News

DA publishes updates to our FATCA /FATCA Reform Campaign FAQs

This is a link to our FATCA and FATCA reform campaign FAQs, updated for developments in our campaign in support of Residency Backed Taxation and other.  

Please send questions or comments to taxationtf@democratsabroad.org.


DA tells House W&MComm American business owners abroad need a TC&JA "transition taxes" exemption

The Ways & Means Committee of the U.S. House of Representatives is holding a hearing on Wednesday May 16, 2018 entitled "Hearing Series on Tax Reform:  Growing our Economy and Creating Jobs".  You can find more information about it here.

Democrats Abroad has prepared this submission to the hearing, outlining our concerns about the "transition taxes" introduced in the 2017 Tax Cuts and Jobs Act, profiling comments from American business owners abroad who are being hurt by the new taxes and demanding this urgent remedy:

"We believe Americans overseas with interests in foreign corporations should be exempt from the Repatriation Tax and from the GILTI Tax regime for any given year so long as:

(1) they meet the conditions required for exemption under IRC Section 911, and

(2) they are individual U.S. Shareholders.

This solution both achieves the U.S. Congress's goal of capturing corporate tax it has been long-denied, and recognizes that the profits of businesses owned by Americans living abroad were never meant to be repatriated to the U.S. because they are needed to sustain the underlying business entities and the American expatriate families who rely upon them.

We strongly urge Congress to correct this unintended tax burden which harms Americans and their opportunities for personal savings and economic growth. American business owners abroad should be exempted from these transition taxes so they can remain positioned to manage and grow their businesses and take care of their families."

We urge you to read the whole of our submission and follow these instructions to make your own submission to the hearing, especially if you are the owner of a Controlled Foreign Corporation and will be impacted by the Act.

Please send questions or comments to the Democrats Abroad Taxation Task Force at taxationtf@democratsabroad.org


Residency Based Taxation - what is it and why do we support it (updated FAQs)

Thanks to everyone who has contributed to our campaign in support of a switch from our current system of Citizenship Based Taxation to Residency Based Taxation by calling, message or writing to Congress.  If you have yet to do so, or feel compelled to reach out to your elected representatives again, this guide has all the information you need.

If you're not sure what Residency Based Taxation is and so are not sure whether you should act in support of this campaign then we encourage you to examine our Residency Based Taxation Frequently Asked Questions And if you still have questions please contact us at TaxationTF@democratsabroad.org.

Our campaign in support of an urgent remedy for American business owners abroad who face TWO NEW TAXES because of the 2017 Tax Cuts and Jobs Act carries on.  This was a horrific drafting error made because of the extreme haste with which Congressional Republicans drafted and passed the 2017 tax law.  Our discussions with Congress the first week of May suggests the law contains HUNDREDS of such errors!  We need as many voices as possible drawing attention to this one so that, should the Republicans get their act together and introduce a "corrections bill" to make these many fixes, that an exemption for Americans abroad from these crushing new taxes is included.  Whether you are the owner of a controlled foreign corporation or not, please click here to send a message to lawmakers and regulators who can implement a fix.

You can sign up for regular updates from the DA Taxation Task Force here.


May Meetings with Congress on Tax Reform for Americans Abroad

Thank you for your interest in the work of the DemsAbroad Taxation Task Force working to persuade lawmakers and regulators to reform areas of the U.S. Internal Revenue Code that harm Americans living outside the U.S.  We are grateful to those who took the time to participate in our Congressional CallStorm this week, calling elected representatives at the same time we were meeting in their offices.   Your voices are of paramount importance to the success of our work convincing Congress to reform the tax code and eliminate the areas that discriminate against non-resident taxpayers.

