Exit Taxes As A Barrier To Emigration And The Need For An International Treaty To Create Uniformity And Certainty Surrounding Emigration
This blog post was written for a presentation at the MigrationConference.net on June 12, 2025. Here are the slides that will be used:
A PDF version is here:
Here is a recording of John’s brief presentation at the conference on June 12, 2025:
A more comprehensive blog post follows.
Outline:
Part A – Introduction
Part B – Emigration historically burdened by “exit taxes” (The Nazis and Soviets)
Part C – Modern Exit Taxes And First World Democracies (Canada, the United States, etc.)
Part D – A Tax Treaty Solution That Protects BOTH The Right Of Emigration And the Desire Of Governments To Tax Individuals On Gains Accruing While Living In The Country
Appendix – Human Rights Documents
Part A – Introduction
Migration is part of the human condition
Humans have innate desire to improve the conditions of their lives. Throughout history this desire has been expressed through global migration. Migration includes both:
1. Emigration – leaving one’s country of birth and/or residence; and
2. Immigration – arriving at, entering and living in the country of new residence.
One country’s emigrant is another country’s immigrant.
The importance of migration (and nationality) is recognized in Article 12 of the International Covenant Civil And Political Rights, Articles 13 and 15 of the Universal Declaration Of Human Rights and various national constitutions (including S. 6 of the Canadian Charter of Rights And Freedoms).
Most of the study and discussion of migration focuses on the “immigration” component of migration. What are the barriers to immigration to a country? There is endless discussion and news about people attempting to enter the United States through the southern border. Migrants attempting to enter the UK is a newsworthy topic.
There is far less discussion of the “emigration” component of migration. What are actual and possible barriers to emigration from a country? Human rights documents notwithstanding, countries do impose barriers to emigration. Some of these barriers may be an outright prohibition on leaving the country. Some of the barriers may be conditioned on meeting specific requirements (such as a valid passport). For example the U.S. Immigration And Nationality Act prohibits U.S. citizens from leaving the United States unless they leave on a U.S. passport. (Of course no U.S. citizen has a right to a U.S. passport.) But, other barriers are not based on meeting requirements to depart. Rather they are based on the consequences of leaving. They are based on punishment for leaving.
Exit taxes (sometimes called departure taxes) are a monetary levy imposed for moving from a country. The rationales for the levy have varied over the years. Exit taxes are a growing barrier to emigration. While the 21st Century has significant opportunities for immigration, it has also been a time of increasing barriers to emigration – specifically in the form of “exit taxes”.
Part B – Emigration historically burdened by “exit taxes” – (The Nazis and Soviets)
Exit taxes have a history of being associated with human rights abuses in countries with questionable commitments to human rights generally and migration specifically.
The German Reichsfluchtsteur
In 1931 Germany established the German Reich Flight Tax (Reichsfluchtsteuer) – designed to enact capital controls on persons leaving the country. When the Nazis came to power in 1933, the Reichsfluchsteuer was expanded in purpose and used for asset confiscation.)
An excerpt from Wikipedia describes the Reichsfluchsteuer as:
“… a temporary “Measure Against Capital Flight and Tax Evasion”, individuals who were citizens of Germany as of 31 March 1929 and had moved or would move their residence abroad before 31 December 1932, the tax would be assessed, provided the emigrant had taxable assets in excess of 200,000 ℛ︁ℳ︁ or an annual income over 20,000 ℛ︁ℳ︁. The tax rate was set at 25% of total assets or income and was also applied retroactively.[7]
Taxable persons who attempted to evade this penalty could be punished with no less than three months imprisonment and an unlimited fine. The names of those abroad who evaded this penalty were listed in a “Tax wanted poster” published in the Deutscher Reichsanzeiger, and were to be arrested in the event of a visit to Germany. Any assets in Germany belonging to tax evaders who had moved overseas were seized.
The law was supposed to expire at the end of the year 1932 but that year it was extended to 31 December 1934 (Reichsgesetzblatt I, p. 572).”
(In the following link you can see some of the people who are alleged to avoided the “Reichsfluchtsteuer.)
The same Wikipedia article notes that when the Nazis came to power, the use of the Reichsfluchtsteur was expanded:
“… the use of the Reich Flight Tax shifted away from dissuading wealthy citizens from moving overseas and was instead used as a form of “legalized theft” to confiscate Jewish assets. The departure of Jewish citizens was desired and permitted by the Nazi government – even after the Invasion of Poland – until a decree from Heinrich Himmler forbade Jewish emigration on 23 October 1941. The tax was steadily increased and used as a “partial expropriation”[4]: 12 to seize the assets of Jewish refugees who were persecuted and driven to flee their homeland.”
https://en.wikipedia.org/wiki/Reich_Flight_Tax
A similar description of the tax described and the “shifting purpose of the tax” …
Soviet Exit Taxes
In 1973 the New York Times published an article describing the “Exit Tax” that the Soviet Union imposed on certain individuals who wished to move from the Soviet Union. The American attitude toward “exit taxes” is expressed in the following excerpt from a 1973 article in the New York Times:
“At present, bills put forward in the Senate by Henry M. Jackson, Democrat of Washington, and in the House of Representatives by Wilbur D. Mills, the Arkansas Democrat who heads the powerful Ways and Means Committee, would prohibit favorable tariff and credit treatment for any nation that restricts emigration of its citizens or imposes more than nominal exit fees.
