Panel Discussion on the Taxation of Expatriate and Cross-border Individuals

Panel Discussion on the Taxation of Expatriate and Cross-border Individuals Tax Advantaged Savings - Used by governments to incentivize savings for various purposes • - - Taxation can occur at three distinct points: • Outset: can be funded with before tax or after-tax funds (or deduction allowed • Earnings: dividends, interest, realized gains • Withdrawal At each point, there can be full taxation (T), reduced tax (t), or tax exemption (E) • - Retirement, education, health, etc. US traditional IRA is EET; Roth IRA is TEE; Australian super is Tet Governments set these policy levers appropriately for their own domestic economy What Happens When People Move? - Governed by treaty (where applicable) - OECD Model Treaty (Article 18) grants exclusive taxing rights to country of residence • Residence country best placed to tax at a rate appropriate to the individual's worldwide income - • However, tax rate and incidence will often differ from source country • OECD Model addresses only withdrawal phase, not accumulation/growth US Model Treaty (Article 17) grants exclusive taxing rights to country of residence, but exempts income that would have been exempt in source country • Article 17 further states that income inside a pension fund cannot be taxed to the individual unless there is an actual withdrawal (and not a rollover) Portfolio Investments - Source taxation of interest, dividends • - Appreciation / capital gains - residence of owner determines source • - Rate often determined by treaty Hence the interest in departure taxes For investments acquired outside of the country of residence, tax rules may discourage some types of "foreign investments" • e.g. Passive Foreign Investment Companies (PFICs) in the US Survey Report: "Being an American outside of America is no longer safe" From late October until early December 2020, SEAT carried out a study to better understand the effects of the extraterritorial application of U.S. taxation and banking policies on persons living overseas. The study was conducted in the form of a survey open to current and former U.S. citizens and green card holders, as well as their spouses and partners, living outside the United States. A total of 1564 persons participated in the survey. SEAT survey report available at: http://seatnow.org/survey report intro page/ Comment Former resident of: New York Resident of: UK Annual income: $150,000 to $299.999 My wife is Dutch, we live together in London. She has none of the problems I do. I can't effectively save, invest or plan for the future because The US has a hostile view towards non-US financial products, businesses or even commonly used structures intended to preserve wealth for my family e.g., trusts. Comment Former US citizen Renounced 3 to 5 years ago Formerly registered to vote in: Ohio Resident of: France Annual income: $1 $24.999 Renouncing US citizenship] was an immeasurably emotional decision. But I had to be realistic. (1) need to have a bank; (2) preparation fees represented 1/3 of my gross annual income!! Now retired, if I still had to pay these preparation fees, it would represent 8 months of my retirement income!! No one can handle such a situation. I was literally shaking during my renunciation interview - and felt as though I had been hit over the head with a baseball bat when the interview was finished. I cried for a long time. I used to think that the worst day of my life was when my son died. But with my renunciation in early 2016, it was the day that I died. Comment I have filed a US tax return and an FBAR since beginning full time employment in Australia. It is not a problem for me now because I earn Former resident of: under the threshold, but my partner and I would like to get married, buy a house, open a joint bank account, etc and I feel that I can't do these things Virginia Resident of: while having US citizenship because of how it will complicate my US tax return/financial status. Australia Annual income: $50,000 - $74,999