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good morning this is john richardson speaking with you from toronto canada today is sunday march the 7th 2021 it's about 7 30 a.m in toronto canada and i mention that because my guest this morning or rather late afternoon her time is virginia la torre decor in dubai who i have done numerous podcasts with over the years and we have a very special topic today first let me welcome virginia how are you virginia today john i'm doing great um doing very well and i hope you are too i certainly am and i'm really excited about the topic that we are going to talk about today because you know as tax bloggers and i think as a sense tax historians you know if this stuff were read like a hundred years ago we are going to be talking about something that is without precedent in the united states and its possible application of the rest of the world i'm talking specifically about senator warren's proposed wealth tax and this may sound like a great idea for certain people in the united states but my god when you start taking this apart understanding it and seeing how far it goes and how it affects the lives of people outside the united states you would be absolutely shocked would you agree with that as a preliminary assessment virginia absolutely john it's frightening absolutely frightening which so i hope that the people are either sitting down if anybody's listening to this in your car while you're driving i strongly suggest that you pull over and yes i will say at the beginning that we do confirm that the information is in this is correct we are not making this up let's go right back to the beginning as you know there's a new administration in the united states a democratic administration and we know that senator elizabeth warren taught the nomination of the democratic party and she did this largely on the basis of a proposed wealth tax so virginia talk to me a little bit about this proposed wealth tax idea sure okay so we have um her draft proposal and we can actually see the wording of the statute that she's proposing and let's give some of the basics the ultra millionaire tax act of 2021 is the title of the act and it calls for an annual okay every year a wealth tax to be assessed on so-called applicable taxpayers we'll get to who they are later and it's a tax on their net worth so net worth basically means everything you own in the world whatever it is assets property cash boats your pedigree dog and so forth and so on your jewelry all of that minus your debts is your net worth now the rate is two percent on net worth that's over 50 million but under 1 billion dollars and once you get past 1 billion dollars the rate goes up to 3 percent and again this is every year you will be paying this wealth tax um no so this is this is really really something and this is something i think our audience of americans abroad will understand much better than homeland americans it's not an income tax at all in other words there's no realization of it this is not about you're making a dollar in the government wanting to share what she made no this is about the government saying oh my god look you have something and we want to assess a tax based on your having it rather than income that's correct and this is something the u.s has never had the u.s does not have a wealth tax in place and there's there's issues with the constitutionality of a wealth tax being imposed by the federal government that's for another day but um this is a tax that is unknown to americans well is it unknown to americans abroad it seems to me that americans are better constantly subjected to non-realization taxation the whole subpart f regime transition tax guilty phantom capital means the 877ax attack so this is actually something i think americans abroad are much more likely to understand quickly than homeland americans because for them they live this non-realization event taxation right that's correct john they do but even the non-realization events aren't viewed so much as attacks imposed on their wealth per se if you understand what i'm trying they they they define them in other words what they do is is they build a house and call it a shed they call they define these things as income that's right that's it you would you would agree i think that as a general principle americans abroad in the u.s tax system would have more experience of the concept of being required to pay taxes when they never had any income clearly they will and many of them who are in european countries may may in fact be paying a wealth tax to those european countries in which they are living you know a true wealth tax based on what they own properties they own so yes they will certainly understand this concept far more than the homeland american and the homeland american may look at these numbers and say well this doesn't apply to me and i don't care and just close the book hopefully we will open some minds when we have our discussion today about this wealth well you know uh the exit tax the 877a exit tax was passed the late senator kennedy bless his heart called it billionaires tax virginia this in your experience this 877a exit tax is the is this a billionaires tax oh my gosh no it's it's frightening joan it's frightening this tax this exit tax this crazy billionaire's tax can hit people that have literally like a hundred thousand dollars worth of assets how because if they haven't been tax compliant and can't certify that they've been tax compliant for the five years prior to their giving up their citizenship they are going to be subject