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Thursday, May 25, 2017

Kim:  'Citizenship Taxation' — In Defense Of FATCA

Florida Tax Review  (2015)Young Ran (Christine) Kim (Utah), Considering 'Citizenship Taxation': In Defense of FATCA, 20 Fla. Tax Rev. 335 (2017):

Inspired by Ruth Mason’s recent article, Citizenship Taxation, [89 S. Cal. L. Rev. 169 (2016),] which reaches a general conclusion against citizenship taxation, this Article also questions citizen taxation under the same normative framework, but with a particular focus on efficiency and administrability, and takes a much less critical stance towards the merits of citizenship taxation.

First, neither citizenship taxation nor residence-based taxation can completely account for the differences between residents’ and nonresidents’ ability to pay taxes under the fairness argument. Second, the efficiency argument, that citizenship taxation may distort both Americans’ and non-Americans’ citizenship decisions, is not convincing. The American citizenship renunciation rate is not particularly serious compared to other countries, and it is U.S. immigration law, not U.S. tax law, that should be blamed for obstructing highly skilled and educated immigrants. Third, despite enforcement difficulties abroad under the administrative argument, determining residence by considering all facts and circumstances in residence-based taxation would be worse than the bright-line citizenship criterion in citizenship taxation.

After discussing the competing normative arguments on citizenship taxation, this Article aims to defend the administrability of citizenship taxation in conjunction with new reporting obligations. Individual taxpayers’ obligations to file Foreign Bank Account Reports (FBAR) or report under the Foreign Account Tax Compliance Act (FATCA) are not seriously onerous. The fact that citizenship taxation along with FBAR and FATCA enhances global transparency further supports the case for citizenship taxation.

Scholarship, Tax | Permalink


Thanks to Christine for this interesting and useful intervention into the citizenship tax debate!

Posted by: Ruth Mason | May 25, 2017 1:54:00 PM

"the fairness argument" Are we still pretending there is anything remotely fair about our tax code?

Posted by: Dale Spradling | May 26, 2017 4:46:35 AM

The people affected by "citizenship-based taxation" are U.S. citizens and Green Card holders who live outside the USA and are "tax residents" (and often citizens) of other nations. The paper discusses (sort of) "citizenship-based taxation" as an abstract concept without considering the brutal effects that it has on the people subjected to it. The acknowledgement of the difficulties with pensions, retirement planning, foreign spouses, mutual funds, CFC rules, etc. (the reality of citizenship taxation) is most notable in its absence. And no, FBAR and Form 8938 (as obnoxious as they may be) are reporting requirements and not the specific tax rules (PFIC, etc.) that affect Americans abroad. I suspect that this paper will be subjected to the criticism that it so richly deserves.

Posted by: John Richardson | May 26, 2017 1:14:02 PM

The U.S. has built a virtual Financial Berlin Wall to keep U.S. persons in by punishing harshly those who have left – even those gone decades. FATCA is part of this new Berlin Wall.

JFK famously said in Berlin 'we don't need to build walls to keep our people in.' Fast forward to the present day, and the US has done precisely that. U.S. tax and compliance laws apply Kafkaesque double taxation with the U.S. tax code assuming all U.S. persons are tax residents of the U.S. (even the ~9 million who live overseas), with extra penalties restrictions and disincentives for money, accounts, pensions, and investments in countries other than the U.S.; even if you live permanently overseas and your accounts are local to you.

In an increasingly global and mobile world the U.S. should not punish U.S persons living, working overseas, and expanding US influence and trade overseas. This is in complete contrast to all other OECD nations, thus disadvantaging those with U.S. Citizenship. U.S. citizenship should be about the greatest liberty in the world.

The U.S. should join the OECD and adopt Residence Based Taxation. To align the terminology in Congress in regards to tax reform for U.S. companies and U.S. persons, Republicans Overseas is advocating for “territorial taxation” for U.S. persons overseas. Those impacted are hoping this translates to the equivalent of residence based taxation as practiced by all of the other countries in the OECD.

