— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) September 3, 2018
This is Part 21 of my series of posts about the Section 965 transition tax.
The Section 965 “Transition Tax” saga continues. Americans abroad may have political differences. They may have philosophical differences. They may live in different countries with different tax treaties. But, opposition to the Section 965 Transition Tax and GILTI appear to have unified all Americans abroad.
The retroactive taxation of undistributed earnings of a non-US corporation, based on NO event that generates taxable income, which almost certainly subjects Americans abroad to double taxation.
The parts I have bolded provide arguments for why the “transition tax” violates numerous tax treaties.
In Part 20 I explored the arguments for why/how the Treasury Regulations are not compatible with the Regulatory Flexibility Act. Part 20 included a discussion of the arguments made by ACA for why the Regulatory Flexibility Act should apply to the regulations.
In Part 21 (this post), I am highlighting the submission of American Citizens Abroad (ACA), who argues IN ADDITION (this is a no brainer) that there should be a threshold level of undistributed earnings before the Section 965 confiscation can apply – period.
Thanks to ACA (“American Citizens Abroad”) for taking the time to organize these arguments and present them at the October 22, 2018 IRS hearing on the “transition tax”.
What follows is the email I received from ACA – I strongly suggest that you follow the links. ACA has done a superb job of demonstrating how the Treasury can exempt Americans abroad from this particularly draconian and confiscatory piece of legislation. Continue reading →
ADCS Press Release on the Transition Tax and GILTI: The Alliance For The Defence Of Canadian Sovereignty issued a press release on the impact of the “transition tax and GILTI” on people with tax residency in other countries. Although issued in November of 2017, it attracted a number of comments. These comments provide insight into how U.S. citizenship-based taxation damages people in other countries. Comments made in November 2017 (before the world heard about the transition tax)
The comments (from November of 2017 which is well before the Section 965 transition tax was understood) are here. Comments in September/October 2018
As described in this post, U.S. Treasury has been seeking comments about the Sec. 965 transition tax. The deadline for comments is October 9, 2018. You can read the comments here.
Comments that are particularly noteworthy are: From American Citizens Abroad – on behalf of all Americans abroad
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) October 9, 2018
From James Gosart an individual
To: United States Department of the Treasury
Subject: Re: Proposed Regulations under Section 965 [REG 104226-18]
The transition tax is a killer for small American owned overseas businesses.
I am a small business owner of a consulting company in Hong Kong. Around the world, I’m sure there are thousands of small American business owners like me.
I formed the company in 2011 after spending more than 25 years based in China and Asia as an expat employee of a major US corporation. During the 7 years the company has been in operation, I have helped US companies and investors with their China and Asia strategies, ultimately growing their businesses in Asia and contributing to US based employment. My company paid corporate taxes annually in Hong Kong. I have now relocated to the US and I’m in the process of shutting the business down.
The new transition tax is so burdensome and complex that there is no way I would start such a business today. Nor would I recommend it to anyone else. For the US to decide to retroactively tax retained earnings of small US owned overseas businesses is so draconian and unprecedented that it will seriously impact the survival of countless numbers of such businesses. Even if a US owned overseas business is capable of making this payment, and many will not be able to, how can any business survive when faced with a 17.5% tax that their non-US owned competitors do not have? In addition, many thousands of Americans who use lawful local corporate entities as retirement savings vehicles will see their lifelong retirement savings decimated.
The Commerce Department has long estimated that for every $1 billion of business done by American business abroad 5,000 domestic US jobs are supported. Based on my own anecdotal experience I agree with that. No doubt the transition tax will cause thousands of American owned small businesses to close, or fail to start in the first place, will cause the loss of many thousands of US based American jobs, and will damage the lives of countless numbers of Americans living abroad.
I do not believe the transition tax for small business can be made fair or workable. It must simply be dropped altogether.
________________________________________________________________________ And on the Home front …
Introduction: If you were to REPEAL FATCA A previous post discussing the what exactly is meant by FATCA and the Mark Meadows “Repeal FATCA” bill, described:
FATCA is the collective effect of a number of specific amendments to the Internal Revenue Code which are designed to target both (1) Foreign Financial Institutions and (2) Those “U.S. Persons” who are their customers. 1. There are “Three Faces To FATCA” which include: – Face 1: Legislation targeting Foreign Financial Institutions (Internal Revenue Code Chapter 4) – Face 2: The FATCA IGAs (which for practical purposes have replaced Chapter 4) – Face 3: Legislation targeting individuals (primarily Americans abroad who commit “Personal Finance Abroad – While Living Abroad” – Internal Revenue Code 6038D which mandates Form 8938) 2. The amendments to the Internal Revenue Code that would be necessary to reverse the sections of the Internal Revenue that created FATCA. Legislative FATCA vs. Regulatory FATCA
The sections of the Internal Revenue Code that comprise “FATCA” are surprisingly few. FATCA Face 1:Internal Revenue Code S. 1474(f) gives Treasury broad authority to make “FATCA regulations”. Continue reading →
Jackie Bugnion has published a superb article describing the problems of U.S. citizenship taxation and why the United States must move to residence based taxation. Before, describing her article, for those who don’t know …
On May 7, 2015 I received notification that Jackie Bugnion had submitted her resignation to the Board of ACA “American Citizens Abroad“. I read the notification with a combination of sadness and total appreciation for the incredible efforts that Jackie has made in advocating for the rights of Americans Abroad. Jackie was largely responsible for organizing the “Citizenship Taxation Conference” (featuring the debate between Michael Kirsch and Bernard Schneider) that took place in Toronto on May 2, 2014. Some of you may have had the privilege of meeting her there. It’s unlikely that she could be replaced by any one individual. Continue reading →
As you know, on May 2, 2014 ACA Global Foundation sponsored a debate on “21st Century Taxation of Americans Abroad: Citizenship-based taxation vs. Residence-based taxation. The debate featured Professor Michael Kirsch of Notre Dame University law school and Dr. Bernard Schneider of Queen Mary University in London, UK.
The debate has previously been discussed here and here. In addition, I used the ideas in the debate for a separate post on question of what connection to the United States should be required to justify citizenship taxation.
The video of the debate as been released and is referenced in the above tweet.
I reiterate my thanks to ACA Global, Professor Kirsch and Dr. Schneider.
I welcome your comments.
The U.S. Treasury has been working overtime to:
1. Persuade the world’s sovereign countries to cede their sovereignty to and “Pledge FATCA obedience” to the U.S.
2. “Make the world believe” that Treasury has been and will continue to be successful.
In order to achieve this, Treasury has created what I call “the pretend IGA”. A “pretend IGA” is where a country has NOT signed an IGA, but it is anticipated (presumably by Treasury) that an IGA will be signed. That is to say, that an IGA is a “done deal”.
The tax compliance complex has (for the most part) joined the Treasury Chorus to sing to the tune of:
“It’s a small (FATCA) world after all“.
The problem is that neither Treasury nor the FATCA Compliance Complex deal in facts. They deal in “myths”. Facts are stubborn things
An interesting post appears on U.S. tax lawyer Virginia La Torre Jeker‘s blog which considers the “FATCA of the matter”. Continue reading →