October 11, 2024 - Participants include:
Dr. Karen Alpert - @FixTheTaxTreaty
Dr. Laura Snyder - @TAPInternation
John Richardson - @Expatriationlaw
About SEAT:
The purpose of SEAT has been and continues to be to conduct research (including the SEAT survey), prepare position papers, make submissions by SEAT to various governments, facilitate advocacy by individuals impacted, file amicus briefs and provide a centre for educating interested parties about the U.S. extra-territorial tax regime. (SEAT's work may be found on the SEAT website.)
SEAT believes that the problems caused to Americans abroad by the U.S. extraterritorial tax regime can be ended ONLY by severing citizenship from tax residency. We encourage the United States to join the rest of the world by taxing individuals on the basis of residence and source and NOT based on the citizenship of an individual.
This particular podcast is a response to a Tax Notes article discussing the recent Trump proposal to end the double taxation of Americans abroad. The article is found here:
https://www.taxnotes.com/tax-notes-today-federal/financial-reporting/trump-vows-end-double-taxation-overseas-citizens/2024/10/11/7m68f
Of particular interest, and the reason for this podcast, is the following excerpt quoting Professor Avi-Yonah:
"Reuven S. Avi-Yonah of the University of Michigan Law School believes concerns over double taxation are exaggerated, noting that in addition to the income exclusion limit and tax credit, many U.S. citizens live in countries that have a tax treaty with the United States, and those treaties often provide “tiebreakers” to ensure there isn’t double income taxation. “Thus, the double taxation argument is spurious,” Avi-Yonah said in an email. “There are many more cases where Americans living overseas enjoy double non-taxation because of sections 911 or 933 than cases of double taxation.”
We disagree both the general sentiment expressed and the claim that the treaty tie-break provision is available to U.S. citizens living outside the United States.
AI Description:
"In this episode, John Richardson from Toronto, Canada, discusses a major proposed development in U.S. taxation policy with Dr. Laura Snyder in Paris and Dr. Karen Alpert in Australia. President Trump's recent announcement to end the double taxation of American citizens abroad has stirred significant interest and controversy. The discussion centers around an article from Tax Notes and the differing perspectives described in the article about this policy shift.
Dr. Snyder and Dr. Alpert, both members of the organization "Seat Stop Extraterritorial American Taxation Now," delve into the complexities and implications of the U.S. tax system for Americans living overseas. They critique the views of Professor Ruven Avi-Yonah, who argues that concerns over double taxation are exaggerated and often mitigated by the "treaty tie break" provision tax treaties.
The conversation highlights the challenges faced by expatriates, including definitional and timing issues in tax codes, which can lead to double taxation despite the existence of tax treaties. The episode calls for more inclusive dialogue involving experts with firsthand experience of these tax challenges, advocating for a reevaluation of the U.S. citizenship-based taxation system."
Good morning. This is John Richardson speaking with you from Toronto, Canada. Today, Friday, October the 11th, 2024. And this has been a really, really interesting week. President Trump announced his support for a policy of ending the double taxation of American citizens abroad. This has generated a lot of interest. In some cases, a lot of controversy, all kinds of blog posts, statements from organizations. And as we might expect tax notes has jumped in with an article about this as well. And that's in part what we'd like to talk to you about today. I'm joined by Dr. Laura Snyder in Paris, France, and Dr. Karen Alpert in Australia. And we are all members of seat stop extraterritorial American taxation. Now, let me begin with Laura. Laura, tell me about this article that appeared today. Well, it's called Trump files to end double taxation of overseas citizens by Alexander Rifat. Not sure how to pronounce his last name. It's a pretty short article. It makes reference to a video released yesterday, where Trump basically is quoted to saying once and for all I'm going to end double taxation on our overseas citizens. You've been wanting this for years and no one has been listening to you. The article then very briefly explains the situation has some quotes from some people who are supportive of Trump's position. And then at the end of the article, you've got a quote from Professor Reuben Abi Yona at the University of Michigan Law School, who has been a long, well, initially he was, he, he was actually one of the first people to publish an article describing the problems with the current system of how overseas Americans are text, but he's done a complete 180 on that. And his most recent publications, he's quite supportive of the current system. And he's quoted in this article. He says that, well, he's, he's described as believing that concerns over double taxation are exaggerated and makes reference to the income exclusion limit and tax credits, and that many citizens live in countries that have a tax treaty with the US and that those treaties often provide tie breakers to ensure there isn't double income taxation. He said the double taxation argument is spurious. That's the word he uses. There are many