May 2018 Congressional Door Knock

Our meetings were with members on both sides of politics and in both houses of Congress.  Here are our takeaways:

Residency Based Taxation –

The Residency Based Taxation proposal being championed by Rep George Holding (R-NC) is now with the staff serving the House Ways & Means Committee who deal with technical tax matters.  Ideas proffered to the committee to prevent abuse of the law for tax avoidance purposes are being converted by the tech staff into legislative provisions.  We expect to see another draft of the proposal in the coming weeks and then it will be ready to go to the Joint Committee on Taxation for costing (known as “scoring”).  At the same time the draft legislation will be distributed to House members for the purpose of attracting co-sponsors.  Dems Abroad expects to assist by recommending members we know from our Door Knocking to be interested in supporting this important reform for Americans abroad.

Tax Cuts and Jobs Act -

Another matter we spent a good deal of time discussing on the Hill was the Tax Cuts and Jobs Act, specifically the new “transition taxes” built into the law to take the U.S. from our current system of corporate taxation to a system of Territorial Taxation for Corporations.  Unfortunately, these taxes will have an existential impact on Americans abroad who own companies.   See here for an explanation.  Our discussions with lawmakers confirm what we already knew to be true – GOP tax writers’ only goal was to push through a tax cut for large corporations as quickly as possible.  That so many drafting errors and oversights were the result is no surprise; but what is surprising – and appalling - is that Congressional Republicans have no plans to introduce a “corrections bill” any time soon.    Our only option is to badger them into doing it.  So whether or not you are a small to medium-sized business owner, please join in this important campaign demanding a transition tax remedy.

Democrats Abroad will continue our push in two ways.  Firstly, by taking to the airwaves.  We are planning a mass media campaign to draw attention to the harm that these taxes will do to Americans abroad who own businesses.  We’ve heard from hundreds of them (many of whom are quoted in this submission we made to the 24 April Senate Finance Committee hearing on the new tax law) and they are terrified that the taxes may force them to close their businesses.  We think this is a story worth telling.  Secondly, we are working with the House Americans Abroad Caucus on a Congressional “sign on letter” in which the signatories note their concern about the issue and call upon Treasury and the IRS to establish a regulatory remedy.  The letter should be ready in the next week.  It will be “open” for signatures for 2-3 weeks – during which time we will encourage you to message your members of Congress and ask for their support.  Please stay posted.

Also -

Our other messages for members of Congress included a request for their support for:

  • A “same country exception” from FATCA reporting for the accounts of Americans abroad in their countries of residence;
  • A Commission on Americans abroad, which would examine existing and proposed laws that discriminate against Americans abroad and propose a remedy;
  • The Social Security Fairness Act, which would repeal the Windfall Elimination Provisions, a law responsible for cutting the social security payments of Americans abroad who also generate retirement benefits from the statutory retirement programs in their countries of residence;
  • A mechanism for Accidental Americans to shed their unwanted U.S. citizenship without the enduring financial penalties or lengthy procedures;
  •  Reforms to the Foreign Bank Account Report (FBAR) reporting requirement for Americans abroad in their bona fide country of residence, especially redressing the enormous and out-of-proportion civil and criminal penalties for non-compliance.

Please contact us at any time with questions and comments:  taxationtf@democratsabroad.org


DA is in DC talking tax reform. Time to call Congress!

DA is door knocking Congress this week to demand urgent reforms to the ways the U.S. tax system harms Americans abroad.  It is critical for Congressional offices to be hearing from Americans living abroad right now to back up our message.

Download this Guide which has all the information you need to call, message or write to your elected representatives about the urgent need for tax reform for Americans abroad.  

We need a "storm" of calls to rain down on Capitol Hill to make a difference.  Please make your calls to your Senators and member of the House of Representatives and share this other Americans abroad.  And then request your ballot for the 2018 midterm elections.  

Please send questions or comments to TaxationTF@democratsabroad.org.


DA Tax Team May 2018 Congressional Door Knock - "Leave Behind Pack"

Democrats Abroad will be in Washington DC on May 2nd and 3rd for meetings with members of both houses of Congress from both parties to discuss the tax problems faced by Americans living abroad and to urge them to take action to enact our reform recommendations.

Download our Leave Behind Pack today.

Please send questions or comments to the Taxation Task Force at taxationtf@democratsabroad.org.


