Tax fairness for citizens residing in other countries

I have been watching the situation wherein the US is threatening to tighten demands on its citizens to file a US tax return pay US taxes, even when they reside in other countries.

This morning, there is an interesting article in the Globe and Mail that proposes that the Canadian government retaliates and forces the millions of Canadians living in the US to do the same. That would hurt those Canadians, but the idea is that US banks, who would have to report income to Canada, would lobby against the whole silly situation.

This issue interests me for two reasons: The first is that I am a dual UK-Canadian citizen. I long ago filed relatively simple papers with the UK stating that I am a resident of Canada, allowing my small UK income (book royalties) not to be taxed at source. This required certification by the Canada Revenue Agency that I have been paying taxes to Canada that include my foreign income. I certainly don't have to file a tax return there and I don't have to repeat that non-residency filing – it was a one-time matter. I would be very concerned if even small aspects of the US model of citizen-taxation were to be adopted by the UK. The likelihood of this happening is small, but it gives me the shivers to think about it. Going through the paperwork of filing one country's complex tax return is a necessary chore; but doing two forms in order to actually be double-taxed would be horrendous. Even if a tax treaty allowed me to deduct the taxes paid in the country of residence, the multiplication of paperwork is just a nasty thought. To increase everybody's productivity, all countries should seek to minimize the amount of paperwork its residents or citizens have to file.

My second interest is that I have fastidiously avoided anything that will end up forcing me to file a US tax return or even get a US Social Security Number simply because situations like this make me ultra-wary of any involvement with the IRS. The Canada Revenue Agency and the Canadian tax system seem so much friendlier. I have on various occasions been offered small US contracts, or honoraria. Some of these would have resulted in tax deduction at source, or would have required a US Social Security Number. I want to maintain my privacy and only reveal data to the government in the country where I live and obtain services. I see the US's desire to have non-residents file complex forms to be excessive. Before accepting any US source of funds (e.g. being paid to review a book), I ensure that there will be no requirement for a SSN or taxation at source. As a result I have repeatedly turned down such offers. I have even turned down volunteer tasks because the agency in question has had a requirement for an SSN in its registration process. Two of my daughters were given a single share each in entertainment companies as gifts when they were born. The minuscule dividends are taxed at source, and I am threatened that unless I file IRS paperwork, I may be considered (as guardian) to have abandoned the shares; so be it (I am told the solution is to transfer the shares to a US brokerage account, something I intend to investigate).

One can imagine the motivations the US has to force its citizens to file a tax return: It is concerned about its wealthy citizens ostensibly living and earning income in tax havens like the Cayman Islands, yet 'visiting' the US for a large portion of the year. Maybe it also feels that even if they are non-residents, they still are entitled to such costly benefits as consular assistance, defence of their freedom, the right to vote and the maintenance of the US political system on their behalf, etc.

These are legitimate concerns. Offshore tax havens should, however, be tackled in other ways (diplomacy, banning domestic banks from dealing with banks in countries that don't reasonably tax their residents, taxing transfers of funds to those countries, etc.). I would be fine to require a citizen to file taxes to their home country if they live in a designated tax haven, and to make agreeing to this part of the process of obtaining a passport. A designated tax haven could be, for example, a country that has little or no personal income tax.

Consular services and the right to vote while a non-resident, if allowed, could be paid for by fees for passports or non-resident voter registration. Perhaps if people want to go to risky countries they should have to declare this in their passport application and pay a significantly higher fee (a form of insurance), or else agree in advance to lower-priority help if they run into trouble in such countries.

As a resident of Canada, I have to declare my foreign income, and would have to declare substantial foreign assets, if I had any. I am fine with this. I would also be fine filing a US tax return in any year I lived there, even for a couple of months. US citizens living abroad should essentially be treated the same way as I would be if I lived in the US, or the way I am treated by the UK. A simple declaration of non-residence (with evidence of paying foreign taxes) should be enough. I actually think that if the IRS were friendlier, they might in fact find that people are more willing to pay taxes to them.