By: Helen Burggraf | 17 Nov 2017

Spokespeople for organisations that have been urging US lawmakers, on behalf of expatriate Americans, to legislate for a change to a “residence-based” tax regime said today that the possibility of such a change is still alive, even if it hasn’t yet been spelled out in the latest tax reform plan to be under discussion in Washington. 

Their comments came the day after the US House of Representatives passed a tax reform bill that some said was “the most sweeping tax overhaul in three decades, as President Trump moved to leave his mark on the way America does business. The approval came in spite of the objections of the Democratic members of the House and 13 Republicans, and sees the focus now shift to the Senate, which also must approve the legislation for it to become law.

Marylouise Serrato, executive director of the American Citizens Abroad, said today that although residence-based taxation (RBT) isn’t currently mentioned in the bill that was approved yesterday, “there is still movement on RBT, and  [still] time for its inclusion” in the final draft. The matter, for example, could also be brought up later on, including during debate on the Senate floor.

“ACA remains hopeful, and we are busy working offices in the Senate, Joint Committee on Taxation (JCT), etc., where we have interested parties,” she added.

Citizenship-based taxation

As reported, the ACA and other organisations representing expatriate Americans have been campaigning hard over the last few months in an effort to draw US lawmakers’ attention to what they say is the dysfunctional way Americans are taxed on the basis of their citizenship, rather than on the basis of where they live, as is the case in all but one other country in the world, the other being Eritrea.

The ACA and Republicans Overseas have been leading the charge, with such other expat American organisations as the Democrats Abroad, Americans for Tax Reform and the Heritage Foundation having also been rallying their members to get US lawmakers to end the US’s citizenship-based regime.

Earlier this year the Republicans Overseas launched a drive to get 6,400 signaturesonto an online petition calling for an end to citizenship-based taxation, while the Democrats Abroad, on 15 June, the day expats tax forms are due by the IRS, staged a “tax storm”,  when expats were urged to “join Democrats around the world [in picking up your phone] to ask your representatives and senators for their support for residency-based taxation”.

Not all the expat American lobbying groups agree on the exact format the replacement tax regime should take, however, with the Republicans Overseas lobbying in favour of what it calls a “territorial taxation for individuals” regime, or TTFI.

Republican National Committee member Solomon Yue, who is also chairman of the Republicans Overseas, explained recently that although the JCT may make use of some of the research the lobbying groups have conducted in the course of their campaigns, “ultimately it will have to produce its own [formula], according to their procedures”.

The debate over whether the US should, and possibly will, move from a citizenship-based tax regime to one that is based on residency comes as expatriate Americans continue to renounce their citizenships in record numbers, driven by the hassle and expense of having to file returns and be liable for paying taxes in two countries instead of just one. Earlier this month, Bloomberg reported   that, based on the most recent data from the Treasury Department, renunciations in 2017 are on track to top 2016’s record number of 5,411, which was itself a 26% jump from 2015.

The Foreign Account Tax Compliance Act, signed into law by president Obama in 2010, is widely credited with sending many expats rushing for the exits, by making the business of being an expatriate American increasingly difficult and expensive, as it requires foreign financial institutions to report to the US tax authorities on any accounts they have that are held by American citizens. Critics call it “the enforcement tool of the US practice of citizenship-based taxation”, but because it has made it difficult for Americans living outside of the US to get bank accounts, mortgages, or otherwise engage in the financial services industries in the countries in which they now reside.

http://www.internationalinvestment.net/products/tax/hopes-change-us-citizenship-based-regime/

US expats given hope of lower tax bills

Republicans edge towards eliminating need to pay levies overseas and at home

Millions of US citizens working overseas could see their tax bills lowered by an overhaul of the tax system as Republicans edge towards eliminating a requirement for American expatriates to pay taxes both overseas and in the US.

Kevin Brady, the Republican head of the House ways and means committee, which is drafting a tax reform bill, said lawmakers were considering the measure, which has been the focus of lobbying by Republicans Overseas, a group of party donors around the world.