Call Congress to talk tax reform

We now understand the extent of the financial horror of the 2017 Tax Cuts and Jobs Act for Americans abroad who own businesses. The two new “transition taxes” they will bear will force many to close the companies that they have worked so hard to build and which sustain their families and prepare them for financial security in retirement. A true tax tragedy. And another call to arms for the Americans abroad community to demand that Congress:

• find a “transition tax” remedy to prevent the destruction of many thousand of businesses owned by Americans living abroad;
• work with the members of Congress developing a Residency Based Taxation proposal;
• co-sponsor HR 2136, the “Overseas Financial Access Act” – to eliminate the foreign financial accounts of Americans living abroad from reporting under FATCA;
• co-sponsor HR 1205, the “Social Security Fairness Act” - to repeal the Windfall Elimination Provision that prevents Americans abroad with pensions in their countries of residence from claiming the full amount of Social Security payments owed to them;
• address the needs of Accidental Americans who want only to shed unwanted U.S. citizenship without lengthy procedures and undo penalties.

Democrats Abroad needs you to back up our efforts by calling your elected representatives and demanding tax reform for Americans abroad.

Download our Guide with everything you need to call, message and write to Congress


DA tells Senate Finance Committee that we need a Transition Tax remedy urgently

The Senate Finance Committee is holding a hearing this week to examine the early stage impacts of the 2017 Tax Cuts and Jobs Act.  Democrats Abroad has made the attached submission to the Committee to register our serious concerns about the new Transition Taxes in the law which have extremely severe financial penalties for Americans abroad who own businesses.  Please see our letter below.

This is a link to the livestream broadcast of this important Senate Finance Committee hearing: https://www.finance.senate.gov/hearings/early-impressions-of-the-new-tax-law

You will also find at this link directions to making your own submission on the topic of the new tax law. Submissions are due no later than Tuesday May 8 and can only be forwarded by post. No faxes or emails accepted. Please take this into consideration if you are mailing a submission from abroad.

Democrats Abroad Taxation Task Force  - taxationtf@democratsabroad.org


Democrats Abroad

P.O. Box 15130

Washington DC 20003

DemocratsAbroad.org

Senator Orrin Hatch, Chairman

Senator Ron Wyden, Ranking Member

Senate Committee on Finance
Attn. Editorial and Document Section
Rm. SD-219, Dirksen Senate Office Building
Washington, DC 20510-6200

April 20, 2018

Dear Chairman Hatch, Ranking Member Wyden, and all Members of the Committee,

Re: Senate Finance Committee Hearing to examine Early Impressions of the New Tax Law – Tuesday, April 24, 2018

Democrats Abroad greatly appreciates this important hearing on the early impressions of the Tax Cuts and Jobs Act (P.L. 115-97) and we respectfully request that you accept this report for inclusion in the hearing record. We join other organizations representing Americans living abroad in our serious concern about the impact that new taxes in the Tax Cuts and Jobs Act will have on non-resident Americans who own businesses abroad.

In 2017 the U.S. Congress included Territorial Taxation for Corporations (TTC) in the group of reforms built into the Tax Cuts and Jobs Act (TCJA). We understand that TTC was implemented in order to help level the international tax playing field for U.S. multinational corporations. Congress also included in the TCJA two new “transition tax” provisions to capture tax on corporate profits long kept out of reach of the U.S. Treasury. These new “transition taxes” are our key concern because they materially threaten the viability of businesses owned by Americans living abroad.

The TCJA “Transition Taxes”

15.5% Repatriation Tax - imposed on undistributed (and therefore untaxed by the U.S.) business profits from 1986 through 2017. Overseas resident American business owners declare those undistributed business profits on their 2017 personal tax filing. This is a retroactive imposition of tax that is unrelated to the realization of revenue that might be used to pay the tax.

GILTI Tax regime – starting in 2018, mandatory declaration of undistributed business profits on the personal tax filings of business owners abroad, taxed at the highest personal marginal tax rate and without access to two critical offsets afforded corporate owners of businesses abroad: 1) a 50% deduction and 2) credits for taxes already paid on the profits to the business’s jurisdiction of incorporation. Further, as with the Repatriation Tax, the GILTI tax is imposed on profits where there may be no realization of revenue to use to pay the tax.

