The rate at which U.S. citizenship is being renounced by wealthy Americans has risen sevenfold since a crackdown on tax evasion four years ago.
Geneva’s Overseas American Academy has revealed around 1,780 Americans gave up their nationality at U.S. embassies in 2011 – that’s up from 235 in 2008. Those figures come directly from the government’s Federal Register. Indeed, the U.S. embassy in Bern, Switzerland had to redeploy staff to clear the queues of Americans wishing to relinquish their passports.
The U.S. remains the only nation in the Organization for Economic Cooperation and Development that taxes its citizens wherever they reside. An increased push to search for tax cheats in offshore centers, such as Switzerland means some of the 6 million Americans living overseas are now evaluating the cost of holding a U.S. passport.
Matthew Ledvina, a U.S. tax lawyer at Anaford AG in Zurich, says:
“It started with the fallout from UBS and non-U.S. banks feeling it’s too risky to deal with Americans abroad. It will increase because Fatca will require banks to track down people, some of whom will make voluntary disclosures before renouncing their citizenship.”
Switzerland is a popular choice for American expatriates who hand over their passports, as the process is relatively fuss-free. Individuals take part in a 10-minute renunciation ceremony in a booth with bullet-proof glass windows, while embassy staff check that exiting Americans are acting voluntarily and understand the implications of giving up their passports. One small $450 fee later, and their citizenship is renounced.
Within three months they are sent a certificate informing them they are no longer American citizens, and are not entitled to the services and protection of the U.S. government. It’s believed for many, renouncing their citizenship could mean saving millions in future taxes.
However, some believe overly potent tax laws are to blame. The 2010 Fatca law states that banks must hold back 30 percent from “certain U.S.-connected payments” to some accounts of American clients who don’t disclose enough information to the IRS. David Kuenzi, a tax adviser at Thun Financial Advisors in Madison, Wisconsin, says:
“There is incredible frustration at the audacity and imperial overreach of this law.”
How do you feel about tax avoidance amongst the wealthy, and is it the individuals or the government who are more accountable?