This would affect not only Jews but ethnic Germans, Armenians, Ukrainians and others seeking to emigrate from the Soviet Union, though Jewish emigration has been the major political issue so far.
Although Soviet education taxes have been scaled down somewhat from the time they were instituted last August, they still range from $5,000 to $25,000 for university‐educated scientists, engineers, writers, artists and others.
Even if these fees were permanently suspended, emigrants would not avoid all payment: the Soviet Union charges more than $1,000 for an exit visa and revocation of Soviet citizenship.”
Generally, the Soviet Union justified the tax on the basis that the Soviet state had paid for the individual’s education and was entitled to be reimbursed if he moved from the Soviet Union.
Part C – Modern Exit Taxes And First World Democracies – Canada, the United States, …)
Western democracies adopt “exit taxes” as a staple of their tax systems – Where taxation begins, human rights seem to end … Taxation – in the form of exit taxes – clearly burdens migration
Beginning in the 1990s first world democracies began creating and imposing exit/departure taxes on citizens who move from their countries (Canada, Germany, Norway, Spain, Japan, France and a UK departure tax is currently under discussion…).
Going a step further, the United States imposes an Exit Tax when a U.S. citizen renounces U.S. citizenship or a Long Term Resident Green Card Holder moves from the United States.
https://www.law.cornell.edu/uscode/text/26/877A
Generally speaking, modern exit taxes share some of the characteristics of the German Reich Flight Tax (asset thresholds, taxation on assets, etc.). Rather than the outright confiscation of the assets, modern exit taxes impose a “pretend sale” of assets at the point of severing tax residency with the country. They payment of the tax (assuming the money can be found to pay it), often results in a significant erosion of the value of the asset and net worth of the individual. Whether the exit tax is a direct tax on the asset or a tax on a deemed capital gain, the effect of the tax is the confiscation/erosion of the capital of the emigrant.
Example of modern exit taxes levied by first world democracies include:
– Canada’s “Departure Tax” imposed in the 1990s
https://ustaxationabroad.ca/2013/07/31/canadas-departure-tax-vs-the-us-expatriation-tax/
– Australia
https://legalvision.com.au/moving-overseas-exit-tax/
– The United States – HEART Act
the 1995 U.S. discussions about what in 2008 because the 877A Exit Tax
https://www.finance.senate.gov/imo/media/doc/Hrg104-795.pdf
https://www.c-span.org/program/senate-committee/tax-treatment-of-expatriates/154031
-the U.S. 2008 HEART Act imposing both the 877A Exit Tax and the 2801 Covered Gift Tax
https://home.treasury.gov/system/files/131/Report-Tax-Compliance-1998.pdf
https://citizenshipsolutions.ca/category/exit-tax-book/
– Germany
https://www.winheller.com/en/tax-law-tax-advisory/international-tax-planning/exit-taxation.html
https://www.mwe.com/insights/exit-tax-for-investement-shares/
– France
– Norway
https://www.bdo.global/en-gb/insights/tax/world-wide-tax/norway-exit-tax-rules-to-be-tightened-again
-Japan
– Spain
https://spainadvisers.com/exit-tax-spain/
In general:
https://en.wikipedia.org/wiki/Expatriation_tax
October 2024 – Economists at LSE argue for an Exit Tax
https://www.lse.ac.uk/News/Latest-news-from-LSE/2024/j-October-2024/uk-capital-gains-exit-tax
January 15, 2025 – UK considers an exit tax
Departure Taxes Are In Effect Taxes On Emigration (Or In The Case Of The United States A Tax On Citizenship Renunciation)
Although the specifics differ from country to country, what departure taxes have in common is that they are:
– a tax based on the value of the assets owned by the emigrant at the point of severing tax residency with the first country and moving to the second country
– a tax based NOT on the actual realization of income, but a tax based on unrealized gains accrued in the asset
– a cash payment due to the government when there has been no cash realized to make the payment
– an erosion of the “net worth” of the individual if/when he decides to move to another country
In short: Departure Taxes do burden emigration. Departure taxes make it impossible to move from one country to another without a significant erosion in the value of assets. Is this good social policy? Is this good tax policy? Is this necessary? Is there another way to achieve the relevant goals?