Clearly, TTC was enacted to strengthen U.S. multinational corporations. We believe TTC’s “transition tax” provisions were never meant to beleaguer ordinary, hard-working Americans living and owning companies abroad. In truth, the Repatriation Tax and the GILTI Tax regime will have an enormously harmful financial impact on the estimated 1 million non-resident Americans who own businesses abroad.[1]

Transaction Tax impacts on non-resident Americans who own businesses abroad

Americans living abroad owning and operating businesses are an exceeding diverse group; they are architects, yoga studio owners, retailers, recruiters, beekeepers, IT professionals, film and television producers, music distributors, advertising agency owners, financial service providers and more.[2] When asked in early 2018 about the impact of the TCJA “transition taxes” on their enterprises expat American owners of businesses in their countries of residence provided the following comments:

My family and I own a small private property development company based in the UK and operating since 2001. The profits of this company are fully taxed in the UK and none of the proceeds have been repatriated to the US as they are used for the continuing financing of the business.

Massachusetts voter living in the UK

I am a widow, mother of 2 children (ages 16 and 22). My husband was a Canadian glass artist he did not have a pension. I am and have been a self employed graphic designer for many years. I have no pension. My corporation is just me. It holds my savings which are now being taken away by this tax.

Wisconsin voter living in Canada

I operate my company with just myself and my spouse and make minimal profit ($20,000 PA at the most after all UK taxes have been paid) and most recently a loss, none the less I file my US taxes at a cost of $1000 each time and now I find I might be hit with an extra US tax making my company potentially nonviable.

American living in the UK

I run a technology company from Hong Kong with offices in three territories (China, HK and Taiwan). We have 10 employees and are an exceedingly small company who struggle every day to meet bills and grow our company. But we have big dreams and want to succeed. Don't snuff out small business owners like myself. We are the past, present and future of American business both at home and abroad.

New Jersey voter living in Hong Kong

As an architect, I established my small office of 6 employees as a Professional Corporation. This means that the US government is attempting to take a percentage of my savings, which will be needed to weather downturns in the market, which greatly affects my ability to retain employees and keep my business open. I have no home office in the US, nor is there any way for me to benefit from the large corporation tax breaks. This is simply the US siphoning away the funds I need to keep my business up and running.

Massachusetts voter living in Canada

I have been in Canada for several decades, except for 1997-2001 when my wife and I lived and worked in the U.S. For the past 11 years I have been doing IT consulting for the Canadian government, which required having a corporation. I have built up savings within the corporation which are meant for my retirement, and it operates solely within Canada, i.e. not a branch operation of any U.S. company. It was a shock to learn from my accountant that I am facing a tax of about $12,000 on my retained earnings, as a result of the subject legislation.

North Carolina voter living in Canada

My family business is a simple IT training and consulting corporation that employs me and my husband only. We file and pay taxes in Australia and the US as required. This new tax can ruin us, and if we were simply living in the US, would not apply to us. This is unfair.

California voter living in Australia

I have a little landscaping business with 5 employees. I am very proud of the work we do, but keeping on top of all of the paperwork is a struggle for me. I am happy to pay my fair share of taxes, but this law is not fair.

California voter living in Canada

My business is a one person marketing consulting corporation in which I maintain a simple portfolio to save for my retirement. This is a travesty.

Vermont voter living in Canada

I am a VERY small business owner, running a private counselling practice out of my home. I am very worried that the new laws will be punitive. I already have to pay a tax accountant more than $600 CDN each year for preparing my US tax returns yearly. My fear is that the increased complexity will not only raise the amount I need to pay them, but will result in my needing to pay taxes twice on the same money.

Massachusetts voter living in Canada

My business, REDACTED, is a values based business with a focus on sustainability. We make the best REDACTED in Vancouver, BC and strive to be the best employer in our industry. The livelihood of my family and the 100 staff that REDACTED employs is in danger from this policy mistake.

