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US anti-competitive tax practices

Tuesday 30 June, 2009

As of 1 June, Virchow Krause has now changed its name to Baker Tilly to reflect its commitment to the world’s 8th largest network of accounting firms.  To celebrate, they hosted this presentation ESTATE AND WEALTH PRESERVATION PLANNING FOR MULTI-JURISDICTIONAL INDIVIDUALS  given by Christopher Braun International Executive Breakfast Forum_June 24

Multi-jurisdictional individuals are simply expatriots sent by their corporations to build the business in the far reaches of the world.  Alternatively, they can also be entreprenuers who want to found companies in different countries.  The focus was generally on sending Americans abroad & foreigners coming to America, & the estate, gift, & generation-skipping transfer taxes they could pay.  (fyi-Australia & Canada abolished their death taxes in 1986.)  Granted these are not invoked that often, but when they are, the ramifications can be substantial.  Unlike most ofher countries, the United States taxes worldwide income, not just income earned in that country. It’s a uniquely American tax concept:  citizenship drives taxation, not residency.  Estate taxes are issued on any/all US assets.  To quote Chris, “If you have assets on Mars, the feds want of piece of them.”  Here are a few examples:

  • The risk of dying on US soil is too great, so foreigners are advised to keep their roots @ home.
  • When moving, think about 1. income taxes, & 2.  the effect on your company.  Baker Tilly advocates questioning which activities need to be located in the US.
  • Keep gifts off of US soil.
  • The US government imposes a 15% exit tax on worldwide assets to Americans who seek residency elsewhere or resident aliens who want to return home.  Uncle Sam also imposes taxes of up to 100% on distributions from foreign trusts.
  • In many cases foreign governments don’t recognize wills created in the United States, so you have to create a will in each country in which you reside.

My concern with all of this is that the US government has created a number of barriers which prevent globally-minded entreprenuers from setting up shop here.  The carrot has been the lure of the huge US market, but the US is ceding the title of world’s largest economy to China in the next generation or 2, so we need to consider how we can attract rather than scare away aspiring business-builders.  There are many loopholes, with which Baker Tilly is glad to help, but on the surface, the US taxation system might be keeping potential tax-payers away rather than encouraging them to invest in the US.

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