America’s ruling Republicans have announced a major tax reform for international businesses – but failed to say a word about changing how US expats are taxed.
Recent months have seen a massive campaign in Washington DC for a switch away from citizen-based taxes to territorial taxation.
The US currently runs a citizen-based tax system which demands all Americans, regardless of the country where they live, pay tax to the Internal Revenue Service.
This is at odds with the tax system adopted by all but one country in the rest of the world which tax individuals who live or generate an income within their jurisdiction.
The only other nation with a citizen-based regime is Eritrea.
Expat lobbyists confident of change
Lobby group American Citizens Abroad argues the stage is set for a tax change for expats.
“When Congress looks up from its work on corporations, it will see that territorial treatment for individuals, in other words, residency-based taxation which does not tax individuals on foreign income, sits on the table right alongside the corporate provisions and can—and should—be added,” said Charles Bruce ACA Board Member and Legal Counsel.
The new draft tax bill concentrates on encouraging multinational corporations to pay their taxes in the US.
One measure is a one-off 12% tax on overseas profits repatriated to the States.
“The process is under way and Americans abroad definitely have a seat at the table. ACA has been working to ensure that Congress must address the tax concerns of this community, and Congress knows that is wrong and nonsensical to continue with citizenship-based taxation,” added Marylouise Serrato, ACA Executive Director.
FATCA repeal expected
The ACA and other US expat groups are also lobbying for the repeal of the Foreign Account Tax Compliance Act (FATCA).
The law, introduced by former president Barack Obama, demands foreign financial institutions report on accounts controlled by US customers.
FATCA is aimed at ensuring US taxpayers pay the right amount of tax on cash and investments held overseas.
The Republicans vowed to repeal the law in their manifesto for the 2016 elections to Congress, but have failed to take any action to scrap FATCA.