The Law That Makes U.S. Expats Toxic

[davidpdx]

By COLLEEN GRAFFY
Oct. 8, 2015 3:00 p.m. ET

The U.S. government has long created hardships for Americans who live abroad, and much of the problem relates to the tax code. America is the only country that taxes citizens on their global earnings, and in 2010 Washington exacerbated that by passing the Foreign Account Tax Compliance Act, or Fatca. As this law comes into force, it is doing immense harm to Americans and American interests abroad.

Aimed at preventing money laundering, the financing of terrorism and tax evasion, Fatca requires foreign financial institutions such as banks to report the identities of their American customers and any assets those Americans hold. Institutions that don’t comply are subject to a 30% withholding tax on any of their own transactions in the U.S.

This provision was enacted without regard for its effects on the 8.7 million U.S. citizens living abroad, who have essentially been declared guilty of financial crimes unless they can prove otherwise. Many institutions no longer consider their American clients worth the burden and potential penalties of the law, and are abandoning them in droves.

Being an American overseas has become a liability, and not just because it’s difficult to open or keep a bank account. Americans are now often seen as toxic. Thanks to Fatca and other tax provisions, foreigners who marry Americans abroad can see their prospects for homeownership and their pensions, insurance, privacy and investments negatively affected.

American leadership overseas, from volunteer organizations to the business world, has diminished. No one wants an American involved when their citizenship attracts a maze of rules, regulations, potential fines and criminal penalties. In one case a Swiss hospital, understandably reluctant to have its account information released to the U.S. Treasury because it has an American chief financial officer, gave the American executive a choice: Give up your job or give up your citizenship.

As a former American diplomat who now lives in Europe, I am acutely aware of the important public-diplomacy role that overseas Americans play. It’s painful to witness the anguish of patriotic Americans as they contemplate giving up their U.S. citizenship, as record numbers have been doing. In 2014, 3,417 renounced their citizenship, a 266% increase over 2012, before Fatca came fully into effect.

http://www.wsj.com/articles/the-law-that-makes-u-s-expats-toxic-1444330827