More expatriate Americans are parting with their US citizenship than ever. Overseas US offices reported 1,000 US citizens and green-card holders had renounced their allegiance in just the first three months of the year. The figure puts 2014 on track to top last year's total of almost three thousand renunciations, which was already a record high since the government began disclosing such data.
The figures are somewhat disturbing, as it is more than three times higher then the number in 2012, and greater than the combined totals for 2011 and 2012, according to the US Treasury Department.
Experts say, it is a five-year-old US campaign to hunt for undeclared accounts held by Americans abroad, which is to be blamed for the mass exodus,
Nick Giambruno, a Senior Editor of the International Man site at the "Doug Casey's International Man", who specializes in immigration law, explained to Radio VR that US citizens abroad face an array of tax compliance dilemmas for themselves and their families. Americans must report their worldwide income regardless of whether they are paying local taxes where they live. They also must report their non-US bank accounts on Report of Foreign Bank and Financial Accounts (FBARs) and file the Foreign Account Tax Compliance Act (FATCA).
"First, it is important to understand how the US tax system works, because the US is the only country in the world that practices a system called "citizenship-based taxation", he told Radio VR. "The rest of the world practices the residence fee-based taxation. This means as long as you move and not a resident of your home country any longer, you no longer have to pay taxes or have a filing obligations."
Nick Giambruno explained it by theexample of an American citizen and a Canadian citizen moving to Dubai, which is a jurisdiction that has no tax. The American citizen would still have to pay tax on the income, he said, while the Canadian or any other citizen would not.
But it extends further than just paying taxes, he said
"There is an obligation to file, even if you have no taxes. For example, if that American moved to France, where the tax rates are often higher, because of the double taxation treaties, the American citizen wouldn’t owe any taxes. But that citizen would still have an obligation to file those taxes on the tax return each year. And if you don’t file, even if you don’t owe a penny to the US Government, there are truly draconian penalties that are often more severe punishments than for many violent crimes, just for simply not filing a form," he said.
And this is driving a lot of people, particularly expatriates, to consider renunciation as an option.
Since 2009, the US government campaign has collected more than $6 billion in taxes, interest and penalties from more than 43,000 US taxpayers. But Nick Giambruno explained that the vast majority of those people had no intention of tax evasion, but simply had no idea of what their obligations were. And it makes logical sense, he stressed, because most expats aren’t aware that they have to file taxes even though they don’t live in the US anymore.
"It is more than just filing taxes," he said. "They have to file forms that indicate if they have a foreign bank account and a foreign financial account somewhere."
"I would imagine that the vast majority of them are just average middle class expatriates who got caught up in this mess. Really, it is about a witch hunt for people and it is catching small middle class people in the process."
Nick Giambruno also explained that nobody is going to change this policy, because expatriates don’t have a very large political voice, they essentially don’t matter. And that’s why Washington doesn’t really care about them. And the Americans are in this unique position, because it is only the Americans that have to deal with the burdens of citizenship-based taxation.
But, he mentioned another country that does the same to their citizens, leaving abroad. And this is the impoverished African country called Eritrea.
"Now, ironically enough, the US and specifically Susan Rice – the Ambassador to the UN – has demonized Eritrea for this practices of citizenship-based taxation," he said. "Susan Rice called it ‘extortion’. And it is hypocritical, because the US government does exactly the same thing, but, actually, on a much harsher and larger scale.
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