Table of Contents
US Tax Reform
Tax Reform Proposals
NB - this discussion covers only the proposals that relate directly to the taxation of non-resident US citizens and green card holders.
In January 2017, Republicans Overseas issued a White Paper proposing Territorial Tax for Individuals. (pdf version). The proposal generated much debate on both the Isaac Brock Society website (thread 1, thread 2) and Facebook (American Expatriates). Karen's feedback on this proposal is available here. Heitor David Pinto's feedback is available here.
While the proposal is titled “Territorial Tax,” it is actually a hybrid between Territorial and Residence based taxation. In a territorial tax system, source of income is the deciding factor - only income sourced from within the country is taxed, regardless of whether the income accrues to a resident or non-resident. In a residence based tax system, the tax base includes the world-wide income of residents (non-residents are usually taxed by the source country, with a tax credit in their country of residence if also taxed there).1) The RO Territorial Tax proposal taxes residents on worldwide earned income and passive income (except capital gains), and capital gains from property located within the United States. Non-residents would be taxed on income from U.S. sources and capital gains from property located within the United States (Note that property in this instance includes both real and personal property, including shares of U.S. corporations). The proposal also calls for Treasury to re-negotiate tax treaties to remove preferential tax rates on U.S. source interest, dividends, capital gains, and rents. The proposal linked above contains a useful chart detailing the changes from current law.
Further discussion of this proposal can be found on a September 2017 thread at the Isaac Brock Society.
American Citizens Abroad
American Citizens Abroad issued their Residence Based Taxation (RBT) Proposal in 2016 and updated it in February 2017. This proposal is the only RBT proposal mentioned by Democrats Abroad. Karen's feedback on this proposal is available here. Discussion of the ACA proposal and Karen's feedback is available on the Isaac Brock Society website.
The February 2017 ACA RBT proposal allows non-resident US citizens to opt in to Residence Based tax rules (under which they would be taxed by the U.S. only on U.S. source income, just like any non-resident alien). To qualify for RBT, a US citizen must be a foreign resident for at least five years and must apply for a “Departure Certificate” from the IRS. A Departure Certificate would cost the same as the current renunciation fee (currently US$2,350), and could trigger the Section 877A exit tax. Non-resident citizens would still be required to file an annual Report of Foreign Bank Account (FBAR). The proposal contains transitional rules for current non-resident citizens who are tax-compliant. It also repeals the Foreign Earned Income Exclusion.
In July 2017 ACA issued this discussion of “Territorial Taxation for Individuals”: ACA Statement to Senate Finance Committee.
Heitor David Pinto has drafted a proposal that essentially replaces citizen with resident throughout the U.S. Tax Code. This proposal can be found here.
Tax Cuts and Jobs Act 2017
House Republicans introduced their tax bill on 2 November 2017. On 9 Nov 2017 the House Ways and Means completed their mark-up.
Bloomberg has prepared a table comparing the House and Senate versions of the bill (pdf).
The final bill was passed by Congress on 20 December. The discussion below needs updating.
- Republicans just made a slew of changes to their tax bill (Business Insider) 8 Nov 2017
- House Republicans advance tax bill, aim to bring it to a vote next week (CNBC) 9 Nov 2017
From the Senate Finance Committee:
- Description of the Chairman's Mark of the “Tax Cuts and Jobs Act” (pdf)
- Senate Tax Plan Diverges From House Version, Highlighting Political Pressures (New York Times) 9 Nov 2017
- US Senate Republicans just unveiled their enormous tax bill (Business Insider) 10 Nov 2017
- A Tax Bill in Plain English? Senate Finance Committee Is Already There (Roll Call) 9 Nov 2017
Efforts to Support Tax Reform in the US
Here's where we should collect info on research, letter writing campaigns, etc. that support any shift away from Citizenship Based Taxation.
If you want to write to your US Senator or Congress(wo)man - https://democracy.io/ makes it easy. You will need to use a US street address - you can enter your last US residence, or use Google Maps to find a real address in the area where you (or your parents) last lived in the US.
Tax Cuts and Jobs Act (2017)
The 2017 tax reform bill added section 965 to the Internal Revenue Code. This section was written overly broadly, and affects the local corporations of US expats, not just the intended targets of Apple, Google and Microsoft.
Blog posts on the transition tax:
- IRS Issues Guidance on Transition Tax on Foreign Earnings 27 December 2017