For some time an idea has been considered by ADCT and the letter below is the result of that idea. We have yet to tap into another community who is in a unique position to possibly offer us help – the tax compliance community. There are plenty who have voiced their opposition to FATCA, who think CBT is an abomination, etc. So why not ask them to join us?
We will be sending this letter to a “known” group of professionals which may expand in the future. In the meantime, please consider asking your tax accountant, lawyer or advisor to consider it.
October 18, 2017
Re: Tax Reform as an opportunity to end the U.S. practice of imposing direct taxation on people who live in other countries.
(If you do not have time to read, please go directly to the last page of this letter.)
I am writing to you personally, on behalf of the millions of “hard working” American citizens living outside the United States and on behalf of the “Alliance For The Defeat Of Citizenship-Based Taxation”. American citizens living outside the United States are “Ambassadors For American Values”.
You are receiving this letter because you have been identified as a person who assists Americans abroad with tax, retirement planning, investment counselling, basic financial planning or a combination of the above. You are well aware of the devastating impact that the current rules of “citizenship-based taxation” have on the lives of “every day people” who have chosen to live outside the United States.
As you are aware, the United States is engaged in a process of tax reform. The last major tax reform was in 1986 (how the world has changed). Tax Reform 2017 appears to be a continuation of the work done by the House Ways and Means Committee (2013) and the Senate Finance Committee (2015). A discussion of “International Tax Reform” has featured prominently in these discussions.
Most of the discussion of changes in “international taxation” has been about changes in the rules governing corporations. There is a growing consensus that the U.S. system of “worldwide taxation” is damaging to corporations. As a result, momentum has been building towards changing corporate taxation from “worldwide taxation” to some form of “territorial taxation”. What “territorial taxation” (subject to the specifics) means in broad terms is that:
U.S. corporations would NOT be subject to taxation on profits earned outside the United States.
Individual (DNA) U.S. citizens are ALSO currently subject to a system of “worldwide taxation”.
The effects of being subject to a system of “worldwide taxation” based ONLY on “citizenship” (all other countries impose taxation based on residence) are:
1. U.S. citizens living in other countries are subject to the Internal Revenue Code, as though they lived in the United States, even though they do NOT live in the United States.
2. U.S. citizens living in other countries are subject to taxation on their “worldwide income” which includes income earned in their country of residence.
3. U.S. citizens living in other countries, who own financial assets or have pension plans locally in those countries are required to treat those “local” assets as “foreign” for the purpose of “reporting” to the IRS. This creates the possibility of “every day people” being subjected to punitive taxation and reporting penalties for attempting to live an “every day lives”.
In practical terms this means that a U.S. citizen living in France (who is subject to full taxation in France), is ALSO subject to taxation on his/her French income by the United States. In addition, because that U.S. citizen living in France is subject to all of the rules of the Internal Revenue Code, that individual is also subject to a collection of “penalty laden” reporting requirements that make full U.S. tax compliance difficult and costly. The cost of U.S. tax compliance for U.S. citizens living in other countries must be considered in terms of both “Direct Costs” and “Opportunity Costs”.
“Direct Costs”: U.S. citizens living in other countries are likely to be subjected to punitive taxation on the normal instruments of financial planning because their vehicle for financial planning is (although local to them) foreign to the United States. In addition, the cost of tax return preparation (when competent help is available) is often very high.
“Opportunity Cost”: Compliance with the Internal Revenue Code means that U.S. citizens living in other countries will often NOT be able to benefit from the financial and retirement planning opportunities available to their neighbours who are NOT U.S. citizens. For example, Australia has a public Superannuation plan. It appears that U.S. tax laws would deprive U.S. citizens living in Australia from benefitting from this plan.
“Role of Tax Treaties”: It’s important to recognize that in many cases these problems are not alleviated by U.S. tax treaties. In fact the problems are exacerbated by U.S. tax treaties which contain a “savings clause” which “saves” the right of the United States to impose taxation on (U.S. citizen) residents of other countries, according to the rules of the Internal Revenue Code.
The time has come to end this “relic of the past” which began as a form of deliberate punishment during the Civil War (yes in the 1800s) and continues to be a punishment today.
Significantly, the definition of “U.S. citizen” includes people who have NO CONNECTION to the United States and are residents and citizens of other countries!!!
It’s not Taxation Without Representation it’s Taxation Without Connection
It’s also important to note that the rules of U.S. “citizenship-based taxation” apply to the “citizens and residents” of other countries, who just happen to also be U.S. citizens because they were born in the United States. In many cases, these people have no connection to the United States (sometimes not even knowing that they are considered to be U.S. citizens). In other words, the United States is currently imposing direct taxation on the foreign incomes of people who do NOT live in the United States!
Previous advocacy, comments and requests – from “U.S. tax compliant” Americans abroad
In 2013 a large number of the comments from individuals submitted to the House Ways and Means Committee came from Americans abroad who were trying to comply with U.S. tax requirements.
In 2015 a large number of the comments from individuals submitted to the Senate Finance Committee came from Americans abroad who were trying to comply with U.S. tax requirements.
These submissions and comments may be found at:
A collection of very specific comments from those personally affected have been collected in the 195 page “book” found here:
A rare display of bi-partisan unity
In 2017 a number of organizations, from across the political spectrum, including Republicans Overseas, Democrats Abroad and American Citizens Abroad have requested a change from the rules that require U.S. citizens living outside the United States to pay U.S. tax on their income earned outside the United States. Although the specific proposals advanced by these groups vary in the details, they all request that:
U.S. citizens living outside the United States, who are therefore tax residents of another country, should NOT be subject to the rules of the Internal Revenue Code that apply to Homeland Americans.
No person should be treated as a “tax resident” of more than one country! The time has come to correct this injustice. U.S. tax laws should be amended so that the United States does not impose U.S. taxation on the:
Non-U.S. source income earned by people who do NOT live in the United States.
So, what am I requesting you to do?
I intend to send a simple request to the various committees working on tax reform, which simply focuses on the result sought with the following request:
“Please amend the Internal Revenue Code so that the United States no longer claims the right to impose U.S. taxation on non-U.S. source income which is earned by people who do NOT live in the United States. For example: The United States should not be imposing U.S. taxation on the French income earned by a resident of France.”
This petition is supported by the following professionals (lawyers, accountants, investment advisors, etc.) who work with non-residents who are subject to U.S. taxation on their foreign income.
This petition is supported by the following professionals:
John Richardson – lawyer
Your name – capacity
All other names – capacity
If you simply reply to this email with your name and capacity, I will add your name to the petition. It’s that simple.
Thank you for your consideration and assistance.