Judicial Response To Departure Taxes In The EU
European Union
EU courts have ruled that departure levied when an individual moves from one EU country to another unjustifiably burden the right of “freedom of movement” from one EU country to another. As a result they have been struck down. Presumably this reasoning would not apply if a resident of an EU country moved to a non-EU country.
https://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=9018330&fileOId=9019362
https://www.taxnotes.com/featured-analysis/are-exit-taxes-discriminatory/2024/06/21/7jhgh
Outside The EU
Exit taxes are never popular.
The United States imposes an exit tax upon renunciation of U.S. citizenship. Interestingly, Roger Ver (“The Bitcoin Jesus”) is defending his tax evasion charges on the basis that the U.S. 877A Exit Tax is unconstitutional. (The argument is that income requires actual realization). There is some support for this position in the legal community.
https://www.feingoldalpert.com/siteFiles/10200/Mark%20Berg%20Bar%20the%20Exit%20(Tax)!.pdf
Part D – A Tax Treaty Solution That Protects BOTH The Right Of Emigration And the Desire Of Governments To Tax Individuals On Gains Accruing While Living In The Country
A reasonable solution that would protect the interests of prospective emigrants and governments would be a multi-lateral treaty (there is precedent for this with the OECD Common Reporting Standard).
The multi-lateral treaty would:
1. Harmonize departure taxes for the treaty partner countries. The harmonization would include agreement on exactly what classes of assets may legitimately be made subject to departure taxes. Should pensions be included? Should principal residences be included? Should there be a threshold?
2. NOT require a payment of a departure tax at the point of emigration from Country A to Country B
3. Would document the tax owed to Country A – based on the agreement on how the departure tax should work – at the point of departure
4. Would allow Country B to collect the gain attributable to gains accruing while the taxpayer lived in country
5. Would require Country B to enforce payment to Country A at the time that the asset was sold.
A multi-lateral tax treaty would operate such that:
This solution would harmonize departure taxes, preserve the entitlement of countries to impose taxation on gains accrued, but not realized, during a period of an individual’s tax residency in the country. The tax would not be paid until the asset was sold. This would minimize the extent to which taxation generally and departure taxes specifically would burden emigration.
The Solution: A multilateral treaty that would coordinate the emigration from one country with the immigration to another country. The principle would/should be that there is NO deemed sale/distribution of assets. At the time that the assets are sold both the countries of emigration and immigration will get their “fair share”.
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Appendix – Human Rights Documents
Article 12 – International Covenant On Civil and Political Rights
Article 12
1. Everyone lawfully within the territory of a State shall, within that territory, have the right to liberty of movement and freedom to choose his residence.
2. Everyone shall be free to leave any country, including his own.
3. The above-mentioned rights shall not be subject to any restrictions except those which are provided by law, are necessary to protect national security, public order (ordre public), public health or morals or the rights and freedoms of others, and are consistent with the other rights recognized in the present Covenant.
4. No one shall be arbitrarily deprived of the right to enter his own country
Declaration Of Human Rights
The Universal Declaration of Human Rights, adopted by the U.N. General Assembly on December 10, 1948, recognizes both a right to physically leave (emigration), and a right to relinquish citizenship (expatriation). Article 13(2) provides: “Everyone has the right to leave any country, including his own, and to return to his country.” Article 15(2) provides: “No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality.”
Article 13
1. Everyone has the right to freedom of movement and residence within the borders of each state.
2. Everyone has the right to leave any country, including his own, and to return to his country.Article 15
1. Everyone has the right to a nationality.
2. No one shall be arbitrarily deprived of his nationality nor denied the right to change his nationality.
https://www.un.org/en/about-us/universal-declaration-of-human-rights
Unsurprisingly Section 6 of Canada’s Charter of Rights and Freedoms in protecting the right to both leave and enter Canada, enshrines the twin principles of:
– the right to leave Canada; and
– the right of a Canadian citizen to enter Canada.
(Interestingly Canadian Charter S. 6 also includes the right to move within Canada from one province to another.)
6. (1) Every citizen of Canada has the right to enter, remain in and leave Canada.
(2) Every citizen of Canada and every person who has the status of a permanent resident of Canada has the right:
to move to and take up residence in any province; and
to pursue the gaining of a livelihood in any province.(3) The rights specified in section (2) are subject to:
any laws or practices of general application in force in a province other than those that discriminate among persons primarily on the basis of province of present or previous residence; and
any laws providing for reasonable residency requirements as a qualification for the receipt of publicly provided social services.(4) Sections (2) and (3) do not preclude any law, program or activity that has as its object the amelioration in a province of conditions of individuals in that province who are socially or economically disadvantaged if the rate of employment in that province is below the rate of employment in Canada.
John Richardson – Follow me on X.com @Expatriationlaw