By Dylan Griffiths | Bloomberg – Fri, Aug 9, 2013 6:59 AM EDT
Americans renouncing U.S. citizenship surged sixfold in the second quarter from a year earlier as the government prepares to introduce tougher asset-disclosure rules.
Expatriates giving up their nationality at U.S. embassies climbed to 1,131 in the three months through June from 189 in the year-earlier period, according to Federal Register figures published today. That brought the first-half total to 1,810 compared with 235 for the whole of 2008.
The
U.S., the only nation in the Organization for Economic Cooperation and
Development that taxes citizens wherever they reside, is searching for
tax cheats in offshore centers, including Switzerland, as the government
tries to curb the budget deficit.
Shunned by Swiss and German banks and facing tougher asset-disclosure
rules under the Foreign Account Tax Compliance Act, more of the
estimated 6 million Americans living overseas are weighing the cost of
holding a U.S. passport.
"With the looming deadline for Fatca,
more and more U.S. citizens are becoming aware that they have U.S. tax
reporting obligations," said Matthew Ledvina, a U.S. tax lawyer at
Anaford AG in Zurich. "Once aware, they decide to renounce their U.S.
citizenship." Fatca requires foreign financial institutions to report to the Internal Revenue Service information about financial accounts held by U.S. taxpayers, or held by foreign entities in which U.S. taxpayers hold a substantial ownership interest. It was estimated to generate $8.7 billion over 10 years, according to the congressional Joint Committee on Taxation.
Delaying Implementation
The 2010 Fatca law requires banks to withhold 30 percent from "certain U.S.-connected payments" to some accounts of American clients who don't disclose enough information to the IRS. While banks can sign agreements to report to the IRS individually, many are precluded from doing so by privacy laws in their jurisdictions.
The Treasury Department last month announced that the IRS will delay the start of Fatca by six months until July 1, 2014, to give foreign banks time to comply with the law. The extension of the act follows a previous one-year delay announced in 2011.
Financial institutions including Canada's Toronto-Dominion Bank (TD) and Allianz SE of Germany have expressed concerns that Fatca is too complex.
The latest delay comes after the Swiss government agreed in February to simplifications that will help the country's banks implement Fatca.
Penalty Threat
"The United States wishes to ensure that all income earned worldwide by U.S. taxpayers on accounts held abroad can be taxed by the United States," the Swiss government said on April 10.
Since 2011, Americans, who disclose their non-U.S. bank accounts to the IRS, must file the more expansive 8938 form that asks for all foreign financial assets, including insurance contracts, loans and shareholdings in non-UNN.S. companies.
Failure to file the 8938 form can result in a fine of as much as $50,000. Clients can also be penalized half the amount in an undeclared foreign bank account under the Banks Secrecy Act of 1970.
The implementation of Fatca from July next year comes after UBS, Switzerland's largest bank, paid a $780 million penalty in 2009 and handed over data on about 4,700 accounts to settle a tax-evasion dispute with the U.S. Whistle-blower Bradley Birkenfeld was sentenced to 40 months in a U.S. prison in 2009 after informing the government and Senate about his American clients at the Geneva branch of Zurich-based UBS AG.
Compliance Costs
The additional compliance costs for companies to ensure that Americans they hire are filing the correct U.S. tax returns and asset-declaration forms are at least $5,000 per person, said Ledvina.
For individuals, the costs are also rising. Getting a mortgage or acquiring life insurance is becoming almost impossible for American citizens living overseas, Ledvina said.
"With increased U.S. tax reporting, U.S. accounting costs alone are around $2,000 per year for a U.S. citizen residing abroad," the tax lawyer said. "Adding factors, such as difficulty in finding a bank to accept a U.S. citizen as a client, it is difficult to justify keeping the U.S. citizenship for those who reside permanently abroad."
Americans Renouncing Citizenship Surge 66%
Submitted by Simon Black via Sovereign Man blog,
A massive 1,131 individuals renounced their US citizenship last quarter, according to data that has yet to be officially released (though I was able to procure an advanced copy).
This is a HUGE jump.
Compared to the same quarter last year in which 188 people renounced their US citizenship, this year’s number is over SIX TIMES higher.
Not to mention, it's 66.5% higher than last quarter's 679 renunciations.
This brings the total number of renunciations so far this year to 1,810.
While still embryonic, it's difficult to ignore this trend– more and more people are starting to renounce their US citizenship.
After all, the number of people who renounced citizenship this past quarter is roughly the same as the number of people who renounced for the previous four quarters COMBINED.
This movement shouldn't be that surprising for a species that began as nomadic hunter gatherers, or for a society that was founded by foreigner settlers in search of a better life.
Yet, in a rather anomalous twist, the emotional ties we have for our passports are incredibly strong.
It doesn’t matter where you’re from - the United States, Sweden, New Zealand, or Venezuela... many people all over the world are inculcated from birth with a sense that their country is ‘better’ than all the others.
We grow up with the songs, the flag waving, and the parades until the concept of motherland becomes deeply rooted in our emotional cores.
Not to mention, when so many of our friends and neighbors unquestionably fall in line, it’s a powerful social reinforcement that only strengthens the bond.
We come to view our nationalities rather ironically as a big piece of our core individuality. I am an American. I am a Canadian. I am an Austrian. Instead of - I am a human being.
It has taken decades... centuries even... to reach this point. So the fact that more and more people are making the gut-wrenching decision to ditch their US passports is truly a powerful trend.
So what’s driving it? Taxes... and the search for liberty.
For many, their tax bills constitute a financial breaking point. Particularly for people who spend most of their time outside of the United States and are constantly hamstrung by worldwide taxation and information disclosures, the burden for many of them has just become too much to bear.
The US government figured this out some years ago and began charging an exit tax to certain high income / high net worth expatriates seeking to renounce.
This applies to anyone whose average US tax liability over the last five years was about $150,000 (the equivalent of roughly $500,000 in taxable income in 2012 dollars), and/or has a net worth of at least $2 million on the date of expatriation. Curiously this net worth figure does not adjust with inflation.
The ironic thing is that in the "Act of July 27, 1868", the United States Congress declared that "the right of expatriation is a natural and inherent right of all people, indispensable to the enjoyment of the rights of life, liberty, and the pursuit of happiness."
Yet I would expect that as the number of expatriates continue to grow, this exit tax will become more and more onerous as the government tries to trap people, and their wealth, in the country.
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