“It is under consideration. They have made the case,” Mr Brady said in response to a question from the Financial Times at a Christian Science Monitor breakfast. “Lawmakers representing that area of the tax code have made that case.”

Some 8.7m Americans live outside the US, excluding military personnel, according to the Association of Americans Resident Overseas.

For those expatriates, the first portion of their foreign earnings — about $100,000 in 2016 — is already shielded from US tax liabilities, but they have to pay tax on any income above that level to both the host authority and the US. The mooted change would therefore benefit those on six-figure salaries.

Republicans are striving to pass the first major overhaul of the US tax code since Ronald Reagan in 1986. They are looking at measures that would simplify the code, lower the corporate tax rate, make it less attractive for US companies to keep cash overseas, and changes that they say will help the middle class.

Mr Brady later told the FT that lawmakers were taking “seriously” the call for a shift from a citizen-based income tax system to a residence-based system that would only tax people on the income they earn in the US.

Republicans have already decided they want to make an equivalent change for business, switching to a “territorial” regime where most of US companies’ foreign earnings are beyond the reach of American tax collectors.

The US Chamber of Commerce, a business lobby group, has urged policymakers to consider US-only taxation for individuals, too, arguing that taxing foreign income hurts American managers at the overseas affiliates of US exporters.

In a recent interview with the FT, Mick Mulvaney, the White House budget office director, said he supported the shift to residence-based taxation. “It is something that I have advocated for as a member of Congress,” Mr Mulvaney said. “It is good for American businesses to encourage Americans to work overseas.”

Solomon Yue, vice-chairman of Republicans Overseas, this week submitted a petition with 3,027 signatures calling for the change to Shahira Knight, the White House official in charge of tax policy, and also to Mr Brady’s staff on the House ways and means committee. “We made inroads with his [Brady’s] chief of staff yesterday when we presented the signatures,” Mr Solomon said.

Michael DeSombre, an American partner at the law firm of Sullivan & Cromwell in Hong Kong who chairs Republicans Overseas, said the White House was also supportive. “The White House and the Republican National Committee support the proposal but are not going to push for it actively.”

James Brandell, a lobbyist helping the Republicans make their case, said Ms Knight said the White House “sees no policy problem” with the proposal, but urged them to focus on the House ways and means committee and the Senate finance committee which are writing the tax bill.

The White House acknowledged that Ms Knight had met with the Republicans Overseas team, but Raj Shah, deputy press secretary, said their account of the meeting was “not accurate”.

Caroline Harris, a US Chamber tax official, told Congress in a letter in July that taxing individuals’ foreign income “significantly undermines the global competitiveness of US exporters. No other country taxes its citizens working abroad, and any transition to a territorial tax system should take this into consideration and end this damaging practice.”

Mark Mazur, who was the top tax official in Barack Obama’s Treasury department, said he supported the change, arguing that it was necessary to address the “inequity” of an expat paying tax on the same income to both the US and a foreign government.

“If you take two people, one works in London, one in New York, working for the exact same US multinational — if they make the exact same amount of money you might think they should be taxed exactly the same,” said Mr Mazur, who heads the Tax Policy Center.

The US has tax treaties with more than 60 countries that to varying degrees reduce, but do not usually eliminate, the US tax burden on American expatriates.

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https://www.ft.com/content/4909d804-b9a1-11e7-8c12-5661783e5589

Michael DeSombre (Left), Republicans Overseas Worldwide President, and Solomon Yue, Republicans Overseas Vice Chairman and CEO, met with Samantha Zager (Right), White House Associate Political Director on October 2, 2017.

On behalf of the White House, Ms. Zager accepted 1,744 letters/petitions to President Trump in support of including Territorial Taxation for Individuals in the Tax Reform Package being debated in the House and Senate. Ms. Zager was very impressed with our efforts, and we discussed the strategy for getting TTFI included in the tax reform package.

The next step is to petition Congress for the inclusion of  TTFI in the Tax Reform Package. Republicans Overseas will deliver your  TTFI petitions to the House Ways and Means committee and to the Senate Finance Committee in late October. Ms. Zager will facilitate RO meeting requests with the leadership and tax writers of the committees. Thank you for your participation!