Expatriation (Giving Up Citizenship) To Avoid Taxes

3 Nov

I received an email this week from friends at The Israel Resource Network, Ltd. I have attended several of their seminars in the past and always finished to evening more knowledgeable in the ways of the world of finance and how to better manage my savings. Once in a while they send out important information and this was included in the latest mail. Since it is very relevant to the subject of this blog, I am herein including it in this post. Note that I do not recommend to anyone to give up their citizenship. The United States is a democracy with elected officials and has been done many times in the past can change its policies and laws as a result of being influenced by its citizens. This is the path to take — be proactive rather than opting out. Spread the word to friends and family. Organize meetings. Write letters to elected officials. Do all those things which can have an influence in how the government treats its citizens. Protest against “TAXATION WITHOUT REPRESENTATION” which is what is being done to US citizens who are permanent residents of foreign countries. So here is what was sent to me:

For Tax Purposes, We Are All Americans

By RONALD SOKOL

The textbook I used in law school on federal income taxation began by noting that “the history of taxation

may be written largely in terms of martial episodes.” So it was when Rothschilds financed the Napoleonic

wars; so it is today as America strives to extricate itself from the colossal debt engendered by its wars. The

taxation that inevitably follows conflicts is not a new phenomenon.

But is there a limit to a modern state’s power to tax? The conventional answer is, “probably not” — as long

as government does not flagrantly discriminate, its power to tax is extensive. Yet in one aspect the United

States has expanded the power far beyond limits fixed by other nations, and the question of whether it has

violated international law in doing so should be raised.

Let us consider the hypothetical case of a person born in France of American and French parents. He grew

up in Paris where he began his working life; he has never visited the United States and does not have a U.S.

passport. He has never attempted to derive benefits from the U.S. government. For all intents and purposes

he is only a French national, save that his mother registered him at the U.S. Consulate when he was born

(although he would have American nationality even if she had not).

He now earns a substantial amount of money and pays French taxes, but he does not file a U.S. income tax

return. The Internal Revenue Service discovers his existence and asks him to file a tax return. He refuses.

The I.R.S. then assesses a huge income tax on him and invokes the cooperation provisions of the U.S.-

France double taxation treaty. Those provisions require the French government to assist the United States in

collecting its taxes.

The man responds by suing the French government. He claims that the attempt to take his property by

hanging the power to tax on the single thread of his involuntarily acquired citizenship violates the First

Protocol of the European Convention on Human Rights. This states: “No one shall be deprived of his

possessions except in the public interest and subject to … the general principles of international law.”

The man tells the court that it is not in the public interest to tax solely on the basis of citizenship. He says he

has no contact with the United States, that he acquired American citizenship involuntarily and that he cannot

give it up without first paying the taxes that he is contesting.

Basing the power to tax on citizenship alone, he tells the court, violates customary international law, as

shown by the fact that no other first-world country taxes on the basis of citizenship. Indeed only one other

nation out of the world’s 194 states does so. The remaining 192 impose an income tax only on those who

reside within their territory or on those whose income is derived from within their territory.

While an increasing number of Americans living abroad are trying to give up their citizenship, the U.S.

government makes it difficult to do so.

In the first half of the 20th century the United States regularly expatriated citizens who did not want to give

up their nationality. But later in the 20th century it shifted to the other extreme: it made it very hard to do so.

A person can only give up American citizenship before a consular officer. He must fill out a ream of papers

and answer many questions. Finally, his attempt to shed his nationality will only succeed if he can show that

he has paid U.S. taxes. Only then will he receive a loss-of-citizenship certificate confirming that he is no

longer subject to U.S. taxes.

So, to get back to our hypothetical French-American, the French courts presumably would be bound by the

terms of the French-American double taxation treaty to assist the I.R.S. in collecting the tax that it imposed

on him.

But how would the European Court of Human Rights in Strasbourg rule? The answer to that question awaits

a brave American citizen willing to file a test case while aware of the risk that he could become a sacrificial

lamb.

Ronald Sokol is an attorney qualified to practice law in the United States and France. He is the author of

“Justice After Darwin,” “Federal Habeas Corpus” and other books and articles, and lectures annually on

“What is Justice” at Imperial College, London.

A version of this op-ed appeared in print on October 7, 2011, in The International Herald Tribune with the headline: For Tax Purposes, We Are All Americans.


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