Washington state voter living in Canada

I am a small business person with a trading company and some small service businesses. I declare my businesses and income and pay the taxes due both locally and to the US Treasury. Although I have lived overseas for over 40 years, I am proud to be an American and to support the government with my tax dollars. But this latest abomination of a regime is putting an unbearable burden on me and countless other Americans for little tangible benefit. We’re the small worthless fish being swooped up by a giant drift net meant to catch the larger valuable prey, and we’re being left to suffocate and die for lack of interest. Please help us.

Wisconsin voter living in Taiwan

I am a practicing physician. I am shareholder in our small incorporated family owned medical business. This Canadian only corporation serves only local people, and the income from this stays in Canada and is effectively our only pension. The Repatriation/GILT is unfair taxation! We have diligently and without fail filed our US Tax returns all the years that we have been required to do so in addition the Treasury Department forms at excess cost to us.

California voter living in Canada

I run a one-person incorporated consulting business. I have worked part-time for the past nine years, with the specific purpose of putting money aside to send my two daughters to college in the US. Any additional penalizing taxes paid out of my corporation will be a direct hit to the tuition funds I have worked hard to save, and result in a higher need for federal financial aid.

Illinois voter living in Canada

I am the owner of a small software development business that has never done any business in the U.S., yet still reports to the U.S. IRS, and will continue to do so as long as deemed that the cost is within reason. My options are simply to shut it down or expatriate.

California voter living in Sweden

All of these comments, and several more not listed here, demonstrate that many Americans business owners living abroad fear that this additional tax burden will force them to close their businesses[3]. In addition to the new transition tax burden American business owners abroad will bear, they are also being subjected to even greater tax filing/compliance costs. The new rules for calculating the “transition taxes” are exceedingly technical and organizing accurate filings is proving very time-consuming and complex. U.S. expat tax professionals hired to prepare these filings are passing on to American business owners abroad the additional cost of their time and labor, enlarging the financial burden the new TCJA taxes places on the taxpayer.

Further, while U.S. corporations establish subsidiary businesses abroad in order to expand the operations and profitability of their U.S.-based parent company, U.S. citizens abroad establish businesses in their countries of residence in order to build a life and future abroad.

These are desperate cries from your constituents for help.

I set up my business only in June last year (2017) as a stop-gap to enable me to earn consulting fees during a period of unemployment following involuntary redundancy. I am earning a fraction of what I earned when employed (about 75% less), yet I am now faced with the cost of employing a tax preparer to deal with the complexity of earning my small income through a UK limited company that I own rather than through a UK company owned by someone else. On 2017 income of about US$15,000, I expect a bill from a tax preparer in excess of US$2,000, more than 10% of my total income, only to comply with the filing burden placed on me as UK business owner who happens to possess a US passport. I can’t even estimate what the cost will be if any US taxes are owed.

I have lived outside the United States for nearly 25 years and have filed my tax returns and FinCen and FATCA forms without the assistance of a tax preparer for the last 15 years. Now, at a time when I am on significantly reduced income, I am being penalised for being a US citizen earning money the wrong way.

Virginia voter living in the UK

As a simple freelance consultant to the life sciences industry, I only established a British limited company on the request of my corporate clients to ensure compliance with local employment regulations and law. I have no employees and no teams of accountants and finance advisors. Between the transition tax and the small fortune I will spend on tax accountants, my financial position will suffer detrimental damage – not only will I suffer a significant income loss, the reduced income will severely impact my likelihood of being able to re-mortgage my home and potentially force me and my wife to sell our home at a loss. I have been fully compliant with US tax and reporting laws for the 10 years of living overseas – this law however has the potential to financially destroy millions of Americans like myself in a matter of months.

I beg you, PLEASE PLEASE PLEASE PLEASE PLEASE PLEASE remove innocent overseas US business owners from this broad net of unintended taxation. I believe it was not intended to financially destroy people like me, but it is has the potential to do exactly that.

Arizona voter living in the UK

We believe strongly that a remedy is needed to exempt these taxpayers from a potentially crushing new tax liability - one that Congress never intended.

