A few weeks ago I wanted to put a piece together concerning the implications of targeting domestic corporations who did business overseas. President Obama and his administration have used the attack code-word loophole concerning world-wide corporations who commit the sin of structuring their business to ensure they play the lowest legally allowed amount of taxes to the U.S. government.
Unfortunately, I never got that post finished, but now the Obama administration has moved from corporations who do business overseas to individuals who work and do business overseas. From the UK Telegraph, with my emphasis in bold.
The decision, which would make it hard for Americans in London to open bank accounts and trade shares, is being discussed by executives at Britain’s banks and brokers who say it could become too expensive to service American clients. The proposals, which were unveiled as part of the president’s first budget, are designed to clamp-down on American tax evaders abroad. However bank bosses say they are being asked to take on the task of collecting American taxes at a cost and legal liability that are inexpedient.
Let’s get right to the most important part. President Obama thinks that individuals who are living, working and already paying taxes – in whatever form – in an other country are rich tax evaders. In reality, many of these individuals pay a high tax price to live overseas.
American citizens who are residents of another country and work legally in that country are taxed on their world-wide income. It’s important to note the first $87,600 of income earned outside of the States is excluded from being taxed, but the exemption starts to phase out at $120,000 for a married couple.
Remember, those living overseas must already pay many taxes overseas including value added tax (VAT), duty, national insurance and many other hidden taxes.
The rules are many – as an example there is the physical presence test requiring you’re out of the United States more than 330 days – and the Obama administration wants overseas banks who allow residents from the United States to open accounts to step up and take responsibility for ensuring that United States citizens are paying their fair share back home.
This is the reason why overseas banking institutions may consider turning away customers who are citizens of the United States. I’m sure they have enough difficulties trying to figure out their own tax laws let alone the thousands of pages of U.S. tax code. This would put them into “why bother” mode.
One executive at a top UK bank who didn’t want to be named for fear of angering the IRS said: “It’s just about manageable under the current system – and that’s because we’re big. The danger to us is suddenly being hauled over the coals by the IRS for a client that hasn’t paid proper taxes. The audit costs will soar. We’ll have to pay it but I know plenty of smaller players won’t.”