more cases where Americans living overseas enjoy double non taxation because of sections 911 or 933 in cases of double taxation. So that's what what we've got here. What does the word spurious mean? Well, I haven't looked it up lately, but I basically think it means no, it's wrong. Yeah, roughly irrelevant. Okay, yeah. Okay, something like that. So in other words, Professor Avion, number one, he supports the principal citizenship taxation, which means by definition that he supports the principal of the United States and posing worldwide taxation on people one who do not live in the United States, and to with respect to income, a not sourced in the United States. So to be clear, that's his position. Correct? Yep. Okay. All right. Now that's interesting because I mean, that makes it sound an awful lot more graphic, you know, than just somehow he supports citizenship taxation. Okay, so you're making you're making two points here, right? The first is he's saying. I think he's saying, well, there really isn't double taxation too much or something like that, right? And he's basically saying he's basically saying this is not really a problem. That's how I'm understanding it. I see. So it's not a problem for the United States to be imposing its tax code on people who actually live in other countries on income, the errand and those other countries. Have I got this right? Is this what this guy is saying? Yes, but he got in another article. I don't have it in front of me, but in another article, he goes even further and he says if you did change it, it would, it would have caused a problem in the United States with social cohesion, which he's written about in his own articles also, which is the, well, I have a lot of opinions on what we're talking about. We'll get to that, I guess. Okay. All right. So many makes the argument. He says that in any case, leaving aside all that sort of stuff. You know, the United States has tax treaties with a number of countries and these tax treaties have what's called a treaty tie break, so that these American citizens are taxed as though they don't live in the United States. Is that right? That the tax treaties have two two things that avoid double taxation. First, they've got the savings cause, which for anyone who's not a US citizen, allows you to say, Hey, look, if country A and country B, both want to claim you as residents, we're going to figure out who you're closer to. And we're going to award you as a resident to that country, and you will not be treated as a resident of the other country. That's the treaty tie break provision, not the saving clause, the treaty tie break, right? That's the treaty tie break. Yeah, that's the treaty tie break position. So we've got that. And, and they've also got a generally, they've got a more general thing. It says that the purpose of the treaty is to avoid double taxation, whatever that means, and that the two countries will adjudicate when there's double taxation. But usually the word tiebreaker is about the residents tie break provision, not the double taxation provision. Absolutely. So what I'm going to do here is, I want to, I think I should pull up the US model tax treaty as an example of these things. But the point is that the first thing it does is it says when people are tax residents of more than one country. So, I mean, what in the world does that mean? Well, you know, part of the problem with US citizenship taxation is it means that a US citizen is always a tax resident of the United States, even if they leave the United States. I mean, so, you know, his claim that somehow double taxation is spurious is absolutely ridiculous because US citizens by definition, they leave the United States or subject to double taxation. Okay. But when you have somebody who's a tax resident of more than one country, say the United States and Canada, Canada and US because you're a US citizen in Canada because you live in Canada. Basically, treaties have provisions that say, well, in the case of dual tax residency, we're going to have some rules that assign residency to one country, the other, so you're not a dual tax resident, right? Yeah, right. And then there's a savings cause that says, oops, if you're a US citizen, you can't use any of the rest of the treaty unless it's listed here, and it never lists that particular tie break. That's exactly right. So in other words, the treaty says, you know what, all this is well and good, but if we're dealing with a US citizen, none of the treaty applies unless it specifically is stated to apply. And US citizens are not, in fact, not allowed to use a treaty tie break provisions and not be treated as US citizens, right? Right. Okay. Yeah, they're always dual tax residents. So, yeah, I mean, that's right. So, so, so as per the treaties, right? US citizens are always dual tax residents, if they're a tax resident of the other kind of idea as well. They're always dual tax residents. So then, so then the issue is, is there actually double taxation, even if you're a dual tax resident. And I think this whole focus on double taxation is difficult because you've got two countries with two completely different tax codes that define income differently. Where are they defining them the same, the treaty will generally allow one country or the other to tax and will allow credit for a tax credit to the other. But the real problem is where they define things differently. And one place where they almost always define things differently is tax deferred retirement