The U.S. tax regime is continuing to make financial matters difficult for American expats In almost every country around the world, the tax authority taxes non-residents on income earned within the country. This is known as residence-based taxation. However, under the U.S. system, all citizens of the United States are taxed under the same personal income tax system, regardless of whether they live in the U.S. or overseas. This is known as citizen-based taxation. This is a very unusual situation. In fact, there a very few other examples around the world – perhaps only the tiny African country of Eritrea and North Korea! To try and ensure incomes from all U.S. citizens are reported to the U.S. taxman, new laws were rolled out in 2014.
Under FATCA (Foreign Account Tax Compliance Act), legislation set up by the Obama administration, all non-U.S. financial institutions are required to report the financial information of American clients who have accounts holding more than $50,000 directly to the IRS, the U.S. tax authority. It is claimed by its proponents that this tax act is designed to catch tax evaders who illegally shelter money offshore. This is a noble aim. But FATCA, say its critics, cannot possibly tackle this important global issue effectively due to its dragnet, untargeted approach. Instead, what it does – because of its plethora of serious unintended adverse consequences – is to brand Americans who choose to live and/or work overseas as “financial pariahs,” according to long-time anti FATCA campaigner Nigel Green, the deVere Group CEO.
U.S. expats are now routinely rejected from foreign financial institutions (FFIs), such as banks in their country of residence, because FATCA’s costly and onerous regulations mean Americans are now typically deemed more trouble than they are worth. Similarly, American businesses working in international markets are now often branded with a leprosy-like status. Clearly, this can only be detrimental to their global competitiveness and could, in turn, hit American jobs and the long-term growth of the U.S. economy – which would then, of course, have far-reaching consequences beyond the U.S. Thankfully, there are ways qualifying U.S. expats can mitigate FATCA’s adverse effects. Specialist cross-border financial advice should be sought.
The outspoken deVere chief executive Nigel Green co-authored a five-page letter to the former U.S. Treasury Secretary, Steve Mnuchin, on the first anniversary of Donald Trump’s presidency to encourage his administration to scrap the Foreign Account Tax Compliance Act. The letter, dated November 14, states: “We are writing to you on the supposition that in a democratic country, elections should have consequences. When a political party stands before the electorate on declared principles and makes specific promises, those principles and promises should be reflected in how that party governs under its mandate from the voters.
“In the 2016 Republican Platform, the party manifesto under which Donald Trump ran for president, it was claimed that FATCA’s ‘Foreign Bank and Asset Reporting Requirements result in government’s warrantless seizure of personal financial information without reasonable suspicion or probable cause. “The manifesto pointed out that Americans living overseas should enjoy the same rights as Americans residing in the U.S., ‘whose private financial information is not subject to disclosure to the government except as to interest earned. “The requirement for all banks around the world to provide detailed information to the IRS about American account holders outside the United States has resulted in banks refusing service to them. “Thus, FATCA not only allows ‘unreasonable search and seizures’ but also threatens the ability of overseas Americans to lead normal lives. We call for its repeal and for a change to residency-based taxation for U.S. citizens overseas.”