|
| trends | strategies | American Family | steps | home | TREND 1: We will live in several places throughout our lives (domestic & international). It is now commonplace for us to have several different careers or jobs during our lifetime. As we progress through our education, career, and retirement life-stages; we will frequently change our residence. Such moves will be increasingly international in nature, as the North American standard of living spreads worldwide. Some of us will maintain current homes in several countries as we bridge our various life-stages or as a hedging strategy TREND 2: Countries will join together in regional blocks for increased security from traveling terrorists. The move to unite Canada and the US into "Fortress North America" has begun. But, while many of us are aware of the growth plans for the North American Free Trade Zone, we are less aware that for the past several years, most of continental Europe has been part of a common visa zone called the "Schengen Treaty Zone". This regional zone will increase in size and strength. Following the lead of North America and Europe, most developed and many developing countries will significantly tighten their borders as part of their regional alliances. Accordingly, if we wish to travel, work or retire overseas, we must secure some type of status in all regional associations. Doing so will ensure the ability (for ourselves and our progeny) to take advantage of the international nature of increased mobility. TREND 3: We will want to move to or carry the travel documents of low profile countries. We will increasingly want to carry the passport of a low-profile country and may even choose to have a second or primary home in that country. Since September 11th, the perception is that the world is a more dangerous place and that random violence can occur anywhere. Accordingly, no one wants to be identified as "the American in Room 602" or to spend too much time in high-profile target areas. TREND 4: It will be prudent to have several citizenships and residences in the event that one of them acquires undesirable attributes. The most unattractive attribute of US citizenship is its unique (amongst developed countries) use of citizenship as a basis for worldwide taxation. While it is still possible to legally eliminate this lifetime tax liability, it will certainly be a more complex and involved procedure in the future. Another undesirable obligation of citizenship in some countries is mandatory military service. There are many Americans who do not fondly recall registering for the Vietnam, Korea, and World War II drafts. Those who believe a US mandatory draft would never occur again should read HR 3598 Military Training and Service Act of 2001* which was introduced into the US Congress within 12 weeks of September 11th. Of particular note is the inability to defer or avoid military service. Although service is mandatory for males between 18 and 22, women are also encouraged to volunteer. While this particular bill may not become law, given the projected expanding domestic and international mandate of the US military, it is highly probable that this type of legislation will soon come into effect. TREND 5: Countries will impose increasingly invasive fiscal and personal information reporting regimes under the rationale of looking for terrorists or money launderers. This trend, which has been underway for the past decade thanks to increased co-operation between governments to share information on taxpayers and assist in enforcement of asset seizures, has gathered great momentum and justification after September 11th. Previous hesitation shown by the Bush administration has been swept aside with "the stroke of a pen". The noose has been tightening for a number of years on Americans who either have unreported overseas accounts or who have simply moved out of the US and stopped filing US tax returns. In 1992, the IRS launched a "non-filer program" in an attempt to catch overseas Americans who stopped or never filed US tax returns. An IRS information return must now be completed in conjunction with the processing of all US passport applications. Some Americans still did not come into the fold, as they already had another passport and simply did not need to renew their US travel document. However, in 1999, the Qualified Intermediary program ("QI") came into effect. The QI program saw financial institutions entering into direct agreements with the US government, despite being located in financial privacy jurisdictions. The institutions agreed to enter into these agreements in exchange for on-going access to US securities markets for all of their clients. By the end of 2001, over 1000 financial institutions had signed on as Qualified Intermediaries. This group included almost every large and stable international financial institution, including most "private" banks. These QI agreements call for the financial institution to implement client review mechanisms to determine if new or existing clients are US taxpayers (i.e. US citizens, resident aliens, or US tax homeowners). This client review mechanism is also designed to detect clients who have foreign passports indicating a US birthplace. This audited procedure should flush out the last holdouts of the US non-filers discussed above. If any client is a US taxpayer, the financial institution will submit a report on the client's account to the IRS and withhold and remit the appropriate tax to the US government. The client then has to apply to the IRS for any refund to which they may be entitled. If the prior existence of the account has not been disclosed on the client's US returns (or no returns were filed!), they will face some vary hard questions from US tax authorities regarding their entire history of their dealings with the QI institution. The Uniting and Strengthening of America by Providing Tools Required to Intercept and Obstruct Terrorism Act of 2001 (aka: the "USA Patriot Act") will uncover those non-resident non-filers that may have bank but not brokerage accounts. The Patriot Act requires all foreign financial institutions with a US correspondent banking relationship with a US bank to disclose (upon request) the name (and personal and business background) of the ultimate individual beneficiary of all accounts held in the foreign institution. Foreign and offshore financial institutions which require US correspondent banking relationships are those which offer services such as the processing of US checks and money orders, US dollar accounts, or executing US wire transfers. Of particular note is the unanimous strong warning by experts against dealing with offshore financial institutions without US banking correspondent banking relationships (i.e. non-Patriot Act compliant). Given that the US dollar is the de facto worldwide currency, this is sound, practical advice. Finally, the successful wide-sweeping IRS order to acquire offshore credit card records from issuers in over 30 countries and the subsequent actions to obtain merchant credit card transaction records from 44 high-profile retailers and travel companies have also significantly eroded US taxpayer financial privacy. The combined effect of all these efforts will soon result in complete disclosure (to the US government) of all US taxpayer holdings in every worthwhile financial institution in the world. While experts debate the effectiveness of these efforts in uncovering terrorist funding sources, there is no doubt that these regimes will continue to uncover many US citizens and residents who have engaged in thinly disguised tax evasion schemes. The American government is clearly leading the way in the aggressive scrutiny of taxpayers' domestic and international financial transactions. In response, other western countries may be anxious to either follow the US example against their own taxpayers or seize this opportunity to attract fleeing US taxpayers to their own countries. Given these trends, what practical residence and citizenship strategies should a prudent person consider undertaking? Before discussing immigration and citizenship strategies for Americans, it is worth clarifying the US government position relating to dual citizenship. Current US government policy states that an individual who is becoming a naturalized US citizen is not required to renounce their existing citizenship. On the other hand, an American citizen who is becoming naturalized in a foreign state does not automatically lose their US citizenship. You can use the foreign naturalization as a method of relinquishing US citizenship (as part of a tax expatriation plan) but this must be done very carefully and with an overwhelming demonstration of the intent to lose American citizenship. This has not always been the American government's position, so prior presumed or proven loss of foreign or US citizenship must be re-examined in light of this current policy. STRATEGY 1: Acquire a lineage citizenship to which you may have a legal claim. Ireland and Israel are two countries that are presently contemplating limiting their traditional liberal access to lineage claims to their nationality. Other counties, like Holland and Belgium, are reviewing their existing laws relating to previous loss of citizenship through naturalization in foreign countries. Other countries, such as Estonia, Latvia, and Hungary, are expanding their access to their diaspora as they emerge from under the Iron Curtain. If you (or one of your parents or grandparents) were born in another country, you should examine closely your ability to claim or reclaim that country's citizenship. | top | |
