A panel of tax and business experts who have been lobbying for years to end the U.S.’s citizenship-based tax regime has said they believe planned legislation – specifically aimed at addressing some of the worst of the problems such expats have been struggling with – actually stands a chance of being passed.
“We will get there – it’s [just] a matter of timing,” panel member Solomon Yue, the Oregon-based chief executive of the Republicans Overseas, said, during an hour-long discussion that took place on 17 August in Toronto.
“I think we have a very, very good chance [of getting there] this year.”
The panel discussion in which Yue made these and other comments has been posted on YouTube as well as such other websites as that of the Alliance for the Defeat of Citizenship Based Taxation.
The discussion followed two similar panel discussions on the same topic which were held earlier the same week, also in Toronto. These were open to the public, and sponsored by the Toronto chapter of the Toronto chapter of the American Chamber of Commerce.
A key point that emerged from the videotaped discussion is that the U.S. tax regulations affecting American expats have become so impossible for growing numbers of individuals to comply with that many feel they have no choice but to renounce their citizenships, if they are to be able to have anything approaching a normal life abroad.
The difficulties for such expats began sometime after 2001, as new anti-terrorism legislation was introduced, but began to become significant in the wake of the signing, into law, of the Foreign Account Tax Compliance Act in 2010.
Donald Trump’s Tax Cuts & Jobs Act – which took effect on January 1 of this year and which contained some significant retroactive taxes on some expats’ investment assets contained in their stakes in overseas businesses – prompted an immediate and sustained outcry by many, who say it will rob them of their retirement savings and force them to renounce their citizenships.
In June, just before the first instalment of this new “transition tax” for many expats was due, a year’s extension was granted, and there is an option to pay the one-off tax in eight annual instalments rather than all at once; but campaigners for U.S. expat groups say this is nowhere near enough.
‘Little-known details’ about planned bill
During his time in Toronto, Yue, who has been one of the most visible campaigners in recent years in favour of what the Republicans Overseas call “territorial-based taxation for individuals," or TTFI, provided some thus-far-little-known details about a bill expected to be published in September by North Carolina House Representative George Holding.
Holding has previously expressed his concern about the problems expatriate Americans face as a result of the way the citizenship-based regime affects them, and his interest in seeing this changed.
The term “territorial-based taxation for individuals” represents its proponents’ intention of linking it in concept to a recent move by the U.S. government to move to a more territorial system of taxing its companies, in an effort to make them more competitive overseas, by no longer taxing income earned by their overseas operations when it is repatriated to the U.S. A one-time 15.5% repatriation “provision” (tax) was created to address what U.S. lawmakers said was a substantial amount of untaxed earnings and profits that these U.S. companies were sitting on offshore.
The problem for expat individuals with stakes in overseas “companies” – typically small family-owned businesses, some consisting of a single person working out of their home – is that the transition tax designed to help major U.S. corporations to “adjust” to the new territorial system of taxation, is crippling when applied to individuals, as, under the Trump tax reform bill, it is.
Importantly, Yue and his fellow panelists noted, Holding’s legislation would allow those who would prefer to continue to be taxed under the current citizenship basis to do so, but would give others the choice to opt out, and choose what for them would be the less-burdensome TTFI regime.
The legislation Yue is referring to has not yet been published and few details have thus far been revealed, except to the extent they’ve been shared by him and others who have been advising on it, and monitoring its progress. (See George Holding’s bill: What we know so far. )
However, Yue told his fellow panellists in Toronto that the so-called Joint Committee on Taxation, a bipartisan Congressional entity, is in the process right now of “scoring” Holding’s legislation, an expression that refers to the final stages of preparing such legislation.
“That really is a big deal,” he added. “Last year we couldn’t get them to score” similar legislation that had been proposed, because the rush to push the Trump tax amendment legislation through moved so quickly.
“This time [though] we started early, in December of last year.
“[As a result] we got most of what we want in that bill. that is the exciting part of it.”
Lawyer, businessman, tax expert
Also participating in the panel discussion about the U.S. citizenship-based tax regime, and efforts to end it, were John Richardson, a Toronto-based tax lawyer with dual Canadian and American citizenship, who specialises in U.S. expat issues, and who moderated the discussion; Jim Gosart, an American who recently returned to the States after decades running businesses in Hong Kong and mainland China, which he followed up by a six-year period during which he ran his own Hong Kong-based consulting firm; and Olivier Wagner, a France-born, naturalised American accountant now living in Toronto, who founded a company specialising in helping American expats with their taxes called 1040 Abroad.
In 2017 Wagner published a book for American expats on tax, called U.S. Taxes for Worldly Americans, which is sub-titled “the travelling expat’s guide to living, working and staying tax-compliant abroad”.
Warning to Congress
Gosart, the former overseas corporate executive with more than three decades of experience in Asia, told his fellow panellists that “with this kind of a tax regime, I certainly today would not go and spend my time investing and starting a company [overseas], the way I did six years ago.”
And this, he went on, “is not what the [U.S.] government should want” its entrepreneurial expats to be thinking.
“Our tax laws should be aligned in a way where Americans are encouraged to get out there and start a business [overseas]. Encouraged to get out there, be entrepreneurial.
“U.S. Commerce Department statistics show that for every billion dollars’ worth of business that [American companies] do abroad, it translates into something like 5,000 jobs somewhere in the U.S.
“Isn’t that the kind of thing we want to encourage?”
For fellow panel-member Richardson, the need to change the way American expats are taxed could not be more urgent.
“Having talked to so many people who have been affected by all of this, my view is that compliance with the current tax rules is basically impossible,” he said.
“And even leaving aside the practical workability, there’s the fact that individuals who are affected by this pay a higher rate of transition tax than Apple, [one of the multi-nationals that territorial taxation was designed to address]. And, to really add insult to injury, individuals [affected by this tax] don’t even get the benefits of territoriality [that corporations like Apple do].
“The only possible conclusion is that America hates its individual citizens to do business abroad. It’s the only rational conclusion.
“In fact, I think the name of this legislation should be ‘Saving Citizenship’ because, for American expats, that what it would do.”
To view the discussion on YouTube, click here.
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- AARO Expat Survey: 90% of respondents support ending U.S. citizenship-based tax regime
- OPINION: The SEAT approach to residence-based taxation: 'Begin with the end in mind'
- BBC World Service takes a 4th of July look at U.S. 'taxation' and 'representation' of its expats
- Now on YouTube: ACA's online presentation: 'Congress can pass RBT. Here's how'