Transaction Tax Remedy

We believe Americans overseas with interests in foreign corporations should be exempt from the Repatriation Tax and from the GILTI Tax regime for any given year so long as:

(1) they meet the conditions required for exemption under IRC Section 911, and

(2) they are individual U.S. Shareholders.

This solution both achieves the U.S. Congress's goal of capturing corporate tax it has been long-denied, and recognizes that the profits of businesses owned by Americans living abroad were never meant to be repatriated to the U.S. because they are needed to sustain the underlying business entities and the American expatriate families who rely upon them.

We strongly urge Congress to correct this unintended tax burden which harms Americans and their opportunities for personal savings and economic growth. American business owners abroad should be exempted from these transition taxes so they can remain positioned to manage and grow their businesses and take care of their families.

We thank you for considering our views. If you have any questions regarding this letter or would like to discuss the matter further, please do not hesitate to contact either me or Democrats Abroad’s Carmelan Polce who can be reached at Carmelan@democratsabroad.org.

Sincerely,

Julia Bryan
International Chair
Democrats Abroad
chair@democratsabroad.org

Democrats Abroad is the branch of the U.S. Democratic Party for Americans living outside the U.S. Democrats Abroad has members in over 190 countries and official country committees in 53 nations on six continents. Democrats Abroad’s main activity is helping overseas Americans register to vote in U.S. elections. We host our own voter assistance website to aid Americans in that process - www.votefromabroad.org. We often cooperate with U.S. Embassies and Consulates in our countries to encourage voter participation on a non-partisan basis. You can find out more information about us at www.democratsabroad.org or on our Democrats Abroad and Democrats Abroad country committee Facebook pages.

APPENDIX 1 – Sampling of businesses run by Americans abroad

I am an architect running a small home based practice with my Canadian spouse.

New Jersey voter living in Canada

I co-own a small yoga studio. We offer yoga and meditation classes and struggle to maintain a business in Toronto, Canada's most expensive city.

Ohio voter living in Canada

I simply own some souvenir stores in Quebec City.

Ohio voter living in Canada

I am a small business, just a one woman Recruitment firm – and a single mother.

California voter living in Canada

I am a beekeeper in Canada partnering with my Canadian husband.

Ohio voter living in Canada

[I work] as a producer and director of film and television. I am merely an individual artist and creator bringing content to the U.S. and international markets.

California voter living in Canada

My business... was established in 1992 and provides distribution services for small, independent music labels. I have lived in London since 1986.

New York voter living in the UK

I run a small advertising agency working locally.

New York voter living in Switzerland

Psychological assessment and therapy for clients in Calgary, Alberta area. I am the sole owner of my business and sole provider of therapeutic services.

Oregon voter living in Canada

The business that my wife and I run, REDACTED, is a company dedicated to helping social enterprises to grow and to increase their positive impact on society and the environment. We employ 15 people, including a number of Americans, in Singapore, where we have lived for the past 14 years.

New York voter living in Singapore

I and my siblings own a very small corporation incorporated in Canada created solely for the purpose of splitting a small oil royalty between the eight children. Without the corporation, we would have had to sell the mineral interests because they don't generate enough money, and would have foregone our inheritance.

Utah voter living in Canada

APPENDIX 2 – Americans abroad must reconsider plans to start businesses given the new tax burden imposed by the Tax Cuts & Jobs Act.

I am a stay at home mom, and earn a little money for our family freelancing (writing, editing, and translating) from home. I am hoping to start a small market farm business this year also in Chilliwack, BC, Canada where I live with my husband and two boys.

Colorado voter living in Canada

I am currently a student, but planning to go into private practise as a therapist. So I am not a current business owner and the US Tax law may prevent me from operating in private practice as I hope to do.

California voter living in Canada

I am an American married to a Dutch national, my “business” is that I am registered as a single-person company: a freelance graphic designer. I have freelanced on and off for several years, whenever I was in-between full time jobs. Currently I am unemployed and do not have any freelance income, these laws have the power to destroy me and my family financially. They limit my prospects for the future… I don’t dare try to grow a business in any way because it will end up hurting my family in the end. I can’t save for my retirement, my child’s education… the American tax laws are devastating to well-meaning citizens overseas that are caught in the unintentional crossfire.

