Senate Finance International Tax Bipartisan Tax Working Group Report on CBT, FATCA & FBAR (7/9/15)

The International Tax Bipartisan Tax Working Group Report has been released.  A link to the report is here.  That Working Group is comprised of members of the U.S.  Senate Committee on Finance, the Senate tax writing committee.

The report discusses current taxation and proposals and considerations for reform.  Perhaps most interestingly for many readers of this blog, the last item in the report (on pp. 80 & 81 of 81 pages total) is:

F. Overseas Americans 

According to working group submissions, there are currently 7.6 million American citizens living outside of the United States. Of the 347 submissions made to the international working group, nearly three-quarters dealt with the international taxation of individuals, mainly focusing on citizenship-based taxation, the Foreign Account Tax Compliance Act (FATCA), and the Report of Foreign Bank and Financial Accounts (FBAR). While the co-chairs were not able to produce a comprehensive plan to overhaul the  taxation of individual Americans living overseas within the time-constraints placed on the working group, the co-chairs urge the Chairman and Ranking Member to carefully consider the concerns articulated in the submissions moving forward.

I would not even speculate what, if anything, this means in the real world.  It is apparent that Congress is aware of the issues of concern.  I would say, however, that I am a bit surprised that, of 7.6 millions American citizens abroad, only 347 made submissions.  Congress does listen, but usually only after the problem has risen to crisis level.  (Sort of a variation of the quote: "Americans Will Always Do the Right Thing — After Exhausting All the Alternatives."  See Quote Investigator, here)  I infer that the Working Committee is willing to state that these concerns need to be considered but is not yet willing to say there is a crisis.

Thanks to USTax, a regular commenter on the blog, for drawing my attention to this item.  His comment is here.

China's Worldwide Tax System (1/7/14; 1/9/14)

Given the discussion on this blog of how the U.S. is abusive to U.S. citizens abroad because of the U.S. system of worldwide taxation, I thought this was an interesting and might draw some comments from readers.  Keith Bradsher, China Wants Taxes Paid by Citizens Living Afar (NYT 1/7/15), here.

Here are the opening paragraphs:

 As Chinese individuals and companies head overseas in greater numbers, the country’s tax authorities are starting to follow. 

The Beijing billionaires who set up cryptically named companies in the British Virgin Islands to hold their fortunes are in the cross hairs. So are the Guangdong salesmen living and working in Africa and Latin America. China’s tax officials are now demanding that citizens start reporting exactly how much money they earn overseas. 

In asking for this information, national and municipal tax agencies in China are quietly beginning to enforce a little-known and widely ignored regulation: Citizens and companies must pay domestic taxes on their entire worldwide incomes, not just on what they earn in China.

I am not sure that the U.S. Congress (which determines our tax regime (I know some tea parties think it is the IRS; they are wrong)) can take great comfort in the fact that China has a similar system.  Indeed, many of us have lived our lives listening to U.S. politicians (Congressmen included) vilify China (think McCarthy and his ilk and then segueing into Vietnam where the domino theory was based on China and Russia toppling the dominoes and bringing great woe to all of humanity).

But the broader issue is whether, given a global economy, a single country worldwide (sometimes called citizen based taxation) system is a good thing.  There are people paid a lot more than I am to struggle with that issue, but I am sure that readers will have some feelings.  Let's here them.

My thought is that, eventually, in a broader sense, we are all in this together.  By we, I mean our progeny who, in my view, are we.  We all sink or swim on a globe that must sustain us.  In my mind, we need to pull together a global government or at least a global organization that will coordinate the effort to, in William Faulkner's words, insure that "man will not merely endure: he will prevail."  There must be some system that, in the final analysis, make sure that we all contribute to enduring and prevailing.  That requires a compulsory tax because we are too selfish to make voluntary contributions to a system that allows us to endure or prevail.  And that is why government or quasi-government is so important.

Addendum 1/9/15 1:30am:

A commenter pointed out a rebuttal to the New York Times article.  See No, China does not have citizenship-based taxation (Isaac Brock Society 1/8/15), here, written by someone identified only as Eric in the blog.  The rebuttal is quite detailed and, taken at face -- I can't speak as to whether it is more accurate than the NYT article on the point of contention -- seems to be a detailed rebuttal of the notion in the article that the Chinese taxation system parallels in some respect the U.S. CBT system.  So, I invite readers to consider the Eric blog entry, and thank the commenter for calling it to our attention.  I do note that, as of 1/9/15 at 1:31am, the NYT has not acknowledged that the article errs in this respect.  (The article does provide two unrelated corrections; I presume that someone has called it to the attention of the NYT and the authors of the NYT article.)

WAPO Article on Expatriate Taxation - The Mayor of London (11/29/14)

I normally don't get into the policy issue of whether U.S. citizens abroad should be taxed.  But this article showed up on the Washington Post and I thought some readers might like or dislike it.  Adam Taylor, London mayor’s unpaid tax bill shows why some people don’t want to be Americans anymore (Washington Post 11/19/14), here.  Excerpts:

Johnson's problem comes down to one important factor: His dual-citizenship. Despite being very, very British, Johnson was born in New York and lived in the United States until he was 5, hence becoming a natural born citizen. And despite some threats to renounce his citizenship ("After 42 happy years I am getting a divorce from America," he wrote in 2006 after a spat with a U.S. immigration officer), he renewed his U.S. passport just two years ago. 

It's certainly tempting to dismiss Johnson's dilemma as the simple case of a very rich man attempting to float (sic - flout) the law ("Come on, Boris!," the New York Times's Roger Cohen wrote this week. "Give us a break.") but there is a degree of sympathy to be found here: American citizenship carries with it a uniquely vexing taxation problem. The United States is one of only two countries where taxation is based on citizenship rather than residence (Eritrea is the other). If Johnson lived in the United States, for instance, he would not have to file a British tax return. 

The unusual U.S. policy dates back to the Civil War and the Revenue Act of 1862, which called for the taxing of American citizens abroad, in part to punish men who fled the country to avoid joining the Union army. 

In practice, this is usually often just an annoying bit of paperwork for foreigners -- while the average citizen would have to file a tax return, it's unlikely they'll have to pay anything. However, it can become expensive for higher earners, especially when tax laws don't line up. As Lisa Pollack, an American expat herself, explains for the Financial Times, this is what appears to have happened for poor old Boris: 

In the U.K., gain on the sale of one’s home is not subject to tax. In the U.S., a gain above $250,000 (for a single filer) is subject to capital gains tax. Also in the US, home ownership is subsidised by a deduction against income of mortgage interest. In short, the countries have different tax breaks on housing. 

Johnson's U.S. tax bill for the sale of his home in London is thought to be in six figures. Given that the home is in the country he lives and works in, and he has not lived in the U.S. since he was 5, you can see why he thinks it's "outrageous."