Congratulations to @SolomonYue and Republicans Overseas" for thisceffort on behalf of #Americansabroad "RO requests a House Hearing on the harmful impact of the @USTransitionTax" https://t.co/Nkzok2DTSC
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) February 26, 2018
I have previously written about the confiscatory effect of the “transition tax” on small business owners living outside the United States here and here. This is a “tax” – based on the Subpart F regime – on certain shareholders of “controlled foreign corporations“. For Canadians this “tax” represents a U.S. partial confiscation of their pensions. Interestingly the recent “Tax Cuts and Jobs Act” has significantly increased both the number of “United States Shareholders” and the number of “Controlled foreign corporations”.
All of this is taking place in the context of more countries enacting CFC (“Controlled Foreign Corporation”) rules. For example, Russia recently enacted its own “Controlled foreign corporation rules. In general the worldwide climate toward corporations is becoming more and more hostile.
The advocacy of Republicans Overseas is a welcome development. It is hoped that the leadership of Republicans Overseas will encourage other groups that claim to represent non-U.S. residents to join the fight against “non-resident taxation”.
Their official announcement is here and a copy of their submission is here.
To read a copy of their submission …
RO requests a House Hearing on the harmful impact of the ‘Repatriation Tax’
February 26, 2018/
Republicans Overseas has requested a House hearing on the harmful impact of the ‘repatriation tax’ on the small business corporations owned by overseas Americans.
‘Attached is an RO PPP on the severe and unintended consequences of the repatriation tax contained within the Tax Cuts & Jobs Act 2017 on small businesses owned by overseas Americans.
Since this is a complicated issue, it is easiest to explain it by contrasting the impact of the Tax Cuts & Jobs Act 2017 (‘TCJA’) on Apple stores which are wholly owned foreign subsidiaries of the Apple corporation with independently-owned Apple stores run as small businesses by overseas Americans in Hong Kong.
1) The repatriation tax specified by the TCJA for multinationals’ foreign subsidiaries is 15.5% while it is 17.5% for American-owned overseas small businesses.
2) The Tax Cuts and Jobs Act failed to recognize the differences in Apple company-owned stores and Apple independently-owned stores.
3) Apple brings its foreign company stores’ profits home to the US to open new company stores, create jobs, and increase profitability.
4) Apple independently-owned stores’ owners will not immediately bring home to the US their retained earnings because their profits are used to finance inventory purchases, pay for their living expenses, and save for their retirement while they are living in their host country.
5) Apple corporate shareholders will pay the 15.5% transition tax on Apple company-owned stores, but these Apple company-owned stores will then pay 0% corporate income tax to the IRS after that due to the implementation of territorial taxation for corporations.
6) Apple independently-owned stores’ individual shareholders will pay the 17.5% transition tax but will still need to pay individual income tax to the IRS every year due to citizenship-based taxation.
7) Apple independently-owned stores’ individual shareholders have been using their retained earnings as working capital to self-finance their businesses due to foreign banks denying them basic banking services, including business loans and lines of credit under FATCA.
8) This 17.5% becomes a triple jeopardy for Apple independently-owned stores’ individual shareholders: they receive no tax credit for payment of the transition tax to US to offset the tax owed to the country of residence; individual shareholders may not have the money to pay this tax; and if the owners use working capital to pay this transition tax, it makes it more difficult to self-finance, which could lead to bankruptcy.
9) The first installment of this tax is due by April 15, 2018.
10) Failure to pay the first installment by April 15, 2018 means that the total tax would be due immediately.
We need to have a House hearing to demonstrate the severe and unintended consequences of TCJA and to allow the House the opportunity to offer timely solutions for the law-abiding overseas Americans who will suffer under this tax.’
You can read the presentation here:
Addressing the harmful impacts of the repatriation tax on overseas Americans