to the sex attacks so they could be paupers but still be subject to the eggs attacks and wiped out essentially absolutely i mean to take a very simple visual example i mean all it takes in the world i live in is for somebody to own a house in toronto and have a pension from 30 years of work i mean you can't maybe you can't put together two nickels you know to buy a cup of coffee but by god you're rich paying the extra taxes yes you're deserving of punishment by the united states to know that this is not even on u.s assets but in any case um so it seems to me that one of the uh well this 50 million dollars i mean first of all there's no indication in the statute that it's indexed to inflation number one secondly this threshold is once congress gets ahold of this they're gonna bring it down you know by a certain amount every year you know when i wrote something up on this i said that today it might apply to ultra millionaires tomorrow will apply what are by today's standards thousand years that's right oh i mean this is this is incredibly dangerous stuff i think both practically and philosophically you know virginia when i read this and this is not how homeland american i think would read this when i read this you tell me if you agree or disagree this thing is written we define it to apply to all individuals well you know there are individuals who live outside the united states so it presumably applies to everybody in the world without carve out for what they call non-resident only in the sense it doesn't mean the non-resident isn't subject to the wealth tax but the non-resident of the subject of the wealth tax only on u.s assets right yes let's just clarify that carve out is for someone who is not a us citizen and is also a non-resident so your typical expat american abroad is not going to escape this wealth tax because he's a us citizen so you've got to meet both prongs you've got to be not a non-us citizen and also non-resident of the u.s okay for this little carve out to apply and the carve out said in order to determine whether you are subject to the wealth tax meeting the 50 million dollar threshold that we look only at your u.s situs assets so that's another issue what what is treated as being a u.s citiz asset and the wealth tax itself will be assessed only on those u.s status assets but again the carb out is only for non-citizens non-residents of the us and non-residents is not defined yeah and of course uh because it's a news this is this is coming into a new subtitle altogether so you know given that there are different different resins of different definitions of resonance under subtitle one the income tax sub title ii the state and gift tax and now this who knows how residents might be defined that's correct you know that's a technical issue and we don't know the answer i think it's worth pointing out that effectively this has been downloaded the treasury to decide uh who's a residence would you who's a resident would you agree yes and and you know if if the irs wants to be really strict and and have that net be very broad to get in as many people as possible they can use multiple definitions for non-resident they can use the income tax definition they can use the estate tax definition in conjunction with it we don't know they could come up with some other rules for example or they could even say have you ever visited the united states if so did you they could follow california did you spend more than 60 days in the u.s at any time in the past 10 years if so you are treated as a resident we don't know what it's going to be and i think this is this is critically important and this is another reason why i think that other governments of other countries need to be looking at this stuff because this is not in fact an internal u.s matter when they're defining you know what is really an extra territorial wealth tax because even to the extent that it applies to u.s citizens who've never lived in the united states i mean you know you i know that you and the pastor i believe you your client base includes uh you know some money families uh in the gulf region and uh you know this type of stuff puts all of these you know brings all of these assets into the u.s tax net okay absolutely so what we've got here um sort of put another way the assets of anybody who's defined as a u.s citizen would be subject to this even if you're not a u.s citizen non-resident okay your u.s assets could be subject to it right let's talk a little bit about the you know you made the point at the beginning that every year all over the world must research and list all of their assets all the world can you imagine the new industry wealth tax reporting services now going to be a lucrative industry well what was fascinating about it is although a lot of discretion is given to treasury that that discretion specifically includes tying the reporting to these existing information returns like eight nine three eight all this stuff and this is incredible specifically references fatca two separate parts of this proposed bill is part of the reporting mechanism or in other words they're going to be leveraging all of the data that they have and tying it all together and having i believe eventually if it comes to the irs issuing regulations to this effect that foreign financial institutions etc may still be reporting about what this guy has in his account what wealth he has what stocks are in there in the brokerage accounts and so forth you know i think that's exactly right and if you look at the fact of igas i hadn't thought of this until this second