Please ask Congress to include Territorial Taxation for Individuals in the upcoming tax reform package. Sign the letter below…

Dear Congress...

Dear Senator Dean Heller, Senator Rand Paul, Representative Kevin Brady, and Representative George Holding:

The Tax Reform Bills currently being worked on promised to reduce and simplify taxation for all Americans. However, both the Tax Reform Bills from the Senate and the House have inadvertently worsened the taxation situation for overseas Americans.

The best solution would be to implement full Territorial Taxation for Individuals, which would reduce complexity and cost for overseas Americans, as well as end the discriminatory regime of double taxation currently practiced under America’s citizenship-based taxation.

Territorial Taxation for Individuals would also align the United States’ tax systems between individuals and corporations. Indeed, one of the main issues with the current bills is that provisions designed to transition and switch corporations to a territorial system will negatively impact individual Americans who will still be subject to global citizenship-based taxation. This mishmash of tax systems creates additional complexities and increases taxation for overseas American citizens.

As the bills move onto the Senate Floor and go into conference, we draw your attention to two items that must be addressed for overseas Americans. These tax provisions will decimate small businesses owned by overseas Americans and significantly harm Americans working overseas.

We ask for your urgent attention to these problems and for overseas Americans to be exempted from Sections 4004 and 4301 in the House Bill. Similar provisions exist within the Senate Bill.

These sections are part of the package of provisions designed to transition the taxation of U.S. corporate entities from a global taxation system to a U.S. territorial based system and are not appropriate to be applied to individual Americans that will still be subject to global taxation under current versions of the House and Senate Bills.

1. Please exempt Overseas Americans from Section 4004 in the House Bill. Section 4004 provides for a deemed repatriation (and taxes at 7 and 14%) of undistributed (and previously untaxed) earnings and profits of a controlled foreign subsidiary as well as its cash balances. The theory being that going forward those amounts will no longer be taxed so essentially taxes that were never previously paid should now be paid. U.S. individuals will still be subject to global taxation, however, and thus dividends from controlled foreign corporations will still be included in their taxes going forward. As a result, there is no need for the deemed repatriation rules to be applied to individual shareholders. Moreover, to do so could destroy small businesses run by Americans outside of the United States because they would need to pay additional tax on top of local taxes. These additional taxes would not be creditable against local taxes.

2. Please exempt Overseas Americans from Section 4301 in the House Bill. Section 4301 applies a new complex, tax regime that adds additional tax to U.S. corporations that “shift” profit from the U.S. to controlled foreign corporations. The theory is that going forward, earnings in controlled foreign corporations would no longer be subject to tax, so protections are needed to ensure that U.S. corporations do not inappropriately move earnings from the U.S. (where it would be taxed) to outside the U.S. (where it would no longer be subject to U.S. tax). Again, this territorial system is not being applied to U.S. individuals, and thus it is inappropriate to apply this anti-circumvention provision to U.S. individuals. Moreover, this additional tax would create a significant double taxation burden for businesses outside the U.S. owned by U.S. individuals and substantially decrease job creation and employment of Americans.

The best option for overseas Americans and the right option for America is Territorial Taxation for Individuals. If full TTFI is not included in the revised Tax Bill, then modifications need to be made to the provisions above to avoid unintended, severe consequences to individual Americans.