New York voter living in The Netherlands

I am a software engineer that works on embedded electronics. I have aspirations to start a small, consulting side company where I may be able to work on my own devices and electronics. Taxes in Denmark are quite high, and I have a large burden on any amount that I may be able to use on my start-up, but adding another tax burden on top of this completely destroys all incentive for me to even start. I am forced to remain a hobbyist that cannot use my engineering expertise outside of my current primary income, with little hope of driving my future career.

Montana voter living in Denmark



[1] In 2014 research published by Democrats Abroad approximately 20% of respondents identified themselves as “Self-employed/Business Owner.” Given Department of State estimates that 6.5 million voting age Americans live abroad, we estimate that perhaps a million American citizens are impacted by the “transition taxes” in the Tax Cuts and Jobs Act.

[2] See Appendix 1 – Sampling of businesses run by Americans abroad.

[3] Appendix 2 contains comments from Americans living abroad who had planned to start businesses in their countries of residence but who may cancel those plans because of the Transition Taxes.


Submission in response to IRS Notice on Transition Taxes on Foreign Earnings

Letter submitted by Democrats Abroad to the Office of Associate Chief Counsel (International)
Attention: Leni C. Perkins, Internal Revenue Service, IR-4579 

Dear Ms Perkins,
re: Guidance Notice 2018-26- Transition Tax on Foreign Earnings

Democrats Abroad is grateful to the Department of Treasury and the Internal Revenue Service for publishing the above captioned Guidance Notice and for inviting comment on it from taxpayers and taxpayer groups. Democrats Abroad joins other organizations representing Americans abroad in our serious concern about the impact that new taxes in the Tax Cuts and Jobs Act will have on non-resident Americans who own businesses abroad.

In 2017 the U.S. Congress included Territorial Taxation for Corporations (TTC) in the group of tax reforms built into the Tax Cuts and Jobs Act (TCJA). We understand that TTC was implemented in order to capture tax on corporate profits long kept out of reach of the U.S. Treasury and to help level the international tax playing field for U.S. multinational corporations. These TCJA provisions are our concern:

The 15.5% Repatriation Tax - imposed on undistributed (and therefore untaxed by the U.S.) business profits from 1986 through 2017. Business owners declare those undistributed business profits on their 2017 personal tax filing. It is a retroactive imposition of tax that is not related to the realization of revenue that might be used to pay the tax.

GILTI Tax regime – mandatory declaration of undistributed business profits on personal tax filings of business owners abroad, taxed at the highest personal marginal tax rate and without access to two critical offsets afforded corporate owners of businesses abroad: 1) a 50% deduction and 2) credits for taxes already paid on the profits to the business’s jurisdiction of incorporation. As with the Repatriation Tax, the GILTI tax is imposed on profits where there may be no realization of revenue to use to pay the tax.

Clearly, TTC was enacted to strengthen U.S. multinational corporations. TTC’s “transition tax” provisions were never meant to beleaguer ordinary, hard-working Americans living and owning companies abroad. In fact, the Repatriation Tax and the GILTI tax regime will have an enormously harmful financial impact on non-resident Americans who own businesses abroad.

Many of these business owners fear that this additional tax burden will force them to close their businesses. In addition to the new transition tax burden American business owners abroad will bear, they will also be subjected to even greater tax filing/compliance costs. The new rules for calculating the “transition taxes” are exceedingly technical and organizing accurate filings will be very time-consuming and complex. U.S. expat tax professionals hired to prepare these filings will be passing on to American business owners abroad the additional cost of their time and labor, enlarging the financial burden the new TCJA taxes place on the taxpayer.

Further, while U.S. corporations establish subsidiary businesses abroad in order to expand the operations and profitability of the U.S.-based parent company, U.S. citizens abroad establish businesses in their countries of residence in order to build a life and future abroad. We believe strongly that a remedy is needed to exempt these taxpayers from a potentially crushing new tax liability - one that Congress never intended.

