updated 2:11 PM CET, Oct 31, 2023

Dems Abroad seeks expat American biz owners for GILTI push

Attention, American owners of non-U.S. small businesses that are being "badly impacted by the 2017 Tax Cuts and Jobs Act's so-called GILTI tax: The Democrats Abroad want you... Or, well, they might...

Specifically, the Dems Abroad is looking for expat small-business owners to join its Congressional lobbying efforts, as it seeks to force lawmakers to address the concerns of such individuals, it said this week, in an emailed message to DA members.

As reported, the overseas arm of the Democratic Party conducted a global online survey earlier this year on the subject of GILTI, and how it has been affecting the businesses of American expats who own their own small businesses outside of the U.S.

The results, which DA has now posted online and which it's begun sharing with members of Congress as well, reveal, the organizations says, "the extent to which the GILTI tax is disrupting and destabilizing the small- to medium-sized businesses of Americans abroad – businesses that were never the target of this tax." 

Among its findings is that, of the 147 small business owners who participated in the survey, almost half, or 48%, have just one employee (presumably themselves), and 71% ave no more than five. More than half said they hailed from one of just five states: New York California, Pennsylvania, Florida and Massachusetts.

The GILTI tax, along with tax compliance issues in general, are "putting intolerable pressure" on these small businesses, and their owners, the report states, with 45% of respondents saying that their businesses are paying tax at a rate of more than 21%.  This compares with an average for U.S. small businesses of 19.8%.

Perhaps the most revealing part of the survey are the comments of the various respondents, such as an Ohio voter living in Canada, who said: "I worked hard to build up my consulting business over the last 20 years. I cannot sustain the cost of tax prep due to complexities and punitive nature of the tax code, so I will be forced to close my company shortly.”

In its email, the Democrats Abroad notes that although members of Congress "have our data" now, what's needed at this point is "to push them to act", and to do this, "they need to hear from you, whose businesses and livelihoods are being hurt.

"Time is of the essence."

American owners of small non-U.S. businesses who are interested in helping the Democrats Abroad with their campaign are urged to sign up to do so, by clicking a link on the Democrats Abroad's website (www.democratsabroad.org).

'Global intangible low-taxed income'

As this publication and others have been reporting for the past three years, the GILTI (global intangible low-taxed income) regs – along with such other new taxes also created by President Trump’s 2017 Tax Cuts and Jobs Act (TCJA) in 2017 as the Transition Tax – have created such major problems for small business owners that many have said that they would have no choice but to close their businesses, or have done so already, while others have been struggling to survive.

Monte Silver, an American tax attorney resident in Israel, whose law firm is considered to be a small business and therefore subject to these new regulations, argued from the beginning that these new taxes were legally flawed, and has filed two legal challenges against them in U.S. District Court in Washington, DC – the first in January 2019, against the so-called Transition Tax element of the TCJA, and the second, last year, against the GILTI provisions.

Both matters are still ongoing.

Under GILTI, each U.S. person (defined as a U.S. corporation or citizen) who is a U.S. shareholder of any "controlled foreign corporation" (CFC) must include their share of GILTI income in their personal U.S. tax return, where they calculate their “gross income” for the tax year.

In his GILTI challenge, Silver is arguing, among other things, that the regulations are "procedurally invalid" because in drafting them, the U.S. government failed to take into account their effects on small businesses before bringing them into force – which, Silver pointed out in his legal filing, it is required to do under something called the Regulatory Flexibility Act (RFA).