The Southern Illinois Univerisity Law Journal has just published an article by SEAT co-founder Laura Snyder.
The article is titled “The Unacknowledged Realities of Extraterritorial Taxation.”
The full article can be accessed at this link.
The article’s abstract:
The U.S. extraterritorial tax system has evolved such that today it is more consequential than one century ago. The system, conceived in the stigmatization of overseas Americans, consists of highly penalizing taxation and banking policies that make it difficult for overseas Americans to live normally. The IRS is also a victim: it is unable to administer the system.
Many have sought to educate policymakers and the public. Detailed survey reports have been issued, documenting how overseas Americans experience the system. Research articles have been published, exposing certain problems of the system and, in some cases, proposing solutions.
To date, such efforts have failed to effect change. This is for several reasons: the continued stigmatization of overseas Americans, the high complexity of the system and misunderstandings about it, and the lack of political influence.The academic press is replete with theories about why overseas Americans should be subject to worldwide taxation by the United States. For change to occur, it is important that the academic press looks beyond those theories to acknowledge the full import, complexities, and consequences of the system in place today.
Consult the full article here.
3 thoughts on “The Unacknowledged Realities of Extraterritorial Taxation”
A submission has been made to the IRS Systemic Advocacy Management System (ISSUE #66186) proposing that Citizen Based Taxation (CBT) and FATCA should be eliminated and replaced by the OECD Common Reporting Standard (CRS) as a more effective and efficient means of preventing tax evasion and money laundering. That submission has been approved as a legislative recommendation!
I am writing to ask for your active support to help bring this legislative recommendation to Congress as a bill and to help support its passage into law. Replacing Citizen Based Taxation (CBT) and FATCA with the OECD Common Reporting Standard offers a win-win solution; for the government, for the expat American community, for the American taxpayer, and for financial institutions both foreign and domestic. If drafted into a bill, presented to Congress, and passed into law, it would:
1. Provide the IRS with a more cost effective and efficient means of preventing money laundering and tax evasion
2. Alleviate the reporting and compliance burden on expat Americans and financial institutions
3. Potentially save the American taxpayer billions of dollars in additional IRS funding
4. Free Expat Americans to save and invest locally
1) Non resident (expat) American citizens pay high fees every year just to meet filing and reporting obligations. Often no US tax is owed.
2) FATCA reporting obligations for both foreign and domestic private financial institutions are costly to those businesses, and often lead to closing or freezing the accounts of non-resident American citizens.
3) For the U.S. citizen living abroad, saving and investing for retirement in a tax-efficient way is almost impossible.
• PFIC tax on ‘foreign’ (ie. non American) mutual funds limits local investment options for Expat Americans
• Foreign banks and financial institutions are closing or freezing the local accounts of US citizens who are resident in that country
• US banks and financial institutions are closing or freezing the US based investment accounts of American citizens who are not resident in the United States
4) FATCA is not only not working as intended to prevent tax evasion, it has so far produced a negative financial return in terms of cost effectiveness for the IRS (and for the US taxpayer)
5) An additional 80 Billion dollars of US taxpayer money has recently been allocated to the IRS for enforcement. It would make more sense to spend less and monitor only resident Americans who hold offshore accounts rather than monitor the local accounts of Americans living overseas
PROPOSED SOLUTION (Suggested by Ross McGill, Director of UK based TConsult Ltd.)
End Citizen Based Taxation and join with other OECD nations, under a single, reciprocal, umbrella CRS regime to coordinate efforts to focus on those who attempt to hide their income in financial institutions outside of the country in which they live
1) Without CBT, the U.S. could eliminate FATCA and join the OECD’s CRS regime, thereby still getting the data required to detect tax evasion on the part of U.S. resident Americans and other U.S. resident individuals
2) There would be just one regulation to comply with. The cost would be far less for the IRS to prevent tax evasion by resident Americans who benefit from the services that US taxes pay for.
3) Banking, investing, and getting a mortgage would be far less problematic for US citizens living abroad and non-US financial institutions would be able to serve Americans living locally on an equal basis with their neighbors without the added cost to them of FATCA reporting.
4) Getting rid of CBT and joining the CRS regime is a win for everyone!
By focusing on the foreign accounts of resident Americans (as FATCA was originally intended) and joining the CRS global unified reporting system the US government would improve transparency and could more effectively and efficiently prevent tax evasion by those who live in the US and benefit from the services provided by tax income, while at the same time eliminating the additional cost to foreign financial institutions and local bank and brokerage firms of FATCA reporting obligations (and the consequential banning US citizens as account holders).
1. Efficiency: Under CRS, financial institutions report directly to the tax authorities of the relevant jurisdiction, reducing the burden on individual taxpayers to report their financial accounts. This simplifies the process and makes it more efficient.
2. Cost: Implementing CBT and FATCA reporting requires significant resources from both financial institutions and taxpayers. CRS leverages an existing unified global reporting system, reducing the cost and burden of compliance.
3. Fairness: CBT and FATCA place an unfair burden on US citizens living abroad, who are required to report and pay taxes in two jurisdictions on their worldwide income. CRS applies to all taxpayers equally, regardless of their citizenship.
I look forward to your response. Please let me know if this is something you are willing to actively support. It would be great if we could get this passed! It ticks all the boxes to meet the government’s need to prevent money laundering while removing a huge burden from Expat Americans everywhere who would then be able to bank and invest locally in their home country and be relieved of complex, often expensive reporting obligations to the US.
Submitter of Issue #66186 to IRS Systemic Advocacy Management System
Thank you for your comment, and especially thank you for your efforts to improve the situation of overseas Americans.
Could you provide more information about who (which office) has confirmed what? For example, has the office of the National Taxpayer Advocate confirmed that this will be included in her next issue of legislative recommendations? Or is it someone else / something else?
In the meantime, we should all be in touch with our Congressional representatives on a regular basis. We should be doing so by email AND by phone, and in-person if at all possible. We should not expect miracles – or even anything at all – to happen with the first (many) contacts. It will take repeated and persistent efforts by many people for anything to happen. We should all be doing what we can, and not ust once but over and over. If we do, then eventually they (Congress) will have to deal with us. If we don’t, Congress will continue to ignore us.
Thanks again, Kathy!