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This question is about personal finance as this directly applies to my situation as a US citizen, which I intend to keep for work purposes, and as a citizen of another country, which I am willing to switch if it is tax advantageous. See Why was this question put on hold as off-topic?.

Assume that Bob is a citizen of the US and a citizen of country X. Bob lives in country X. Since the US uses citizenship-based taxation, Bob is subject to taxes in both the US and country X. Is there any country X that fully exempts their citizens/residents from the US citizenship-based taxation?

I read on 20minutes.fr (mirror) that some French politicians are trying to pass a law exempting dual US+French citizens living in France from US taxes:

« Le problème principal, c’est que la fiscalité américaine est basée sur la nationalité, en contradiction avec les règles de l’OCDE, estime l’eurodéputée française Virginie Rozière. L’Erythrée a voulu faire pareil et a été sanctionnée. Il n’y a pas de raisons de traiter les États-Unis différemment. Ils ne se comportent plus comme un grand frère bienveillant mais comme un acteur sans foi ni loi qui cherche le rapport de force. Si on n’est pas capable de répondre, on se fera écraser ».

Translation (based on Google Translate):

"The main problem is that the US tax is based on nationality, in contradiction with OECD rules," said French MEP Virginie Rozière. "Eritrea wanted to do the same and was sanctioned. There is no reason to treat the United States differently. They no longer behave like a benevolent big brother, but as a faithless, lawless actor who pursues relations based on force. If we cannot respond, we will be crushed."

so I wonder if any precedent exists.

Franck Dernoncourt
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2 Answers2

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As that taxation law is an US law, no other country can declare an 'exemption' to it.

If France for example would 'allow' their citizens to ignore it, the US IRS would still consider the taxes due and would act accordingly - up to impounding assets located in the US and arresting the person on the next visit. This would also probably imply that many visas from third countries would become harder or impossible to get, as they look at US 'pending arrests'. France in this example could do nothing to address these consequences directly.

Basically, there is no difference between being a US citizen & hiding abroad & not paying taxes and being a dual citizen & living abroad.

If someone doesn't like the consequences of being a US citizen, he/she can rescind the citizenship (and be rid of the tax issue) or, of course, vote for a representative who will change those laws.

Don't get me wrong - I agree that that tax law is not good as is. There is just nothing another country can effectively do to end it.

Rupert Morrish
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Aganju
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Although no other country can change the IRS’s mind that a U.S. citizen living abroad owes it taxes, good luck to them collecting from you in certain parts of the world. (Not that I’d ever give advice on how to evade taxes.)

More seriously, the United States has signed reciprocal tax treaties with many different countries in which they agree that some citizens or residents of other countries owe the IRS fewer taxes. See IRS Publication 901, “U.S. Tax Treaties.”

However:

Tax treaties reduce the U.S. taxes of residents of foreign countries. With certain exceptions, they do not reduce the U.S. taxes of U.S. citizens or residents. U.S. citizens and residents are subject to U.S. income tax on their worldwide income.

You can see which exceptions exist in IRS Publication 901, but you should consult with a tax lawyer if you have any questions. No country has negotiated a blanket exemption for all U.S. expatriates.

In many cases, payments from a foreign government (or its political subdivisions) for services rendered are exempt from U.S. income tax unless the services are performed in the United States by a U.S. resident. However, U.S. citizens who accept positions from a foreign government should make sure that the State Department understands that they do not intend to relinquish their U.S. citizenship.

Davislor
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