3% of American expats want to give up their passport
10-29-2014, 05:06 PM
Not exactly sure what you mean here, but I was a tax lawyer. For ten years. Big Four and white shoe firms.
Other than the basic overseas earnings exception, US citizens and residents have been taxable on their worldwide income for as long as the modern tax code has been in place. Sure, there are ways to defer and deferral is the primary method of tax planning for income tax (not for estate and gift), but ultimately, when funds are repatriated they are taxable. Money earned by an individual in a foreign bank account is immediately taxable. And earnings through foreign joint ventures and partnerships, yes, immediately taxable.
There's an enormous industry, of which I was a part, in creating deferral for companies with overseas operations, the new fashion of which is inversion transactions, though those aren't "new" in that they existed when I was practicing tax law before 2000, and the case law goes back much further. It wasn't a common transaction, nor is it common now, but its flashy, and gets a lot of press. And when big companies do it, its a revenue loss. Most companies don't fully invert, they don't have to - they just send their IP offshore to Ireland or elsewhere, or their "management" to a tax haven, and defer as long as possible. 15 years deferment basically, mathematically, lowers the cost of the tax in excess of 90 percent. At that point, they've already won. So again, the game is in deferral.
For foreign individuals, they can still lend money in the USA, for the most part, tax free, so long as the interest is portfolio interest, and not a loan to a company they own or control. The USA needs to Portfolio interest exemption, as no one would buy state bonds and other debt if it didn't exist, interest rates would shoot up, borrowing money would become more expensive for the federal government, and our government would shut down tomorrow.
Dividend repatriation from a corporation is subject to withholding taxes, reduced in some cases below the standard 30 percent via tax treaty. And business income from operating a business in the USA is taxable as it is to a US business, and is avoided by many foreign companies and individuals for reeasons referred to above- the USA asks for huge information disclosure and most wealthy foreigners don't want to open their books to the IRS.
Just one counterpoint - the USA is far from the highest tax rate country in the west for income. It may be better at collecting though, then some other western countries (looking at you, Italy, while nodding at England). But many other european residents, France, Sweden, England, bear highe effective tax rates than Americans.
I don't want to derail this thread and I certainly don't want to engage in tax policy debate, just clarifying a few things.
Quote: (10-29-2014 08:19 AM)MaleDefined Wrote:
Let me give you a bit of why this worries me. I am not a tax lawyer, but I am knowledgable enough on the topic because it directly affects me.
FACTA isn't so damaging on the surface. Even among wealthy expats, it's unlikely that you'll hold such large amounts of money in singular individual bank accounts.
However, the idea of FACTA was designed in a very clever way. After the passing of FACTA, many countries will now not allow new bank accounts to be opened up by Americans. Countries simply don't want the American octopus arms inside of their own banking system snooping for American accounts. And how can you blame them?
I am working in a foreign country, except all of my pay now hits my American account. That's not worrying on the surface, as I'm not taxed on the first $102,500(I believe) I make annually in a foreign country, regardless of what account it hits. I can prove my income is earned internationally and it's not a tax issue.
What worries me is now it's very easy for the US to drop the other side of the shoe, and say that foreign income earned and deposited in American bank accounts will now be subject to income tax.
It used to be possible for an American abroad to play completely outside of the sphere. That is no more. FACTA now makes that impossible. Worrying for me to say the least.
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