MANY flaws exist in the Tax Cuts & Jobs Act. We know it, voters in the US know it, and even Republican leaders (deep down) know it.
But one thing that few people know is the catastrophic damage the new rules will have on the many Americans overseas who own their own business. If followed through, these policies could literally bankrupt countless small companies owned (or partly owned) by Americans abroad.
This week’s #TinyAction: Demand Americans abroad be exempt from Repatriation & GILTI Taxes.
*If you are a small business owner overseas, please use this more detailed script provided by our Taxation Task Force.
*Does this action look familiar? Good job! You’re also signed up to receive emails from our Taxation Task Force. In this case, the issue was important enough to raise twice.
This is an urgent issue that we can’t wait for Congress to fix, so we’ve drafted language for you to use in an email to the Treasury/IRS and relevant Congressional Committees.
To: David.firstname.lastname@example.org, Lafayettechip.email@example.com, William.firstname.lastname@example.org, Arlene.email@example.com, Leni.firstname.lastname@example.org, Barbara.email@example.com, Aaron.firstname.lastname@example.org, Kara.email@example.com, Mark_Prater@finance.senate.gov, Tiffany_smith@finance.senate.gov
Subject: Repatriation/GILTI Tax Relief for Americans business owners abroad
Dear Mr. Kautter, Mr. Harter, Mr. Paul, Ms Preston, Ms. Perkins, Ms. Angus, Mr. Junge, Ms. Getz, Mr. Prater and Ms. Smith,
My name is [NAME]. I’m an American who votes in [STATE], currently living in [COUNTRY]. I’m writing today to ask that you address two components of the Tax Cuts & Jobs Act that will have disastrous impact on Americans overseas like me.
The Repatriation Tax and the GILTI Tax were created with giants like Google and Apple in mind. But they offer no exemption for the millions of Americans overseas who own small businesses, who will be drastically (and unintentionally) hurt by this policy flaw.
The great majority of us are just like our fellow Americans at home. We are law-abiding, tax-paying citizens, working to support ourselves and our families. We are not the 1%. I understand these taxes were designed for large, aggressively tax-structured multinational corporations, but the rest of us are swept up in these policies, and in fact treat us much worse.
1. These companies are entitled to tax credits and deductions that Americans living overseas are not privy to. So while corporations can minimize or avoid these taxes, we cannot.
2. We are now obligated to deal with exceedingly complex tax and filing requirements that came without warning, designed for multinational corporations, which are now virtually incomprehensible because of incomplete IRS guidance.
There is an easy solution for this. Americans overseas with interests in foreign corporations should be exempt from the Repatriation Tax and from the GILTI regime so long as we meet the conditions required for exemption under IRC Section 911, and we are individual U.S. Shareholders.
This will capture the corporate tax that has long been denied (as intended) while recognizing that the profits our businesses generate were always meant to remain in the place where we have made our lives -- in our cases, this happens to be overseas.
But Congress will struggle to enact a remedy as soon as we require. So I urge the Treasury and IRS to take the following actions:
1. Issue an immediate notice stating that for Americans abroad, the first payment under IRC Section 965 is due the earlier of October 15, 2018, or the issuance of further guidance.
2. Issue a further notice in line with this proposal.
Thank you for your attention and I sincerely hope that the Treasury/IRS can address this matter until such time as Congress acts.
WHY IT MATTERS
In addition to continuing to fail to address the needs of individual citizens abroad, the new system under the Tax Cuts and Jobs Act has two troubling components in particular.
Repatriation Tax: Overseas profits for American-majority owned corporations will be subjected to a one-time tax on all profits going back to 1986.
This tax was intended to target U.S.-based parent corporations with foreign subsidiaries, which receive a range of offsets and credits for taxes paid in other countries. However, these deductions are not available for overseas Americans, which means that if an overseas business set up as a corporation is owned (or majority owned) by Americans living abroad, they will be forced to declare profits going back 20 years on their 2017 tax filing.
Global Intangible Low-Tax Income (GILTI) Tax: Going forward, foreign businesses owned by Americans will, again, be subjected to U.S. corporate tax on profits, less about 10%, regardless of whether or not profits are repatriated. As with the Repatriation Tax, U.S.-based corporations with foreign businesses are afforded deductions and offsets so significant that in many instances, it will mean they owe zero taxes to the United States.
Once again, these deductions are not available to overseas Americans. Overseas US citizens who own a business in the country they reside in cannot defer income from GILTI, and will be subjected to US corporate tax on profits, even if those profits never leave the country where the corporation is based.
These Americans, who live overseas and majority own corporations, will be taxed twice on the same dollar of income. Here’s an example of how it might work in real life.
Clearly, these are both grievous errors in drafting and must be addressed urgently. Please join our call for action and email the Treasury/IRS and Congressional leadership today.
- Read about this action in more detail, from our Taxation Task Force
- Review the key takeaways from our recent Congressional meetings regarding expat tax reform
- Read the “Leave Behind Pack” we provided Congress during our March Door Knock.
- Americans abroad hit by Trump’s new repatriation tax rules (Financial Times)
- Withers: What the US tax reforms will mean for US expats (International Investment)
- US Individuals (Apparently) Are More GILTI Than Large Corporations (Mondaq)
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As always, our aim is to turn tiny actions into big results, so we hope we can continue to count on your help! Be sure to forward and share this action with other activists, and send suggestions for our next tiny action to info at democratsabroad dot org.