We believe Americans overseas with interests in foreign corporations should be exempt from the Repatriation Tax and from the GILTI Tax regime for any given year so long as:
(1) they meet the conditions required for exemption under IRC Section 911, and
(2) they are individual U.S. Shareholders.

This solution both achieves the U.S. Congress's goal of capturing corporate tax it has been long-denied, and recognizes that the profits of businesses owned by Americans living abroad were never meant to be repatriated to the U.S. because they are needed to sustain the underlying business entities and the American expatriate families who rely upon them.

We will work, in concert with our colleague organizations representing Americans living abroad, to persuade Congress that American business owners abroad should be exempted from these transition taxes. Revision of the policy for implementing the TCJA “transition taxes” is necessary to ensure that Americans abroad remain positioned to manage and grow their businesses and take care of their families. We thank you for this opportunity to provide comment and we thank the men and women of the U.S. Treasury and IRS for their honorable service to the nation.

Sincerely,

Julia Bryan
International Chair, Democrats Abroad
chair@democratsabroad.org


Important updates on FATCA and on provisions in the Tax Cuts and Jobs Act that impact Americans abroad

On Monday 2 April there were two important developments related to expat taxation:

1. Supreme Court denies reviewing FATCA lawsuit

The Supreme Court announced on Monday 2 April that it will not review the decisions of the lower courts on the FATCA constitutional challenge.  The denial of certiorari means that the issue did not rise to the level, at this time, that merits the Court's review. 

If the Court had heard the case (Crawford et al v U.S. Treasury) then the question of whether FATCA violates 4th, 5th and 8th Amendment protections of the U.S. Constitution, as well as whether the Intergovernmental Agreements that implement FATCA are enforceable without Senate ratification, would have been addressed.  Many would have welcomed an answer to these questions.  

However, the Court's decision makes no difference at all to our work advocating for relief for Americans abroad from the enormous burden brought by FATCA.  We continue our support of H.R. 2136 - the Overseas Americans Financial Access Act - which would eliminate all FATCA disclosure of the accounts of Americans living abroad in our countries of residence.  We will continue to ask members of the House to support the bill and encourage our friends in the Senate to introduce a parallel bill.

2. IRS issues guidance on Transition Tax filing extension

Further to our recent communications about the imposition of further tax burdens on Americans abroad built into the 2017 Tax Cuts and Jobs Act, on Monday 2 April the IRS issued guidance affirming that 15 June 2018 is the deadline for filing and payments due in relation to the Repatriation Tax for taxpayers with a 15 June filing deadline (as opposed to the 17 April 2018 filing deadline).  This provides some relief for the non-resident owners of businesses abroad who face not only the Repatriation Tax but also a new GILTI tax regime as a result of the switch to a system of Territorial Taxation for Corporations enacted by Congressional Republicans in December.  

We strongly encourage Americans abroad whose businesses fall under the definition of Controlled Foreign Corporations (consult your accountant or tax advisor) to take part in our grassroots campaign demanding relief from these "transition taxes" for Americans abroad.  Take the time to draft a few sentences that explain how your business will be impacted.  Many businesses abroad will not survive if forced to bear this additional tax burden and Congress needs to hear that.

Please push this campaign out to your friends and over your social media channels.  The flow of letters has dropped off materially since the campaign was launched 2 weeks ago; this is not the time to let up!  Let's keep up the pressure on lawmakers and regulators.  You can participate in the campaign even if you are not the owner of a business.

As always, please send any questions or comments to TaxationTF@democratsabroad.org and thank you for your on-going support for our tax advocacy work.

 

Democratically yours,

DA TAXATION TASK FORCE

Julia Bryan - ex-officio (Czech Republic)

Jennifer Cederwalls (Sweden)

DeeDee Gierow (Sweden)

Rebecca Lammers (UK)

Carmelan Polce - Chair (Australia and New York)

Michael Ramos (Australia)

Joe Smallhoover (France)

Orlando Vidal (UAE)