accounts, because everybody, every country's tax code has its own separate, unique provisions for retirement savings, right? Right. And, you know, you're in Australia. Maybe you can comment on that issue a little bit in the Australian context. Well, so Australia's got superannuation, which is a separate retirement account that your employer is required to contribute money to required by Australian law. You can't get out of it. And under Australian rules, those contributions that your employer make are not your income. They go into your superannuation fund and your superannuation fund actually pays tax on that as it goes in. But the US says, well, it's going into so the Australian rules work for Australia. Then, because you're a US tax resident as well, you have to look at this through a US tax lens, which doesn't recognize superannuation as being anything other than an account in your name. Therefore, your wealth is increased when the contribution has been made. Therefore, you have income. Okay, so that's an example of a definitional issue that would lead to double taxation. You know, Karen, we've talked about this over the years. There are also timing differences. Would you be care to comment on Texas, say guilty of the transition tax? Right. So there are timing problems when say one country decides that you're going to recognize a game at a particular, you know, that hasn't actually been realized. You know, phantom gains, things like the transition tax, which again, the, that was in in tax reform where they basically made controlled corporate foreign corporations recognize all of their previously deferred income. Well, all at once, one lump sum, and that, that was, that was a tax event in the US, but it wasn't a tax event where you live. So you've got all this huge capital gain in the US transition tax gain, or a capital game when you do an exit tax. All these things are capital gains that happen, because the US tax code creates a game on a particular kind of transaction that the foreign tax code is not going to have a game because there's no realization event. You'll have something similar in Australia, if you gift property because gifting property is attacked is a disposition event for capital gains. Right. And I don't believe there's a provision in the US Australian tax treaty that deals with that situation. So afterwards, this is real. Okay, it's not a figment of somebody's imagination. And, you know, for people who've been hurt by this, the pain has been considerable, the carnage has been considerable. So, you know, these claims that, you know, somehow double taxation is not an issue, or would you agree with me if I were to say they're completely wrong. Yeah. Okay. So, you know, back to this whole saving clause thing. I'm going to read you. This is, you know, they're different saving clauses. All right, you know, in different treaties. But here's the one in Canada. And here's what this says, except as provided in paragraph three, nothing in the convention shall be construed as preventing a contracting state from taxing its residents as determined under article four residents. So in other words, you can use the tie break provision to not be a US resident. And in the case of the United States, it's citizens. And in the case of the United States as citizens. So what this specifically says is that US citizens are not able to use a treaty tie break to not be treated to avoid being treated as a US tax resident. Correct. Correct. So I mean, this claim about, and I've seen this before in a recent article by him, this claim that, you know, somehow treaty tie break provisions are available to US citizens is, you know, it's flat out wrong as a categorical statement at least right. Right. Right. If that's what he meant by tie break. And that's what most people mean by when they talk about time. Laura, can you read the paragraph there, because I, you know, this is not the only time I've seen this. Can you read the paragraph will be talks about the tie break provision. Yeah, two short ones. Okay. Okay. Well, I mean, there's a lot packed into that. Okay, you know, obviously, so it's hard to know where to begin, but very, very clearly. Part of that that says that the treaty tie break is being used to avoid double taxation is completely false statement. It's, it's, it's always false with respect to us citizens because the treaty tie break doesn't apply, right? Right. Yeah. So I mean, you know, I think this is a problem. And we see this, I think, you know, coming out of the, you know, the academic world in general, the Wall Street Journal ran an article about the Trump announcement was quoting Professor Kersch. You know, where he goes back to his talking about, well, citizenship tax agents, somehow okay, because, you know, American citizens abroad or somehow part of the American community or something. Oh, wait, I made a mistake earlier. I attributed that to Aviona, but that's right. It was cursed who said that. That's right. That's right. That particular part of it was cursed. Yeah, that particular part, but talking about the treaty tie break. Okay. Yeah. That's, that's, I think, all Aviona. I think that, I think that this is this sufficiently invites obscuring the issue to an extent where I think that I think that a letter to the editor ought to be written to tax notes about this. What do you think? Well, we can get it together. I have, I have liked to make a couple comments, John. Please. Aviona is held out of an expert on these issues. He, both by tax notes