USA expats urge government to move to residence-based taxation

03 May 2012

The lobbying group American Citizens Abroad (ACA) has published an article in the influential journal Tax Notes International, suggesting that the US would be more competitive in world markets if it dropped its citizenship-based tax regime to one based solely on residence.

ACA’s proposal – already presented to tax policy advisers at Congress – has two strands. As well as eliminating the US’s near-unique practice of taxing all US citizens, it also recommends that the Treasury should levy withholding taxes at source on all US passive income paid to Americans overseas, just as it does now for payments to non-resident foreigners.

This, says the ACA, would be at least revenue-neutral for the US government, and might even bring in more tax revenues. It would certainly alleviate the workload of the Internal Revenue Service (IRS), which would no longer have to process hundreds of thousands (and soon to be millions, of tax returns, FBAR forms, and Forms 8938 from Americans living overseas.

This would also simplify the red tape burden on expatriate Americans, who would be able to invest in local investment vehicles in the country of residence that are now impracticable due to the burdensome US filing for passive foreign investment corporations. They would also be relieved of foreign currency risks when purchasing a home.

Moreover, says ACA, a territorial system would create jobs at home and make America more internationally competitive. For example, US multinationals would once again hire Americans for overseas posts, because they would not have to pay higher tax costs for Americans than for other nationalities.

“New domestic jobs and tax revenue from increased exports would compensate many times over any possible ‘lost’ tax revenue from Americans abroad”, says ACA. It claims that every US$1 billion of American manufactured goods exports is estimated to generate 7,000 to 10,000 domestic jobs and US$150 million in federal tax revenue – much more than current tax revenue from Americans abroad.


• A report by news agency Bloomberg suggests that many of the six million American expats are seriously considering giving up their citizenship, as they are “shunned by Swiss and German banks and facing tougher asset-disclosure rules under the Foreign Account Tax Compliance Act (FATCA)”. It says the US embassy in the Swiss capital Bern has had to redeploy staff to clear a backlog as Americans queued to hand in their passports.





Tax Notes International (reprint, PDF file)

American Citizens Abroad (PDF file)




Article Search

Browse jurisdictions by clicking on the map regions below

© 2012 Society of Trust & Estate Practitioners