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Canada’s Investment Executive makes a blitheringly stupid set of assumptions in “New rules make renouncing citizenship too expensive for U.S. expats“:
New U.S. expatriation rules, introduced one year ago, governing U.S. citizens or long-time green card holders who wish to renounce their American citizenship are serving as a disincentive for many to make the decision to give up their citizenship.
Under the rules introduced June 17, 2008, there is a deemed disposition of worldwide assets based on their fair market value on the day before expatriation. A 45% tax is levied on any capital gains above a 2009 capital gains exemption of US$626,000.
U.S. citizens and green card holders often choose to renounce U.S. citizenship in order to remove themselves from the U.S. tax regime, which, for one thing, obligates them to file a U.S. tax return every year even if they don’t live or earn income in the U.S. They may also make the decision to renounce in order to avoid U.S. estate tax.
Only “covered” expatriates fall under the expatriation rules. Covered expatriates either have a net worth equal to or greater than US$2 million, or have an average tax liability of greater than US$145,000 for the previous five years. Those who have failed to certify compliance with U.S. tax obligations for the last five years — including filing a U.S. tax return — would also be considered a covered expatriate.
Well, I’m a covered expatriate, since the last time I filed a US tax return was 2005. I also happen to be rather broke.
What is so glaringly wrong here are the assumptions made about prospective renunciants of US citizenship which seem to underlie the article:
- That someone with US$2m in net worth couldn’t be bothered to move their assets into structured offshore vehicles in advance of expatriation, and
- That renunciants wouldn’t just say “screw the IRS anyway!” and ignore the law — which is their right under any moral framework which does not permit theft, which is what taxation is.
Of course, the ruling class tools at the OECD and its hated Financial Action Task Force have made the first option increasingly difficult by putting the screws to those few remaining countries which continue to legally permit banking, corporate stock ownership, trust and other asset-holding relationships that allow for privacy, anonymity and tax avoidance. That said, there remain plenty of holes in the global taxation control grid which can be exploited — some legally, and some illegally.
PT combinatorics interlude:
- There are 203 states today. n=203
- For safety and security, you might like to hold an asset in situated in country A with its nominal (corporate, trust) ownership domiciled in country B, all while legally residing in country C. r=3
- Take P(n,r) = n!/(n-r)!, where n=203, r=3
- P(203,3) ~= 8,200,000
- That’s a whole bunch of chances to slide ’round the control grid!
Mind you, n doesn’t really equal 203, since there are some states where you’d definitely not want to hold assets or an ownership vehicle or reside, or combinations thereof. We’re still talking about big numbers here, though.
One last thing, from the article:
Every quarter, the U.S. government publishes the names of those who’ve renounced U.S. citizenship in a federal register.
Well, that’s the Federal Register, actually, but whatever. I’m still looking forward to seeing my name turn up, but it wasn’t there as of a month ago when I did a bit of searching online. Oh well. I don’t really care about the American state’s paper tiger actions with respect to me anyway.