and by himself, the information, what you and Karen have just discussed. There's nothing new. You, the two of you have discussed that on countless podcasts. It's been written about in countless articles. Aviona seems impervious to this information. It's as if it doesn't exist or he doesn't know about it, but then how can you be an expert and how could people refer to you and quote you as an expert. And if you are unwilling to take into account what exists out there that is contradictory to what you're saying that that's, you're not an expert in that case. And I'd also like to note that the three of us have written numerous articles on the problems that overseas Americans face with respect to taxation. Many of them have been published in tax notes, but we are not consulted. No one asks us about this type of thing. It's as if we don't exist. And going back to Aviona. He, it says that again, he either doesn't know about or doesn't care both our problems about the many, many, many people who are constantly complaining that they do have what you can throw under a very wide and I agree, not a very good term double taxation, but people are always looking for ways to. You know, speak quickly. And they're renouncing their citizenship. And he's just, he doesn't give a damn about them. It's as if they either are wrong or not really experiencing the problems they say they're experiencing, or he doesn't care. He's never lived. Well, he's, he clearly doesn't live outside the United States now. I would question whether he's lived outside the United States for an extended period of time to the point where he has it. Add the opportunity to experience these problems himself. And yet he's constantly turned to as an expert on these issues. It's clear he knows nothing. Well, tell me what you really think about him. You know, yeah, I mean, this is a very, very clear problem. Somehow, every time I read something that he writes, it was a Will Rogers who said, it's not what he doesn't know that's the problem. It's what he knows that isn't true. Was that, was that a Will Rogers quote? I think. Yeah, but anyway, whoever, you know, wherever the quote came from. I mean, this is a big part of the problem. And, you know, first of all, I mean, I wouldn't exaggerate. I mean, you know, tax notes has published articles, et cetera. But I do think that the presumptive deference to him is, you know, ridiculous and kind of a bad idea on this. I think it's, it's a disaster. You say, well, he hasn't lived out of the country. That is likely true. But I think, you know, any bigger problem is that he lives, you know, sort of in the academic community. I mean, if he were actually doing tax work, you know, it's some major law firms. I mean, he realized that these statements he's making are, you know, maybe, I mean, maybe it certainly put him in a better position to understand it. Yeah, sure. But it's, you know, interesting to me that, again, you know, the problem is, is not defined in the sense that, again, the real, you know, if you really talk about what's going on here, this is the United States trying to impose his tax code on people who don't live in the United States on income that's unrelated to the United States. I mean, that's what we're talking about here. Right. We're not talking about some abstract concept here. Right. But anyway, so this has been great. Thanks for this conversation. Can any closing thoughts on this? Are you supportive of Laura's view of the state of the state of commentary on this issue? I think, yeah, they need to be talking to people who've actually experienced it. And they're not because the people in the ivory tower haven't all of the people quoted in this article live in the United States. Yeah. Well, that is interesting. That's what you expect. It wasn't Ruth May, Professor Ruth May, she was she was court and wasn't she. Support. She's supportive of changes. She's been critical of the current system. And she's been supportive of changes. She wrote an article. I can't remember the title. I've been a few years now since she wrote that article. But again, she hasn't written in this area for quite some time. Any people who are constantly writing about that, this, including the three of us that are didn't just ignored. Well, actually, the three of us, yes, but I think Laura, you're deserving of a very special shed here. Okay, for the work you've done for the last few years. I mean, it's by further messed up written on this by far. There isn't even a close second. So, you know, I think that needs to be acknowledged. I mean, maybe the problem is Laura, your work is too good. I mean, why would you want to consult somebody who knows anything about it when it's easier to consult? I don't have professor. I don't have professor next to my name. Well, I'm going to add it. This is like a wizard right out of the Wizard of Oz. Okay, line. Laura, I designate you from this point on your professor, Laura Snier. There you go. Now you're a professor. All right. Well, that's how our Wizard of Oz. Why not? Well. So I'm a professor Snyder. Thank you so much for participating in this today. Karen. Well, actually, no, you really are professor Alpert. No, no, I'm not. I was not, did not get that high. Well, I'm going to designate you also. So professors, any final comments. Otherwise, thanks very much for the commentary. And I think that and I think that tax notes needs needs to hear from us on this issue. Karen. Well, thanks. Thanks, John. Yeah, thanks both of you. Thanks. Okay.