Any U.S. persons living overseas caught up in this must visit the message boards of The Isaac Brock Society, Facebook Citizenship Based Taxation and American Expatriates Groups, citizenshiptaxation dot ca, and FixTheTaxTreaty dot org.

Posted by: JC Double Taxed | May 26, 2017 11:18:51 PM

U.S. Persons overseas receive no U.S. government services as one who lives within the U.S. states (roads, schools, hospitals, unemployment, etc.), nor do they receive U.S. protection of local property (laws, courts, police, etc.). Both factors underpin the justification of taxation according to Immanuel Kant.

Posted by: JC Double Taxed | May 26, 2017 11:23:03 PM

Citizenship-based-taxation (CBT) is a quasi-feudal concept, whereby the government of a given country (the US in this case) continues to impose its authority over its citizens who have legally left the country by taxing them; as if it owns them. The US diaspora receives strictly nothing material that can objectively justify its taxation by the US government. It doesn't expect or ask anything from the US, doesn't partake in any way in US society and doesn't cost the US anything. Furthermore, the US diaspora isn’t even represented in US Congress. No short-sighted, superficial, technocratic analysis of US CBT will ever succeed in legitimizing what is essentially an immoral concept. The fact that only 2 out of 244 existing tax jurisdictions in the world use CBT should constitute a hint for CBT apologists if only they could get their noses out of their navels once in a while.

Posted by: Kevin Mulvaney | May 27, 2017 5:13:53 AM

This paper is like making the efficiency argument for the use of biological and chemical weapons. Yes, it is easy to administer, quite efficient, and can be done in a consistent framework. It is also massively destructive to the innocent victims who never should have been targeted and creates unconscionable collateral damage.

Posted by: Angry Expat | May 27, 2017 5:23:35 AM

Live outside of the USA, Christine, for a few decades, & THEN pontificate re: FATCA. Or, move outside of it with the idea you may not return to live. The human rights commission states that the ability to move freely through our world is a human right-- what FATCA does is to penalize this freedom.

You're so caught up in trying to tell the people who are caught in this shitty, drowning net how they aren't really caught--- all from the comfort of your US mainland home.

Well, eff you. You're now a "part of the problem", & a compassion-less, knowledge-less part, at that.

Do you know for instance, that a US CITIZEN, IN ANOTHER COUNTRY, HAS TO FIND AN ACCOUNTANT THAT IS VERSED IN BOTH COUNTRY'S TAX LAWS? Sit back & absorb that. It's not only extremely difficult, but EXPENSIVE!

I earn about $25,000 AUD a year & am raising two children--- I pay for my AU tax to be done & THEN have to PAY MORE for US tax prep which nets me nothing, because I OWE NOTHING! THIS IS THE POINT.

This FATCA B.S. stops not ONE OFFSHORE TAX EVADER. Give us a break!!! Those people "built the loophole rules" & pay off anyone they need to because they CAN.

Meanwhile, people like me have to renounce our USA citizenship just to survive. My USA-born children are now tossing up the same decision--- AND THEY SHOULD NOT HAVE TO DO THIS!! THIS IS BULLSH*T!

Get your head out of your arse & join reality. FATCA is a sham & a scam designed to fleece little people, once more. Or, if not planned to do so, is doing so.

USA & Eritrea-- residence-based tax. Great company there.....

Do some actual research. FATCA doesn't even allow for parents of mentally-challenged children to renounce on their behalf!! Are you kidding me?!

Imagine your Canadian child cannot have their future protected. Cannot get "out" of this bullsh*t, legislative, over-reaching, power-grabbing, autonomy-stealing bunch of USA pus.

Christ-- YOU are a total nightmare to those of us battling this. Your legacy is that you made things HARDER for good people already having a very hard time.

