Support For US Shift To Residency-Based Tax Widens - ACA

Tom Burroughes

2 November 2021

A group representing US expats and Green Card holders outside the country has trumpeted how support for residence-based taxation – contrasting with the current practice – is growing. The American Citizens Abroad message comes amid a lawsuit being launched by a UK-based person to stop the cross-border transfer of financial data to the US.

ACA said it welcome more organizations joining the Residence-Based Taxation Coalition, a group campaigning to change the existing worldwide system that the US tax authority uses. The vast majority of other countries tax people based on where they live, rather than by citizenship, unlike the US.

Democrats Abroad – acting for party supporters living overseas, and American Families United, a group that advocates reform of immigration and other laws – have joined the RBT.

Existing coalition members are The Adrian Leeds Group , AmCham Abu Dhabi, Association of Americans Resident Overseas , American Citizens Abroad , The American International Club of Rome, Americans Overseas, Angloinfo, Bright!Tax, Dunhill Financial, ExpatExchange, National Taxpayers Union , Swiss American Chamber of Commerce, and White Lighthouse Investment Management.

The coalition said it will present arguments, research and documentation in favor of residence-based taxation, making information available to the US government, the media and the public.

The problems faced by US citizens living overseas has prompted a number of them to renounce their citizenship. It has also prompted a number of specialist wealth managers to provide financial services for them. While estimates vary widely, there are said to be as many as eight million US expats. A point in question, however, is whether the number of such expats is sufficiently large to sway minds of legislators in Capitol Hill.

“The expanding membership in the RBT Coalition indicates the importance of tax reform for Americans overseas and shows that support covers various sectors and interests; it is not just organizations representing Americans overseas that support tax reform for this community,” ACA executive director, Marylouise Serrato, said.

Pushing the case for residency-based tax ironically comes at a time when governments have, under various pacts, sought to transfer data across national borders to enforce tax collection and thwart evasion and forms of avoidance. The US Foreign Account Taxation Compliance Act, enacted in 2010, requires foreign financial institutions to prove compliance with US tax filing if they have US clients living abroad.

The compliance burden has encouraged some banks such as Deutsche Bank and HSBC to stop serving US expats. Several banks and wealth managers, however, do so, such as RBC, London & Capital, Maseco and Schroders.

Law firm Mishcon de Reya has recently launched a lawsuit on behalf of a client, “Jenny,” challenging the ability of UK tax collectors to shift her data to the US, pleading worries about loss of financial privacy. The case has shone a light on the conflict between data-transfer powers and European privacy laws such as the GDPR system now in force in the European Union and the UK.