In this series of blog posts I try to explain GILTI (Global Intangible Low Taxed Income) in simple terms. In the first post I discussed a public comment made on behalf of the Israeli Ministry of Finance on the recent proposed GILTI regulations. My second post explained the rationale behind GILTI. The third post talked about how GILTI was measured focusing on US domestic corporations, the target of these provisions in the first place. This post will look at how these rules, that were written for Apple and Google, play out for individuals owning small businesses in the “foreign” country where they live. For those who want to get into the detail, there’s a technical appendix on our wiki. Continue reading “Explaining GILTI – Individual Impact”
In my last post I discussed a public comment made on behalf of the Israeli Ministry of Finance on the recent proposed GILTI regulations. GILTI is quite complex, and that post may have thrown some readers into the deep end. In this post I go back to the beginning and try to explain why the US Congress felt that the GILTI provision was an essential part of the 2017 Tax Cuts and Jobs Act (TCJA). Subsequent posts will cover more detail about what GILTI actually measures and how the GILTI computations are supposed to work.
When Congress passed TCJA, it was hailed as major international tax reform that would make US multinationals more competitive with their international counterparts. The US corporate tax rate was reduced from 35% to 21% and with much fanfare, the US moved from taxing the worldwide income of corporations to a (not quite) territorial taxation system. Now that the bill has been signed and taxpayers, the IRS, and the tax compliance industry have had some time to study it, the reality doesn’t quite live up to the hype. For non-resident individual US taxpayers, the problem could be even worse! The transition/repatriation tax (§965) and GILTI (Global Intangible Low Taxed Income – §951A) have been drafted to apply to all US shareholders of Controlled Foreign Corporations (CFCs), not just the US domestic corporations that benefit from the modified territorial tax system. Once again, Congress has failed to consider the implications of their actions on non-resident US taxpayers. Continue reading “Explaining GILTI – Rationale”
GILTI (Global Intangible Low Tax Income) is the gift that keeps on giving – claiming US tax jurisdiction over the income of corporations owned by US “persons” on an ongoing basis. While the transition tax was painful, it was a one-off. For calendar year taxpayers, GILTI will apply starting with the 2018 US tax return – so it’s actually been in place for almost 11 months now. But the IRS has only just issued some of the relevant regulations and there are many questions that remain unanswered. Comments on the first set of proposed regulations are due on 26 November, so I’m going to start by considering a comment submitted by Arnold&Porter on behalf of the Israeli Ministry of Finance. In subsequent posts I’ll go back and discuss the purpose of GILTI and whether the actual legislation does what it says.
Looking For a Needle in a Haystack…
Those of you who follow our blogs might recall we commenced a Freedom of Information (FOI) campaign with both the ATO and Treasury a full year ago to develop a deeper understanding around the issues we face with an intent to use this information to inform future policies and actions (see Behind the Curtain – FOI Requests, Nov 2017).
In practice, exercising our Freedom of Information rights became a much more involved, complex and time consuming process than initially envisioned. Along the way we learned a great deal about the FOI process and challenges in obtaining useful information. Although the information we obtained wasn’t the insightful contextual documents we had hoped for, we still gained some information and insights along the way.
I’ve split this blog into two parts to keep the length down
- Part 1 – Challenges and pitfalls – Our journey through the FOI process
- Part 2 – What did we learn and what steps might we consider next?
Following Karen’s recent Call to Action! post, we are starting to receive positive feedback on our Open Letter – Extra-territorial Reach of US Tax Reform Legislation from our elected representatives here in Australia. This campaign is well aligned with the core purpose of our group being advocating for the Australian Government to renegotiate the under-pinning legacy tax treaties and intergovernmental agreements to provide a fair go for all Australians.
The Open Letter seeks to draw the Australian Government’s attention to an emerging harmful consequence of US extra-territorial taxation as part of US tax reform but it also serves as an opportunity for you to open a dialogue with your elected representatives about the pressing need for Australia to address the many deficiencies in the current Tax Treaty that disadvantage Australians with US ties.
We’ll share some of the positive feedback we received, but first, we want to again remind all of our members to please write your MP / Senators about this issue. Presently, our follow-up survey suggests that only seven MPs have been contacted to-date, suggesting that only a small fraction of our membership have taken action. Most Senators from NSW, QLD, SA and VIC have received at least one letter, making a total of 44 Senators who have been contacted. We have yet to hear from anyone in ACT, NT, TAS or WA who has contacted their representatives. Without your active involvement, affecting positive change will be difficult.
One of the terrific things about living in a parliamentary democracy like Australia is that there are safeguards in place to facilitate transparency of the Australian Government and public services. One powerful tool is the Freedom of Information Act, or FOI, which provides individuals or organisations with the right of access to documents held by many government agencies. By law, most public authorities have to respond to an FOI request within 30 days. Their response will either contain the information requested, or give a valid legal reason why it must be kept confidential. Note that the government agencies may levy charges for locating and making the information available, based on prescribed rates.
Here at Fix the Tax Treaty!, we’ve often wondered whether the Australian Government adequately considered the impacts on Individuals (vs businesses) when negotiating and entering into the Australia – US tax treaty agreements and the FATCA Intergovernmental Agreement (IGA).
We decided to find out!
Clearly articulating our group’s vision, objectives and action plans is essential if we are to be effective in achieving our aims. Many of you will recall that the Steering Committee members (Karen Alpert, Caroline Day and myself) have long been working on a Strategy Roadmap document, as previous discussed in a number of blog posts:
A good advocacy plan will help our group decide where to spend time and effort to achieve our goals and assist us to be as effective as possible with our limited resources. The plan will be a key reference document that is periodically updated as we progress towards achieving our goals.
I’m pleased to announce that we have completed a final draft of our Strategy Roadmap. You can view it here.
In the Facebook group last week, someone claimed that only the very wealthy are disadvantaged by the dual tax obligations imposed on US citizens and green card holders living in Australia. Certainly, for an Australian resident with only salary income, it is likely that foreign tax credits (FTC) or the Foreign Earned Income Exclusion (FEIE) will completely eliminate any US tax liability. However, for anyone who is considering investing for the future or running their own business, there are many pitfalls and traps in US tax law that need to be carefully considered. It seems like almost anything “foreign” is treated punitively by US tax law, and these xenophobic rules make it difficult for middle class US taxpayers to save effectively while living outside the US.
Over the next few weeks, I will be covering the following areas where US taxpayers living in Australia need to be particularly careful:
- Real Estate
- Australian Managed Funds
- Australian Shares
- Business Ownership Structures
- Investing in the US
- Record keeping
This series (and everything on this website) is general information only. I am not a lawyer, tax professional, or financial planner, just someone who has learned about US tax and wants to pass on general knowledge. Many areas of tax law are interdependent, so changes in one area may have unintended consequences in another. You should consult a professional who can consider your own personal circumstances before taking any action. Continue reading “How do US Tax Rules Constrain the Investment Choices of US Taxpayers Living in Australia?”