Last week American Citizens Abroad (ACA) submitted the the Senate Finance Committee their details proposals regarding the taxation of Americans abroad. With the rollout of Foreign Account Tax Compliance Act (FATCA) being felt around the world and the impact this is having on American (and non-American) citizens as they try to bank overseas the ACA feels more than ever that their concerns need to be heard.
Chairman Max Baucus made a request for inputs on Discussion Drafts issued by the Senate Finance Committee and hopes that they will be taken into consideration by the Committee.
The main recommendations of their proposal were:
- Residence-Based Taxation (RBT) should be legislated as the default mode of taxation of Americans abroad, with the option for Americans residing overseas for a short period to remain taxed as though they were U.S. residents.
- If an exit tax is required by Congress, there must be a high threshold before the deemed capital gains are taxed, as well as a narrow range of assets subject to the exit tax, to ensure that that the vast majority of Americans will not have their savings impacted by the exit tax and will remain free to emigrate and to return to the United States without undue financial burden. The exit tax on deemed dispositions is designed to address Congress’ concern that the few extremely wealthy Americans who may choose to move abroad should pay their fair share on capital gains realised as U.S. residents.
- The new exit tax will render Section 877A unnecessary and superfluous. Section 877A, Section 2801 and the Reed Amendment should be repealed. The current U.S. estate tax on nonresidents should be repealed or modified.
- Americans who are already resident overseas when the law changes from CBT to RBT should be largely exempt from the imposition of the exit tax since their earnings and savings have been essentially realised overseas and in light of their generally nonexistent consumption of services provided by the U.S. government.
- A streamlined, comprehensive and non-punitive compliance program must accompany the introduction of RBT for those Americans overseas who have not been in reporting compliance under CBT.
- Once RBT is the default mode of taxation, the Foreign Earned Income Exclusion and Foreign Housing Exclusion can be repealed.
You can read their full proposal on their website, ACA Submission to the Senate Finance Committee on International Tax Reform.