The architecture of the international tax system was designed in the 1920s. A century later in the 2020s very little has changed …
John Richardson Follow me on Twitter @Expatriationlaw
When I hear people say that the IRC 911 FEIE and/or the IRC 901 FTC rules mean that #Americansabroad don't pay taxes to the US, I am reminded of John F. Kennedy's 1962 Commencement speech at Yale where he said: https://t.co/N6sOOPL4vO
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) October 8, 2021
This is the fourth of a series of posts about international tax reform generally and how FATCA, CRS, citizenship-based taxation, GILTI, etc. work together.
The first three posts were:
US Tax Treaties Should Reflect The 21st Century And Not The World Of 100 Years Ago
The Pandora Papers, FATCA, CRS And How They Have Combined To Create Tax Haven USA
How The World Should Respond To The US FATCA Driven Attack On The Tax Base Of Other Countries
This fourth post continues where the third post – How The World Should Respond To The US FATCA Driven Attack On The Tax Base Of Other Countries – left off. That post described in a general way that FATCA facilitated the US taxation of residents of other countries. The purpose of this post is to give a small number of important examples. To repeat:
The imposition of FATCA on other countries means that …
The United States has effectively expanded its tax base into other countries by claiming residents of other countries as US tax residents. This is a direct attack on and the erosion of the tax base of those other countries.
#FATCA helps US erode tax base of other countries in two ways: 1. Attracting foreign capital to @TaxHavenUSA 2. Imposing direct tax on residents of other countries: "FATCA: The 2010 'tax evasion law' that's 'now an extra-territorial money-sucking machine'" https://t.co/1DYJJ7TYeX
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) October 7, 2021
This purpose of this post is to continue the general theme of focusing on the difference between what a law says and what the law means in application and effect. Yesterday’s post (The Pandora Papers, FATCA, CRS And How They Have Combined To Create Tax Haven USA) focussed on the role that the 2010 US FACTCA law played in in facilitating the rise of Tax Haven USA. (To be clear, I am not saying that FATCA was the sole cause.) That said, the unwillingness of the USA to sign the CRS (“Common Reporting Standard”) has also played a role in the growth of the US as a tax haven.
Many believe that FATCA is just the US version of the CRS. Because of this belief the US has received little or no resistance to its refusal to join the CRS. This belief that FATCA and the CRS are fundamentally the same is wrong. They are very different.
The purpose of this post is two-fold.
First, to explain how/why FATCA is very different from the CRS.
Second, to explain how FATCA is used to export the “original sin” of US citizenship-based taxation into other countries. To put it simply FATCA assists the United States in capturing the tax residents of other countries and subjecting them to direct US taxation.
Prologue
Interesting commentary from @BrooklynTaxProf where he notes that the rules of international tax date back to the League of Nations – 100 years ago https://t.co/k0rK7AXPfe
— John Richardson – lawyer for "U.S. persons" abroad (@ExpatriationLaw) June 21, 2021
The rules of taxation should follow changes in society. The ordering of society should NOT be hampered by the rules of taxation!
As the world has become more digital, companies can carry on business from any location. Individuals have become more mobile. Multiple citizenships, factual residences and legal tax residencies are not unusual. It has become clear that the rules of international tax as reflected in tax treaties (as they apply to both corporations and individuals) are in need of reform.
The purpose of this post is to identify two specific areas where US tax treaties are rooted in the world as it was one hundred years ago and NOT as it is today.
First: The “Permanent Establishment” clause found in US and OECD tax treaties
Second: US Citizenship-based taxation which the US exports to other countries through the “saving clause” found in almost all US tax treaties
Each of these will be considered.
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