Residence Based Taxation Proposal

For the past few weeks there has been increasing speculation about the contents of a rumoured Residence Based Taxation proposal from Congressman George Holding’s office. Democrats Abroad reported that they had seen the proposal. Then Republicans Overseas were also on board. And, over on the American Expatriates Facebook Group, Keith Redmond reported on a meeting held at the offices of Americans for Tax Reform to discuss the proposal. It has been great to see such broad-based support for this much-needed reform.

Over the last week or so, I’ve been working with Greg Swanson (PurpleExpat.org) and John Richardson (citizenshipsolutions.ca) to provide feedback on this proposal. The three of us have sent a joint letter to Congressman Holding’s Tax Counsel outlining what long-term expats (including Accidental Americans) might like to see in a proposal to end Citizenship Based Taxation.

It’s important to note that the original proposal is really just a rough outline of what Residence Based Taxation might look like. Many of the provisions are (understandably) incomplete and unclear. Any final bill will look quite different because of the need to generate political support as well as the need for clarity in the final legislative language. However much we must compromise to get a result, it is important to be clear about what we want and the underlying principles we will be using to evaluate any proposed legislation.

These are the three basic principles that we believe should guide legislators in creating solutions to the problems arising from the taxation of non-resident citizens:

  1. American citizenship should not disadvantage a citizen living outside the US relative to expatriates from other nations.
  2. We believe that freedom of movement is a basic human right. We also believe that freedom of movement and international trade go hand-in-hand. Governments should never impose laws, taxation, regulations, or other limitations on their citizens that hampers the freedom of movement of those citizens.
  3. US citizens currently living outside the US who have arranged their financial affairs to be compliant with current US law should not be disadvantaged. Similarly, those non-residents who were unaware that they needed to arrange their financial affairs in accordance with US law should not have their savings confiscated just because they have foreign investments that are taxed punitively by the US relative to similar domestic US investments.

 

There is a trade-off between comprehensive legislation that fixes all of the problems faced by long-term expats and simpler, targeted legislation that may be easier to pass precisely because it doesn’t deal with the more controversial issues. It may be that the initial legislation is stripped down to the bare minimum, leaving some problems to be resolved in future legislation. Politics is never easy.

3 thoughts on “Residence Based Taxation Proposal”

  1. Under the current administration, it’s difficult to tell what does & doesn’t fly past the hot-head-in-chief; how can you even begin to contemplate the outcome of FATCA when his entire cabinet is constantly fired & replaced? I mean, really!

    Hopefully, it’s “not” needing his okay. Going by other recent signings, if it does need his sig in any way, it’ll take giving “him”something personally in order to get it. Unless those who are working there now have figured out how to get around it. I cannot imagine.

    Fingers & toes crossed. I’m very apprehensive for my US-born children living & working in AU.

  2. Thank you for this.

    Your 3 basic guiding principles are obviously carefully worded to be consensual. I hope the wording isn’t more or less willingly misinterpreted with answers such as “but there is nothing preventing one from moving abroad”, “we’ll just force banks to take US customers”, etc.

    And while indeed “there is a trade-off between comprehensive legislation that fixes all of the problems faced by long-term expats and simpler, targeted legislation …” it can be argued that the system could be “tweaked” to exclude non-residents, be they citizens, from filing requirements (tax returns, FBARs, …).

    Indeed, introducing residency-based taxation may be much simpler than, for instance, repealing FATCA, which would upend the whole infrastructure put into place at great cost and cause great confusion, lost US credibility, etc. (I say this even though I oppose the idea of FATCA).

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