but i believe that the reporting requirements are are based generally on internal revenue code requirements which is broad enough to bring all this stuff in in other words they may actually be able to leverage the fact of igas they could oh but it's clear it's clear that fatca information is in the works to be used to enhance and further the ability of the u.s to tax and here we have a complete new regime a wealth tax regime that they're looking at so it's it's a domino effect to my mind john the u.s since 2010 let's say since they put in fatca has now been growing its arsenal of information dossier gathering okay and once the dossier is filled with this information then they can easily come up with different taxes to impose on people that they have information about and that's right and you know come back to uh we sort of skated around the issue of the estate tax but as we all know for non-resident aliens unless there's a tax treaty saying otherwise you know u.s side is that over 60 thousand dollars would be subject to the u.s estate tax that's correct john in the old days i just want to point this out because this was changed significantly by fatigue that requirement that u.s citizen assets none you know foreign individuals upon debt their states have to pay tax on the u.s citizens assets such as stocks okay many many foreigners had stocks u.s stocks and brokerage accounts in the u.s and when they passed away they were worth more than sixty thousand dollars estate tax returns should have been filed and tax paid it was never done okay why because there was no way to really enforce it but now with fatca all of the brokerage firms are afraid they will not release assets unless you present them you know upon the death of the owner of the account with a federal transfer certificate some kind of clearance from the irs that the estate tax issues have been taken care of and this has all been because of fatca that's when these firms knew the noose was tightening and there's no way to escape it so we see that as just one small example of how fatca has enabled the us to really carry out its tax laws and here with the wealth tax if that comes into effect i'm sure they're going to be leveraging fatca the igas the leash they have around foreign countries to make sure they get the information they want that's right there's absolutely no doubt about it you know in 2011 people would say bad guy the gift just keeps on giving and my god if you look at how far this has gone and the unbelievable potential that this proposed wealth tax just in terms of the way it's written you know has to extract more and more information from the rest of the world i mean these european countries have got to have got to realize this from a practical point of view i'm going to ask you a very simple question if you had money to invest in the world would you advise somebody or would you invest in the united states if you're a non-citizen non-resident well i would have an awful lot of concerns okay um you'd want your tax plan to be rock solid but i don't know john i don't i don't really want to go there because everyone's situation is very very different i have i have clients that say oh i don't really care about the reporting i have a great opportunity to earn money and and i'll earn my money and i'll get out so everyone's situation is is so fat specific i think it's difficult to paint a broad brush there um but i think the point we're trying to make with this wealth tax proposal is that people will not truly understand like when fatca came out in 2010 people did not understand really what that meant in terms of their their their privacy their marriages to non-us people how that would be impacted and so on and now and certainly the poor hapless accidental american who doesn't have a social security number and is having his foreign bank account closed down and his mortgage you know closed out because he can't provide the information to the bank that shows he's been tax compliant and and can complete his w-9 and so forth those guys will probably have a clearer picture of what this wealth tax is going to mean and how it will impact their lives they thought fatca was bad well i think this is going to make things even worse at the end of the day fatca was just the beginning and it's just a building block for for the government the us government to get more and more information and impose more and more taxes on overseas assets here to put it another way fatka was really the pouring of the foundation of the house and now you know all these other things are being added and you know and eventually actually no i'm sorry i went another way fatca was not building the foundation for the house back it was building the foundation for the prison because you know if you if you look at this stuff cumulatively i mean it's simply shocking i mean this may sound abstract but to give us a bit of reality okay you know uh a uh piece of real estate that's been in a european family for generations it could easily be subject to this wealth tax imagine no connection to the united states whatsoever you know possibly because of marriage to a u.s person a u.s c tizen well let's talk a little bit about that i noticed that the legislation has interesting rules for you know determining whether somebody subbed to the threshold and i think they make reference to what they call the marital unit don't they that's right um what they are doing with this marital unit it's very interesting married taxpayers are are treated as what's called one applicable taxpayer so it's a very interesting