Aware of the possibility that US lawmakers might possibly include a change to a residence-based regime – or “territorial taxation for individuals”, as the Republicans call their version – in the pending tax reform legislation has prompted many American expat organisations to redouble their efforts at getting their members to lobby Congress this week.
It isn’t known exactly when the all-important vote will take place, but many observers believe it will be sometime in the next few days. Although for now, residence-based/territorial taxation for individuals isn’t mentioned in the draft versions of the legislation that have been circulating, as reported, some influential lawmakers have expressed support for the general idea, and have not ruled out the possibility that it could be introduced.
And even though it is widely assumed few Americans who have never lived abroad or spent time among Americans who do are even aware that they are taxed on the basis of their being American citizens, not their residency, and that this is different from just about everywhere else in the world, the pressure in Expatland to win the hearts and minds of US lawmakers ahead of the tax reform vote is on.
A new post on the website of the Isaac Brock Society today, for example, urges “those willing to interact with US Congresspeople” to call or email two Republican members of Congress known to be aware of the matter “TODAY”: Rep George Holding and Sen Dean Heller.
Ahead of the Thanksgiving recess last week, meanwhile, the American Citizens Abroad sent its latest statement on the matter – about which it has been actively campaigning for months – to the Senate, formally informing its members that “a revenue-neutral, tight-against-abuse, harmful-to-no-one approach to residency based taxation” could be easily added to the tax reform legislation. Based in Washington, DC, the ACA is a non-profit advocacy group.
“Both the House and the Senate tax bills contain versions of territorial taxation for US corporations, whereby foreign income is not taxed,” the ACA letter to the Senate continues.
“These take the form of a participation exemption, but this benefit runs only to US corporations. Individuals, and Americans abroad in particular, are not benefited at all. They remain taxable on their worldwide income including, of course, foreign income.
“Americans overseas are especially disadvantaged because living overseas, their income is overwhelmingly foreign source.
There is a straightforward, potentially revenue neutral approach to correcting this situation.
“Residency-based taxation rules, which would not tax the foreign income of Americans truly resident in a foreign country, can be adopted. US income would remain taxable.
“This arrives at the same benefit given to US corporations under the territorial approach, residency-based taxation for individuals being the equivalent of territorial taxation for corporations.”
As reported, the ACA earlier this month published results of research commissioned by the American Citizens Abroad Global Foundation that showed that replacing the current citizenship-based tax regime with one that was based on an individual’s jurisdiction of residency – like most of the rest of the world uses, with the exception of Eritrea – could end up being “revenue neutral”.
London Democrats get organised
At a meeting last night in London, a group of around 20 members of the local chapter of the Democrats Abroad met to discuss the residence-based tax matter, and vowed to create a new group within the local organisation to focus on it, even if the current effort in Congress doesn’t succeed.
There was also talk of seeking to work with their Republication counterparts on the issue, even though the Republicans’ Territorial Taxation for Individuals differs in certain key respects from the Democrats’ version.
The international Democrats Abroad organisation last week published what it calls its November Tax Advocacy Action Pack, to update expat Democrats on a range of tax issues they should be aware of, and information about how to contact their members of Congress.
A comprehensive, 10-page document outlining residence-based taxation vrs citizenship-based taxation, which includes a section about the differences between the Democrats’ RBT plan and the Republicans’ TTFI, may be viewed here.