.
The Paris-based Association of Accidental Americans, meanwhile – which has launched and seen through a number of legal cases in Europe and the U.S. against various aspects of the way the U.S. taxes "U.S. persons" abroad – has launched what it's calling a "call to action to fight citizenship-based taxation," which has three parts: an anti-CBT petition on the Change.org website that the organization's U.S.-born founder and president, Fabien Lehagre, posted about a week ago, and which he is now urging other accidentals and expats to sign; and, accessible through the petition page, a GoFundMe page that's collecting donations to fund a "parallel lobbying and public relations" campaign against CBT, and a link to a 51-minute YouTube video about a planned legal challenge to CBT, which was posted six months ago by U.S.-based tax lawyer Anthony Parent, of IRS Medic/ Parent & Parent LLC.
The headline of this YouTube video says "The FBAR is illegal. Seeking victims of the IRS's Citizenship-Based Tax Regime ready to sue [the] U.S."
Below are among some of the other recent developments in an already-established anti-CBT network of entities and ongoing activities, which, just in the past three years, has seen:
* The launch in 2020 of Stop Extra-territorial American Taxation (SEAT) – an international, non-profit organization that was founded by a group of individuals who were already (and still are) well known in the American expatriate community for their outspokeness on tax issues Americans living overseas;
* The launch of the Residence-Based Taxation Coalition (RBT Coalition) – another international, non-profit group founded in 2021, which currently has 15 member entities, according to its website (as it did in October 2021, when the Democrats Abroad joined), and which appears not to have done anything since then;
* The publication last April, of the ACA/DEG Analysis of Revenue Effects of Residence-Based Taxation, a major study that it the American Citizens Abroad said had been prepared over the preceding 10 months for its sister organization, the American Citizens Abroad Global Foundation (ACAGF) by District Economics Group, a non-partisan economic consulting firm that carried out an earlier piece of research for ACAGF in 2017/2018 on the same general subject; ACA continues to campaign for its version of RBT, and urges its members to do the same (some other expat RBT campaigners take issue with certain elements of the ACA version of RBT).
* A survey of more than 400 U.S. expats, conducted in October and November of 2020 by the Paris-based Association of Americans Resident Overseas, revealed that 90% were in favor of a the U.S. moving to a residence-based tax system. The percentage rose to 99% when only the preferences of those whose only source of income was from outside of the U.S., but fell to 71% among those whose entire income originated in the U.S.
Currently in the works, meanwhile, are three articles on various aspects of RBT and extraterritorial taxation by Laura Snyder, a long-time American expat who lives in Paris and whose various roles include being the president of SEAT, mentioned above; a member of the board of the Association of Americans Resident Overseas, a Paris-based U.S. expat advocacy group; and a former international representative on the Taxpayer Advocacy Panel (TAP, a federal advisory committee to the IRS).
Dr. Snyder says she decided to write the three articles she's currently working on and hoping to get published later this year "because the U.S. extraterritorial tax system is unconstitutional and needs to be challenged in court.
"It is my hope that they will be useful for this purpose.
"They were originally writen as a single, very long article, and might have been published as a book, but I thought that law review articles had a greater potential for impact," she added.
The first one to be published, in the Southern Illinois University Law Journal, probably before summer, will look at "the unacknowledged realities of extraterritorial taxation," while the second will consider whether "extraterritorial taxation can be rationalized" and the third will examine "the myths and truths of extraterritorial taxation."
Realization that 'FATCA's
not the problem: CBT is'
When the Foreign Account Tax Compliance Act was first signed into law in 2010, and Americans living overseas began to feel its impact, usually when their banks or financial services providers informed them that they needed a Social Security number if they were to remain clients – or else told them that because they were American, they'd have to move their accounts elsewhere – the initial backlash took the form of anti-FATCA campaigns.
Legal challenges were brought in Canada and the United States against the law, which had been signed by President Obama in response to growing concerns about tax evasion by Homeland (rather than expat) Americans, and in 2016, FATCA opponents in Israel managed to get a temporary injunction against the law, although it eventually was allowed to prevail.
Gradually the anti-FATCA campaigners began to shift their focus to the United States' citizenship-based tax regime, possibly helped by the fact, as was and continues to be cited, that citizens of countries that have residence-based tax systems don't seem to have any problems as a result of a global version of FATCA that the Organisation for Economic Cooperation and Development introduced in around 2016, known as the Common Reporting Standard.
Like FATCA, the CRS obliges banks and foreign financial institutions located in the more than 100 countries and jurisdictions that have signed up to it to "automatically exchange" the account information of individuals who are citizens of these other countries. However, because these countries don't consider their overseas citizens to be taxpayers if they're resident abroad, the scale of information being reported is less, and these non-American expats aren't burdened, the way American expats are, with annual tax- and bank account-reporting obligations.
"The thing is...FATCA by itself is NOT the problem," Ross McGill (pictured left), chairman of TConsult Ltd., a UK-based regulatory compliance firm and author of nine books on cross-border taxation, explained in an article published by the AXFNJ last year.
Instead, he wrote, CBT is.
"FATCA is simply the tool that enabled the U.S. government to, for the first time, enforce tax and anti-money-laundering laws that had been on the books for years.
"Nor was FATCA ever aimed at expatriate Americans, but rather, it was conceived to end the use by stateside Americans of overseas institutions to hide their wealth."
McGill goes on to describe FATCA as "a sledgehammer being used to crack a nut – and, as has been pointed out recently by various commentators, it’s a sledgehammer that’s not actually working at achieving what it was intended to."
McGill ends his piece by noting that "the case for the U.S. to move to a permanent, residence-based tax system...seems obvious.
"Once it does, it could then join the global OECD framework, and make life a lot easier for non-U.S. banks, which could then forget about FATCA, as there would be just one regulation to comply with.
The U.S. would still get the data it required to detect tax evasion on the part of U.S.-resident Americans and other U.S. resident individuals; expat Americans would no longer have to file annual income tax forms (although they would still have to file FBARs); and accidental Americans could at last drop out of the U.S. reporting system altogether.
"Expats and accidentals, meanwhile, would both find banking, investing, obtaining mortgages and so on far less problematic.
"I still say that I don’t regard it as unreasonable for governments to seek to keep track of wealth that their citizens may seek to hide, through whichever means, in order not to pay tax on it. Taxes are what pay for the things that make a country function, after all, and it’s not fair for those who have benefited disproportionately to seek to keep even more for themselves than they already have.
But in order for this to work properly, as we have seen, the U.S. has to replace its citizenship-based tax regime with one that is based on residency.
And the challenge, as I see it from this side of the pond, remains that of getting U.S. lawmakers to acknowledge this, and to move to fix it."
- Ross McGill: ‘FATCA isn’t the problem: CBT is’
- Dems Abroad, to House subcommittee hearing: 'substantial adjustments needed' to FBAR regs
- Lehagre's AAA: 'Call to action to fight citizenship-based taxation'
- Dems Abroad Taxation Task Force planning pro-RBT demo in DC on...Expat Tax Day!
- U.S. gov't announces intent to slash citizenship renunciation fee by four-fifths, ahead of Monday hearing