concept if if you are married to a non-resident non-us citizen all are all of the assets owned by that non-u.s citizen non-resident counted in the calculation of determining whether he is subject to this wealth tax because now you're the two of them are treated as one so are all of the assets owned by the non-us side counted or only if that person owns u.s assets right we don't know that's not can i ask you i mean this is a fascinating question with no clear answer i wonder if i could i ask you to consider this from two separate perspectives first would be on the issue of whether the assets are subject to the wealth tax and the second would be assuming that somebody subject to the wealth tax what are the assets the tax would be payable on i sort of where i'm trying to go with this is i think that if you're a non-resident non-citizen you're only paying the wealth tax on u.s assets that's how i read this absolutely and now yeah but that doesn't mean necessarily that the way you look at the definition of the maryland unit that non-usa assets would be excluded from the calculation of the 50 million threshold you do you think that it's not clear that's right it's not in there it's not answered at all um it can go either way it can go either way but the other issue john that we have even if putting that aside for the moment is that many people live in a community property jurisdiction so you know denmark switzerland many latin american countries have community property regimes in place and so what's owned by the non-us person is deemed under the laws of that jurisdiction to be owned 50 50. right so the u.s person will be treated as if he owns under the law of that country half of the asset and the u.s has used that i mean they consider community property laws of other jurisdictions yes well then you own you own one half we all know that from other areas of of taxation so the wealth tax will definitely be impacted by if you live in a community property regime it i mean it's absolutely shocking or to put it in very practical simple terms i mean a lot of people is maybe gobbledygook how about i put it this way and you can agree or disagree marriage to a u.s citizen has gotten much riskier and could potentially subject your assets to wealth taxes would you agree oh yes dangerous dangerous liaisons let's put it that way there's a phrase living dangerously so in this case we call it marrying dangerously so true so there's another very important aspect john that i think we should bring up before we you know i think kind of wrap up here is that the people who are planning on expanding or thinking about expatriating they better hurry up the reason that we say this is because if someone is treated as this horrible creature called a covered expatriate and we know that being a covered expatriate is not a good thing um if you're treated as a covered expatriate your wealth tax is going to be assessed on the day before you give up your citizenship or your green card if you're a long-term resident and you will be taxed under the wealth tax at forty percent of your net wealth so sorry you mean four percent i thought that the other provisions was two percent surely you mean four percent or no john no no no 4-0 40 you've got to be kidding me no that's 20 times that's 20 times what somebody else who wasn't expatriating would be subject to 4 0 20 times 2 yes oh my god that's shocking and if you know if you look at it it's just unbelievable it's just unbelievable so the this wealth tax really adds insult to injury because the covered expatriate as we know can be a very innocent person who let's take the accidental american the most innocent of of them all who hasn't been filing tax returns didn't know he was supposed to etc so that person can never certify under penalties of perjury that he's been u.s tax compliant for the five years prior to expatriation so that guy gives up his citizenship and is subject to the exit tax so he has to pay that and then he also has to pay 40 on his net wealth that is left over yep and and that is not you know a billionaire a trillionaire i mean this is someone that is going to as you mentioned in canada he may have a house and he may have pension plans that's right and and this is not a non-realization event in other words this tax is doing even though the person may not have a cent to his name that's right unbelievable you know on this note here's here's uh senator warren's statement recently from an interview i'm just going to read you this this particular synopsis okay i mean you just can't make this up okay here we go courtesy of senator warren the idea behind wealth tax is that you have to pay it you're an american citizen it doesn't matter whether you live in texas or california or even whether you move europe south america if you want to keep your american citizenship you pay the wealth tax and it doesn't matter where you put your assets you can try to hide them in the cayman islands you can try to put them up in switzerland it doesn't matter you still pay the two cent wealth tax actually she i don't think she understands her own tax you know with that description but i mean this is the mindset of these people this is shocking well this is the problem john the mindset is that anyone that lives outside of the united states is somehow cheating on their taxes hiding their money putting it in the caymans putting it in switzerland guess what you know americans living and working in switzerland yes they are keeping their money in a swiss bank they're not putting their money into switzerland that's where their