The Economic Times – The decision was not easy for the Gulf War veteran.
After 20 years living in Switzerland, Scott Schmith renounced his American citizenship, to escape the obligation to report his income and assets to the US government despite living overseas.
“I have nothing to hide. But I don’t want to be punished because I chose to live outside the United States,” said the new Swiss passport holder, a photographer who lives near Zurich.
Schmith is just one of a rising number of Americans giving up their citizenship to avoid the increasing efforts of US authorities to collect taxes on its citizens who keep money offshore, even those who live and work outside the country.
Starting next January, the US Foreign Account Tax Compliance Act — now known worldwide as FATCA — has required banks in a rising number of countries, including Switzerland, to report to US authorities all accounts held by Americans.
Americans discovered to be not reporting their offshore accounts, and not paying taxes on them where due, face stiff penalties.
The US is the only major country that requires its citizens resident abroad to report their income to their country’s tax authority, the Internal Revenue Service.
For years, Americans abroad have mostly been able to ignore that requirement.
But FATCA, by requiring their banks to report the accounts, is now serving as a painful reminder of the obligation.
US expats “are now learning that not only are they going to be reported by their local banks, but also that the IRS could treat them as criminals,” said Allison Christians, a tax law professor at Canada’s McGill University.
Increasingly, U.S. expats are choosing another way out: renouncing US citizenship entirely.
In the second quarter of this year, the number of Americans that gave up their marine-blue US passport hit a record of 1,131. That was 66.5% higher than the previous quarter and up nearly six-fold from a year earlier, according to official data tabulated by AFP.
While still a small part of the seven million U.S. citizens living overseas, experts are certain the rise is driven by the new tax and account reporting rules.
“FATCA is an aggravator to the renunciation figures. It’s making it very difficult for Americans to live overseas,” said Marylouise Serrato, executive director of American Citizens Abroad, which lobbies the government on expatriate issues.
Some banks around the world have already stopped taking new accounts from U.S. citizens, to avoid having to report them or falling into the sights of U.S. regulators, as happened to the Swiss bank UBS in 2009.
Schmith said his bank closed his two accounts in the summer of 2012 due to FATCA.
“More and more US expats are finding themselves abandoned in a financial black hole,” Nigel Green, chief executive of deVere Group, a financial consultancy, said in a statement.
Peter Spiro, professor of law at Temple University in Philadelphia, said FATCA is “creating a terrible dilemma” for U.S. expats.
“If you make a rational calculation, you wonder if it’s worth it to keep your US citizenship in the face of the higher administrative burden and the risk of higher penalties,” he told AFP.