ACA’s advocates for the adoption of Residency-based Taxation (RBT). Now’s The Time – Start Taxing Americans Abroad Like Other Countries Tax Their Citizens
ACA created a baseline or "vanilla" approach to how taxing Americans overseas might be structured. In order to promote a constructive consideration of the subject, ACA has provided a Written Description and a Side-by-Side Comparison (updated January 19, 2018) indicating the tax code (CBT)- pre passage of HR1- compared with details of ACA's RBT approach.
ACA has regularly been updating its work in order to examine and review thinking on this subject. ACA's Written Description explains the elements of its RBT approach as well as provides responses to questions raised by members and supporters. This baseline approach to RBT is intended to lay out a version that captures the essential elements of residency-based tax treatment and examine and modify these to arrive at an optimal RBT approach, one that meets the needs of the community while addressing the concerns over abuse and potential loopholes. See our Frequently Asked Questions more information.
The baseline provided ACA with a starting point for developing revenue estimates on the cost of switching from citizenship-based to residency-based taxation. Revenue estimation work began with District Economics Group (DEG) in May of 2017 and was completed on November 6th. The DEG study estimates that a revenue neutral budget score for RBT can be arrived at within the 10-year congressional budget window of 2018 through 2027. Click here to see DEG's letter.
ACA’s new baseline approach was developed from our original draft proposal presented in 2014 (one page summary and full report) which recommends taxing Americans overseas on their US earned dividends, interest, royalties and on income earned in the United States. Our work on the issue of RBT, both our original proposal and our new baseline approach, have been presented and well received by all the tax writing committees (see: https://www.americansabroad.org/advancements-acas-residency-based-taxation-rbt-approach/)
The current Citizenship-based Taxation (CBT) puts Americans and the US economy at a competitive disadvantage. The US tax law discourages US companies from sending Americans abroad to promote US business, creates a major handicap for American entrepreneurs overseas and penalizes Americans working and living abroad.
CBT is very complex and costly to administer for both the taxpayers and the IRS. Tax filing from abroad is significantly more costly than domestic tax filing, even when no tax is due. CBT is grossly unfair as Americans abroad can pay taxes twice on the same income due not only to inherent incompatibilities between US and foreign tax rules but also to US legislation that imposes double taxation.
With CBT Americans abroad can also be subject to tax on phantom capital gains due to the long-term decline in the value of the US dollar. Americans abroad are fiscally penalized when investing in foreign tax-free pension funds which are considered taxable under US tax policy. Americans working abroad are highly restricted in local investment opportunities because of US tax rules.
This situation is incompatible with the global economy of the 21st century where the tax policy of most industrialized nations is based on residency and not nationality. CBT works against US economic interests in terms of job creation and increasing exports.
RBT will empower Americans abroad, boosting US export performance and US presence in world markets, particularly by encouraging small and medium-sized companies to initiate international activities. It will create better employment opportunities for Americans, both domestically and internationally.
TAX REFORM BILL AND AMERICANS ABROAD: WHAT HAPPENED? WHAT’S NEXT?
At around noon on 22 December, 2017, Pres. Trump signed into law the new Tax Cuts and Jobs Act, which was approved by Congress the day before yesterday. This law makes dramatic changes in the Internal Revenue Code, and there are a large number of very important, and some quite surprising, provisions affecting Americans abroad. A comprehensive analysis will take a great deal of time. However, because we have been paying attention to the details, step by step, we can make a number of points immediately. These are contained in the commentary – TAX REFORM BILL AND AMERICANS ABROAD: WHAT HAPPENED? WHAT'S NEXT? — by Charles M Bruce, ACA’s Legal Counsel and Of Counsel to Bonnard Lawson-Lausanne.
On December 29, 2017 ACA called upon Congress to hold hearings on tax reform for Americans abroad. See: https://www.americansabroad.org/news/aca-calls-on-congress-to-hold-hearings-on-taxation-of-americans-abroad/ It is time for the Congress to review every aspect of tax reform for Americans overseas, the background, the workings of existing law, the numbers, the real-life stories, all need to be aired, and now’s the time to do it. In this manner Congress will have all the elements it needs to write and pass legislation.
Although ACA advocates for complete tax reform for Americans overseas, ACA continues to highlight specific elements of the existing tax code were corrections can be made.
- Support from Congress and the Taxpayer Advocate
- Submissions Made by ACA to Congress and Key Legislative Offices
- Filing Your Taxes: Some Guidelines
- Proposal for Treatment of Foreign Pensions