money was they're not putting it in switzerland it's the normal part of their life so we have many many americans abroad that keeping their money in a foreign bank is is mandatory for them to live to get their salaries paid in to pay their mortgages and so forth but the mindset from what i've seen having practiced now for over 35 years overseas the mindset is that anyone that's overseas is somehow suspect and they're cheating somehow and uh we have to we have to flush them out absolutely as i read in an article recently i thought this was a great phrase the author of the article called them are you ready for this foreign living citizens foreign think of that foreign living citizens you know this is extraordinary but you know what that excerpt tells me what i just read this is i think the problem here is that from the american point of view from the american homeland point of view the only people these laws affect are americans who start in america and move out of america you know what i would call the american expatriates they don't even seem to understand the accidentals or immigrants you know people who left the united states at a young age permanently even exist that's correct and so what an effect is happening is they're running a sort of a third kind of pair you know the united states has three tax regimes you know one homeland americans two non-resident aliens and three what i would call the extra territorial tax regime are people who are defined as u.s citizens living outside the united states who really aren't in any significant sense it's absolutely shocking before we end this i i have uh you know i would add also by the way that you know you talked about the expatriation penalty there are also penalties for dying there are penalties for gifting things away there is no escape from wealth tax okay that's right dying will not help you nor will gifting your assets away because these taxes will be imposed the wealth tax will be imposed on the day before you've passed away so you have to add up everything on the day before you died and pay the wealth tax then so you pay the wealth tax and by the way don't think you're not going to pay the estate tax that's a completely separate tax so you've got two absolutely i mean all america is about as taxation and when you think about this they fought the revolutionary war not to stop u.s taxation but to get the right to develop the most vicious brutal extra territorial tax regime the world has ever known that's what it was about i don't think they were thinking of that back then john but are you sure i don't know you never know of these people i mean you know it's uh it reminds me the same you know the old saying the difficult we do today get rid of this benign fish tax system the impossible and closing where we are it takes a little longer it may have taken a couple hundred years but i mean we're definitely there i mean you think the us needs tax reform virginia i think they kind of need to blow up the code and start over but uh yeah i think that's exactly right you know before we become more and more complicated every time they try and amend nobody can understand it's impossible to understand it's absolutely impossible the only thing that can be understood you read the internal revenue code every section there's only one cluster of words that can reliably understood and that is if you see the word foreign the word penalty is sure to follow usually starting at ten thousand dollars that is reliable plus rewards throughout the and everybody can understand that but that's really the end of it you know you're going to be penalized for what who knows right before we end we've hit the main points here yeah um i i think i'm looking back at my notes and i think we've we've covered everything um i'm going to be doing a tax blog post on this act in more detail and i think um he will also be writing up something you've already written up an excellent piece for people that want to read up a little bit more on it but i think the people that really need to start looking at things are the following groups people that are married to uh spouse yes americans married to a non-us spouse anyone who's thinking of expatriating better move very quickly on their decision and take action and as well foreign investors into the united states need to know that they may be hit with a wealth tax on their u.s assets so that's going to impact foreign investment i believe going into the states and i'm you know think about people that are really interested in buying um real estate in america like shopping malls and you know luxury apartment buildings and this sort of thing where that threshold of 50 million can quite easily be be reached uh by people that are investing in those sorts of well not only that virginia but we've talked about how these new rules are likely going to lead to increased enforcement of the general estate tax for non-resident alien oh yes oh and i think that's likely to affect uh even even a larger number of people yes but before closing here tonight uh oprah is doing this interview of prince harry and meghan markle oh yes tell me these laws have been in effect before the uh the wedding do you think there might have been pressure on megan to expatriate that's a good question i don't know um well she certainly didn't did she now she's dragged harry into the states right that's right so now harry unless an exception presumably would meet the substantial presence test is harry now because he followed her in california a u.s person for tax purposes what do you think well i i think