If you own assets on US soil or are an expatriated US citizen and you live in a country that does not have a double-taxation agreement with the US, then you're on the hook to the US authorities. Again, how is this a problem? In a world where you can move money across borders without fuss or bother, such rules are necessary to prevent people from engaging in all kinds of gamesmanship.
Trusts and similar legal structures are increasingly considered illegitimate vehicles for evading taxes? Well boo-effin'-hoo. Good to see that the Americans are finally getting wise to this obvious loophole.
Yeah, it sucks to be hit by these rules just because you're living in a country that happens to not have a tax treaty with the US. But lots of things suck about economic globalisation running ahead of political and regulatory globalisation, and I don't see this as remotely the worst of those problems.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
What this points out is the need for a general framework for dealing with estate/inheritance taxation for all countries on an equitable basis. As it stands, absent a specific double taxation agreement between their government and the USA, the executor of a relatively modest estate of a non-US national, say $250,000 total value, that is "contaminated" by the (temporary) presence of a "US person" or by possession of ANY US securities is liable for 45% of the value of that estate to the US IRS, even though the entire estate may have been acquired via employment or business activity entirely within the country of citizenship of the decedent.
This is most certainly not the case for the estates of US citizens, who are almost certainly exempt for the first $2 million, more if some of the assets can be construed as a "family farm" or qualify for other lobbied loopholes. And were there not to be a named executor and were (any of) the bank(s) holding estate assets be signatories to the Qualified Intermediary agreement with the US, the estate would likely be frozen and/or 45% withheld by the bank just to protect itself.
Rest assured that a great hue and cry would arise were it to emerge that the estates of large numbers of US citizens were subject to 45% taxation by multiple foreign jurisdictions on the basis of poorly reasoned, overlapping and capricious laws. It would, however, be a great boon for probate/estate lawyers. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
May I suggest, however, that preserving inherited wealth may not be the best horse to put before the cart of increased international tax code harmonisation.
Even though the current SWIFT process in conjunction with existing US tax policy may result in significant revenue from non-US residents and thereby redound to my own personal overall welfare I still cannot help but find the whole process monstrous and repugnant, especially when combined with the tax breaks the wealthy receive in the USA. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