Posted by: Jane | May 27, 2017 5:59:12 AM

@Kevin Mulvaney You are correct that the USA uses CBT to impose its authority over citizens who LEAVE the USA. This is very bad and assumes that U.S. citizens are the property of the USA (which they actually are). But, the combination of FATCA and CBT is actually far worse. Remember that through CBT, the USA is also attempting to impose it's authority over citizens of other nations - many of whom may have never even have lived in the USA or left the USA as children. Put it another way: What Ms. Kim and other FATCA/CBT supporters will NEVER say is that: the combination of FATCA and CBT is actually a way for the USA to EXTEND its tax base into other nations!

Posted by: John Richardson | May 27, 2017 12:12:58 PM

@Jane your post includes:

"Do you know for instance, that a US CITIZEN, IN ANOTHER COUNTRY, HAS TO FIND AN ACCOUNTANT THAT IS VERSED IN BOTH COUNTRY'S TAX LAWS? Sit back & absorb that. It's not only extremely difficult, but EXPENSIVE!"

One of the most interesting things about this paper is that there is no discussion of HOW Americans abroad are taxed by the USA, let alone WHETHER AND HOW Americans abroad are also taxed by their country of residence.

Posted by: John Richardson | May 27, 2017 3:12:51 PM

Ms. Kim wrote in that article as a justification for CBT:

“. . . social obligation theory provides that, as a member of American society, nonresident citizens also have an obligation to contribute taxes . . . to support the members of the society to which they belong.”

That is an insult to people who have no connection to the US except for place of birth (or birth outside the US to a USC parent). You cannot be a member of a society you have absolutely no connection to or interaction with.

It is false to contend that such people have a moral obligation to pay taxes based on membership in US society. They are not part of that society, so they have no moral obligations to the people of the US whatsoever. In reality, they’re part of the tax system of their country, the one they actually are a member of society in.

What’s immoral, IMO, is for a country to take money from people of other countries (unless it’s in return for something, eg, money made by investing in a US company, hotel tax on travellers, etc.). But income tax? Citizenship Based Taxation reminds me of the situation when a country is invaded during a war and persons in the overrun country are forced to pay taxes to support the people of the invader country. It financially drains the individuals and it financially drains the economy of the overrun country — for the benefit of the people of the invader country. As with that situation, CBT has nothing to do with paying one’s fair share, but rather with exploitation, and exploitation is inherently unfair.

Note also that renunciation costs USD 2,350, about ten times the average of other countries (perhaps the US tries hard to discourage renunciation because citizenship is a cash cow – people who do not live in the US, do not use and never will use US services don’t cost the US anything at all, so keeping these people as taxpayers is pure profit for the Americans).

Especially appalling, the US does not even allow the parent/guardian of a mentally disabled person to renounce on their behalf but, but it does tax their disability payments and their Registered Disability Savings Plan (all moneys of which originate in their home country, the society they actually are a member of, which is not the US).

Posted by: Pacifica | May 27, 2017 3:28:04 PM

@Pacifica - With reference to the part of your comment that reads:

"Citizenship Based Taxation reminds me of the situation when a country is invaded during a war and persons in the overrun country are forced to pay taxes to support the people of the invader country. It financially drains the individuals and it financially drains the economy of the overrun country — for the benefit of the people of the invader country. As with that situation, CBT has nothing to do with paying one’s fair share, but rather with exploitation, and exploitation is inherently unfair."

Your perception is correct. All U.S. tax treaties include the "savings clause". When a country agrees to the "savings clause", it agrees to allow the USA to impose taxation on any resident of their country, who the USA deems to be a "U.S. citizen". The result is that those unfortunate souls who are deemed "U.S. citizens" (including those who are residents and citizens of the partner country) become vehicles to transfer capital from the treaty partner country to the USA. A good example of this principle would be former London Mayor Boris Johnson. The sale of his home was a tax free capital gain in the UK. Naturally, (because he was a U.S. citizen), the IRS imposed taxation on the gain (which was a tax free gain in the U.K.). But, this is just the price that a country pays to allow a U.S. citizen to reside in it.

The "savings clause" is a weapon that is used to "invade" sovereign nations and transfer the capital of the "invaded" nation to the USA.

Posted by: John Richardson | May 27, 2017 9:15:26 PM