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Issues in Citizenship-Based Taxation - Part II: The Transcript

Issues in Citizenship-Based Taxation - Part II: The Transcript

Part II of our webinar on issues in citizenship-based taxation in the US and beyond was as exciting as the first, and here's the proof!

Find below the full transcript for your reading pleasure.


If you have any additional questions for our panelists, please make sure to submit them in the pertinent forum thread linked to below.


A special thanks to:

-       John Richardson, Lawyer, Citizenship Solutions, Toronto, Canada;
-       Dr. Karen Alpert, Finance Lecturer, University of Queensland Business School, Australia, and;
-       Larry Stern, Partner, Aboulafia Avital Shrensky & Co., Israel

for participating in this panel and shedding plenty of light on the issue of citizenship-based taxation.

For now, here are some of the event's main highlights!

What is your prognosis with respect to continued US citizenship abroad and all of these problems?

Larry Stern, Partner, Aboulafia Avital Shrensky & Co., IsraelLarry Stern: "It's a huge challenge. There've been recently some changes for the better with the GILTI high tax exception that has been proposed, so there's a little bit more visibility to the issue of US citizens abroad. But I'm not totally hopeful that there's going to be a full-blown solution or major change to the tax code any time in the immediate future."

"I think the current bill at least may provide a lot of relief, both from a compliance perspective and a tax perspective to those individuals in what are called high tax countries where there is a tax rate in excess of 18.9 percent of corporate tax. So under 962, which allows for a treatment of an individual as a corporation and they are in a high tax country similar to subpart F where you have a high tax exception, you may be entitled to a high tax exception as well without the need to comply with the major aspects of GILTI. So that actually provides relief or can provide relief to individuals that are coming from countries that have corporate tax rates or that are located in countries that have tax rates in excess of 18.9 percent. So there's definitely some benefit to this proposed legislation. It's not the solution any of us probably would want, it would make more sense to move over to residency-based taxation like 99 percent of the rest of the world. I will take what we can get in the meantime to help our clients."

John Richardson, Lawyer, Citizenship Solutions, Toronto, CanadaJohn Richardson: "This has been very interesting to me because, I really have to take my hat off to Treasury this year for creativity on how to mitigate the GILTI problem for individual shareholders of CFCs because in March we have the unbelievably creative and interesting interpretation of 962 in conjunction with subpart F, which they say compels the conclusion that individuals get 50 percent discount on GILTI, notwithstanding that it doesn't say that in the Internal Revenue Code. So, in other words, in March they say: "If this is GILTI, we'll give you 50 percent discount," and then in June, they say, "You know what? If your tax rate in your country where you're living is over 18.9 percent, then it's not going to be GILTI at all," making it even easier."

What FATCA is doing in the IGAs is actually creating US taxpayers where they didn't exist before. What do you think about that statement?

Dr. Karen Alpert, Finance Lecturer, University of Queensland Business School, AustraliaKaren Alpert: "When you take someone who has been in Australia for 20 or 30 years, may have grown up in Australia, but been a US citizen either by birth or descent, and the banks are telling him, "You're a US citizen, we need a Social Security number." And these are people who, number one, had they known they were US taxpayers all along, they would have arranged their affairs so that they would pay no US tax. Australian tax rates are high enough, they are higher than US tax rates. But if you do not know that you have to arrange your affairs, it can be really messy for these people trying to enter into compliance."

"The problem is with these people who had no idea they were US taxpayers so they took advantage of Australia's superannuation, made extra contributions, and now the IRS says that's a foreign grant to our trust. We want to tax all this money that's in your super that you cannot even touch until you're sixty-five. So how am I supposed to pay the tax on that when it's all inside that account that I cannot touch?"

Is the US a major tax haven?

Karen Alpert: "Definitely, the US is a tax haven. As long as they are not going to follow CRS, then for non-resident aliens this is the place to put your money because your home government will never find out about it."

Larry Stern: "I think it's been like this for decades. If you think before the whole IGAs came into place, there was never any internal US reporting of tax free income; interest, capital gains for a foreigner in the US is tax free."

"On the one hand, it attracts investments, on the other hand, I have couple of clients who unfortunately passed away while they maintained assets in America and they have a non-adjusted 60 thousand dollar estate tax exception. Talk about unfair. Granted they are not Americans and you want to say, "Let's get our hands on whatever we can of the non-Americans," but putting that aside for the moment, the idea that there's anyone who buys a house to rent out, a non-American who buys a house to rent out and passes away, there's no one who's not going to be subject… if America wants to bring investment into America, that's where they should be looking to change. Have people come and invest in America without having to be subject to or at least put a similar or much more reasonable threshold for avoiding estate tax, you could get so much more capital in America with that than you can with the Americans living abroad, at least those living in higher tax countries."

Do you think that FATCA is sustainable with this one-way, you send this information over but we're not going to reciprocate?

Larry Stern: "I don't know if there's no reciprocation to be perfectly honest. We've seen here in Israel at least, the Israeli tax authorities have received a data dump from America, at least 30 thousand files sent from America to Israel about Israeli residents."

Karen Alpert: "But it's so asymmetrical that it's not funny. What the US sends is individual accounts only and only if they have got the foreign residence. So if you have your account with your mother's address in the US, the IRS has no clue that's a foreign account so that would never be sent. And they do not look through entity accounts."

Happy reading!