Groups representing American expatriate taxpayers in the offshore community stepped up their lobbying efforts earlier this week, as the US Senate’s Finance Committee prepared on Tuesday to hear testimony on the controversial Tax Cuts & Jobs Act (TCJA), which took effect on 1 January.
Much of the 2½ hours of testimony – which may be viewed online here – focused on what the legislation’s critics argued was its provision of tax cuts and disproportionate incentives to wealthy individuals and companies, such as makers of patented drugs, at the expense of the less-well-off and smaller businesses.
However, Charles Bruce, legal counsel for the American Citizens Abroad, said the organisation was in no doubt, based on meetings its representatives have been having recently “all over Capitol Hill”, that its message has got through to those Republican lawmakers it needed to.
“ACA knows that that the Republican leadership appreciates that [the TCJA] was a ’miss’ so far as Americans abroad are concerned and, worse, that it did serious damage” to them, he told International Investment on Wednesday.
“They have said again and again that they want to put this right, and we know work is being done in members’ offices.”
As reported earlier this month, the US Treasury Department granted those with overseas assets affected by the new so-called Transition Tax contained in the TCJA a two-month extension for the payment of their first instalment of the one-off levy – in an apparent acknowledgement of the difficulties it is presenting those affected by it.
The Transition Tax has been heavily criticised for the damage critics say it inflicts on Americans who own stakes of as little as 10% in overseas businesses, by requiring them to pay the tax on any “un-repatriated foreign earnings”, which has been set at 15.5% on cash and 8% on other assets.
The deadline was shifted back to 15 June rather than 15 April.
‘Residency-based taxation please’
In a statement submitted to the Finance Committee hearing, the ACA repeats its ongoing call on Congress to change the current citizenship-based taxation regime to one based on residence (“sometimes called territoriality for individuals”), noting that Americans abroad “had hoped [such a change]would have been included in the [TCJA]”.
It also reminded the Finance Committee lawmakers that Americans abroad are still being hit with a “3.8% net investment income tax to fund Medicare and the Affordable Care Act”, thus continuing to expose them to double taxation because they aren’t allowed to credit foreign taxes against it; and that the Transition Tax was highly problematic to the many American expatriates who own a foreign company and who will not have set up their ownerships “with US taxes in mind”, and who now “could easily exceed the actual tax liability” they owe simply in the costs they will incur in complying with the new requirement.
In addition, “foreign real property taxes can no longer be deducted under the act,” the ACA statement continues, noting that this too will hit “many Americans abroad”.
“Taken as a whole, these changes to the Internal Revenue Code appear to be a mismash of actions taken without thinking about their effects on Americans abroad,” the ACA continues.
“In the minds of Americans living – truly residing, many of them for all of their lives – outside the US, they are like a forgotten relative, poor uncle Jube, who is overlooked when it came to make out the guest list for Thanksgiving or a christening.
“They don’t think Congress acted deliberately out of meanness. It’s just that it didn’t really pause to think about it.”