Thread by @ExpatriationLaw

In 21st century the most interesting thing about a person is his/her @taxresidency. For UK residents "non-dom status means #territorialtax! For UK doms there is #worldwidetax and #RBT. For US citizens there is #worldwidetax, @citizenshiptax and #FATCA. theguardian.com/politics/2022/…

.@TaxResidency is often confusing and often has a huge impact on ones life. In simple terms, you are a #taxresident of a country which has the right to impose the full force of its tax rules on you. This is different from HOW and on WHAT sources of income tax residents are taxed.

What income is subject to taxation: Terms like "worldwide taxation" (wherever the income is earned) and "territorial taxation" (income earned only in the country) describe HOW and ON WHAT income #taxresidents are taxed. These terms do NOT describe @TaxResidency (who is taxed).

Who is subject to taxation: Terms like @CitizenshipTax, RESIDENCE-based tax (#RBT) or DOMICILE-based tax are terms that define WHO has @TaxResidency. #TaxResidents may be subject to #Worldwidetax, #territorialtax or a combination (UK).

US @CitizenshipTax means that ALL US citizens are subject to #worldwide tax regardless of where they live in the world. US @TaxResidency is the "Hotel California" of taxation.

Canada or Australia residence-based tax means that only those who are resident in Canada or Australia have @TaxResidency and are subject to #worldwide tax. In other words, Canadians and Australians can sever #taxresidence by moving (but definition of residencecan make it hard).

Some jurisdictions either define @TaxResidency in terms of #domicile of make domicile a factor in HOW #taxresidents are taxed. This brings us to the UK situation and the article in the Guardian that started this thread. How/why does domicile matter in the UK?

Reminder (before discussing UK): All countries claim taxing right over income sourced (arising) in their country. All confusion (seriously all) over tax is bc of countries not limiting their taxing rights to income sourced in their country. (But, that's a very complicated issue.)

Therefore, ALL UK #taxresidents will pay tax on income sourced in the UK. But, drumroll ... what about UK taxation of non-UK source income that is received by people with UK @TaxResidency but who are NOT domiciled in the UK? This is where it gets interesting.

Basically, (keeping it simple) UK tax residents who are NOT domiciled in the UK (according to UK domicile rules) are NOT taxable on certain non-UK source income unless the income is brought into (remitted) the UK. (Note this preferred tax status is not available forever).

Good article written by (I think) a UK based lawyer that describes this very well. Although the US has the most complex rules for determining how income is taxed, the UK has (I believe) the most complex rules for the role that #domicile plays in taxation. gherson.com/blog/favourabl…

As noted with Withers, all good things must come to an end (after a suitable length of time) ... withersworldwide.com/en-gb/the-futu…

And this article from LSE, suggests that 1 in 5 British bankers claim non-dom status? lse.ac.uk/News/Latest-ne…

And they don't like it ...

For those wishing further detail, see the UK government description of this here ... gov.uk/tax-foreign-in…

Lessons:
1. Choice of marriage partner should include inquiry into @TaxResidency, citizenship, ordinary residence and
domicile.
2. The single most important financial decision (investment) you will ever make is your choice of marriage partner.
3. Rishi Sunak married well.

@threadreaderapp unroll

Clearly the UK "non-dom regime" (coupled with the UK definition of "domicile") would make the UK an attractive destination for immigration. @TaxResidency matters in life planning.

Because of the importance of @TaxResidency, I would advise people to think very carefully before getting a US #GreenCard which would subject that individual to US #worldwidetaxation and reporting (of non-US assets). If people knew this, the EB-5 programs would be unmarketable.

And more ... itv.com/news/2022-04-0…

And more ... terranullius.substack.com/p/rishi-sunaks…

It just keeps on coming ... bbc.com/news/uk-politi…

But remember … the fact that she doesn’t pay tax in the UK on certain income sourced outside the UK doesn’t mean she doesn’t pay tax on that same income where that income is sourced (example India)!

If (1) the income is sourced in India and taxed in India and (2) the income were also taxed in the UK then (3) I expect she would be allowed a credit for tax paid in India. The credit (presumably) would offset UK tax owing.

So, it’s important to recognize that the question of whether the non-UK income is excluded from tax in the UK is different from the question of whether tax is paid on the income anywhere (where the income is sourced).

Of course none of this logic can deflect the human reaction to the reality that the UK non-dom regime creates two classes of UK tax residents (based on domicile). This is understandably perceived as unfair.

The anger is based on the idea that people should be taxed where they live and that all residents should be treated equally because residence is the just criterion for taxation.

From a purely moral perspective, the idea that because she is a citizen of India (and not a British citizen) that she should be excluded from taxation on India source income (as a UK resident) is not going to be accepted.

Interestingly under the tax residency tie break rules found in most tax treaties, citizenship although relevant, is far less important than other factors (permanent home or centre of life interests) in determining where people should pay tax.

Remember that she is framing her claim to non-dom status based on citizenship. But citizenship is neither logically nor factually related to domicile (which is the proper test).

The public rejection of her entitlement to non-dom status based on her citizenship is a rejection of the notion that the obligation to pay tax should be determined by citizenship and not by residence.

To exclude her from significant tax obligations because of her citizenship is just as ridiculous as imposing tax obligations on her because she is a citizen. Citizenship should generally not be relevant to taxation!

Interestingly the British public is articulating the argument against @CitizenshipTax better than do #Americansabroad. It’s time for the USA to end #cbt and agree that residence is the moral predicate for taxation.

Definitely the @TaxResidency straw that broke the camel’s back. How can Rishi Sunak be the chancellor and at the same time be a member of the US “tax, form and penalty club?”