It’s time the myth that the controversial US Foreign Account Tax Compliance Act (FATCA) is forcing Americans to renounce their citizenship in droves, was addressed.
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Campaigners protesting about FATCA claim the new law that requires all US taxpayers to report their offshore bank accounts and investments is making American expats hand back their passports and become nationals of other countries in order to escape revealing their financial information.
Although some of the 1,500 Americans who renounced their US citizenship in the first six months of 2014 and the 2,999 who did so last year may have been influenced by FATCA, the likelihood is they took the action for other reasons.
The truth is 0.001% of the US population of 318,641,000 handed back their passports last year.
Compare that with the UK renunciation of citizenship figures available from the Home Office and the statistic is 0.01% of the UK population of 63,230,000.
In 2013, 602 people handed back their British passports.
In recent months, Chancellor George Osborne also announced a UK FATCA-style law, but no one is proclaiming this move is influencing people to give up their British passports.
Why do people give back their passports?
The American position is slightly different from the British. The US is one of only two countries that extracts tax from expats.
But although FATCA is a tax law, it has nothing to do with the payment of tax neither in the US or UK.
It’s a reporting requirement for financial institutions to deliver information about their US or British customers to the Internal Revenue Service (IRS) in America or HM Revenue & Customs (HMRC) in Britain.
Taxpayers in both countries are already subject to laws requiring them to report their worldwide incomes and have been so for many years. All FATCA does is give tax authorities comparison figures to check against those declarations.
The figures explained
The main reasons for changing citizenship, according to the British Home Office, are becoming a permanent resident of another country, followed by marriage and laws of the other country not permitting dual citizenship.
In fact, renouncing British and US citizenship figures are reasonably static over the years.
In the US, the figure was 1,781 for 2011, 932 for 2012 and 2,999 for 2013.
In Britain, the figures for the same years are 492 in 2011, 609 in 2012 and 602 in 2013.
As a proportion of the population, on average the British renunciation figure is 1,000 times that of the United States.
Most expat surveys cite the British weather as the main reason for leaving for overseas – and if tax was an issue, it’s odd that the US is the third favourite destination for British expats.
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