U.S. Senate staff recommends residency-based tax

U.S. expats here who are victims of the many tax rules and regulations issued by the Internal Revenue Service may get a break.

The Republican staff of the U.S. Senate Finance Committee has issued a policy paper that proposes significant changes in the way overseas citizens are taxed.

American Citizens Abroad, Inc., an expat advocacy organization, said that the policy paper agrees with it that the country should adopt a residency based taxation system. The expat organization had been advocating this approach for years.

The United States is one of a very few countries that now taxes its citizens on income earned anywhere. This has led to a series of complex tax agreements between the United States and other countries in an effort to avoid double taxation. But that effort is not always successful.

In addition, U.S. citizens receive an annual tax deduction in earned income of nearly $100,000. That may seem like a large amount, but offshore construction laborers and other highly paid U.S. workers easily exceed that limit.

The report is aptly called  “The United States needs to rethink its taxing rules for nonresident U.S. citizens.”

American Citizens Abroad, Inc. said a residence-based taxation system is the same currently proposed for U.S. corporations.

“We think it makes sense to tax the individual, as a general rule, only on income from U.S. sources.,” said the committee staff.  Republicans, of course, will control both houses of the U.S. Congress in January, but the issue seems to be non-partisan because many Democrats also say the current system damages U.S. competitivity overseas.

This common sense approach is a marked shift from today’s uncompetitive and discriminatory tax practices whereby American workers overseas are sometimes taxed twice on the same isenatecommittee122214ncome in addition to facing onerous penalty fees for errors, omissions and other discrepancies even if no taxes are owed, said American Citizens Abroad.

The current laws have created requirements for American citizens to file paperwork about their bank accounts as well as overseas earnings.

“We are thrilled to see members of the Senate Finance Committee joining the growing chorus of supporters for residence based taxation,” said American Citizens Abroad’s tax team director, Jackie Bugnion, in a release. “As an organization ACA remains committed to working on a bi-partisan basis with members of both parties to get these proposals passed in 2015.”

The organization noted that its proposal entitled, “Residence Based Taxation: A Necessary and Urgent Tax Reform” provides an in-depth analysis of why the United States must change tax practices with respect to overseas workers in order to remain competitive internationally and avoid another economic downturn. The report is available HERE! 

Meanwhile at the international level,  some 51 governments have pledged to implement automatic exchange of information beginning 2017. This is the result of a meeting by the Global Forum on Transparency and Exchange of Information for Tax Purposes in Berlin.

The Global Forum is the world’s largest network for international cooperation in the field of taxation and financial information exchange, gathering together 123 countries and jurisdictions on an equal footing, the network said.

Costa Rica is a member, and Peru and Croatia joined the Forum at the Berlin meeting.

More countries are expected to adopt the regulations soon.

The agreement is being called a major new step to boost international cooperation against tax evasion.

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