there's a really good chance he's already met substantial presence so for income tax purposes he would be he would be a u.s tax subject oh my god and think of the potential for the wealth tax imposed on harry now and if he's treated as domiciled in the united states which given all of the facts i know stepping down from the royal duties uh not having the home anymore in the uk having the home in the united states and california raising the family there doing their deals there they're just becoming more and more entrenched in america i would say harry has a very good chance that he's treated as domiciled in the u.s for estate tax purposes and what that means is that all of his assets worldwide will be subject to u.s estate tax so it also gives them a larger exemption but for a guy like that the 3 million or 11 million wherever it's not going to mean anything and and if the wealth tax comes into effect and he's treated as you know resident for that purpose which given everything there's a good chance he would be yes he'll be paying an annual wealth tax think of it absolutely absolutely extraordinary you know i think that they should probably should have kept an ankle bracelet on harry very very early on but anyway this has been a fascinating discussion um i hope that the people see the seriousness of this there's a tendency for people to say oh well you know it doesn't affect me that may not well first of all it's not the law today once it becomes the law it's amazing how you know these thresholds get lowered you know to affect more and more people so you know it really is ushering in a new form of of taxation in america namely taxation he's not on income but my god you have an asset you should be giving us something that's right and let's let's not forget this is the federal wealth tax we are already seeing california proposing and new york and i don't know which other states but those are the two i'm aware of at the moment that they have wealth tax proposals on the table as well so this could be the new flavor of the year and exit taxes you know when you try to leave you know this is you know possibly this is also interesting you know virginia 21st century i think there's two things that are true the first is single most interesting person about a person is his or her tax residency you know number one the second is the greatest form of wealth in the 20th first in the 21st century is to be able to live happily on exactly nothing that's what true wealth has become now with this you know why should people have to defend themselves 24 7 from these rapacious governments yes it's getting more and more difficult i agree you think there could be a second american revolution we're here to help we're here to help and give them advice and you know hopefully giving people the heads up will will enable people to start taking action especially on you know for people who don't live in the united states the renunciation because i've ended many podcasts i think would you agree with this statement for americans abroad now returning to the united states all roads lead to renunciation absolutely for those who are saying you know what i'm not going back my life is here in france or germany or dubai or wherever they are if they want to have a life then they've got to get out now that's what i think i i think you're 100 right and i think i want to end on that note because you put it so well well thank you i would also add john if people are having trouble getting to their embassy or consulate in their country because many of them have stopped um actually carrying out expatriation services due to covert 19 restrictions i've been successful in getting my clients appointments at the us consulate in dubai so if people need help and want to get to dubai to try and renounce um we can certainly assist on that well that that is absolutely fantastic so i mean they could even conceivably combine it as a vacation you know a number of years ago i wrote a post called uh i think some of you think that things are better in the bahamas where i was sort of joking that well you know i used to send people to nasa to renounce combined vacation with expatriation but uh you know dubai is now is now an opportunity for that yes it is and it's easy to get here you know you need the pcr test there's you need your negative pcr uh certificate uh at the departure airport usually some countries you need both departure airport and you need to be tested again when you get here so people can check what is what are the actual requirements but you know we're still we're still taking in tourists and it's most of much of our population has already been vaccinated uae has done fantastic job so i i have to say you know if people are looking for a place and they want to renounce and their embassy or consulate is closed because of covid we can start and and see if we can help them out here in dubai well i think that's important for people in canada i mean i i've flown toronto dubai it's a 10-hour flight it's not much worse than you know flying to europe but that's that's great and uh by the way i i i should have asked you what are your coordinates for listeners how would they get in touch with you the website is www dot u s hyphen tax dot org and when they are in the website they'll find um all of my contact details the email phone etc and if they just google my name they're gonna find me i'm i'm really all over the net absolutely one of the world's most prolific tax bloggers and i think one of the very very best and you know which you know reflects uh being with virginia latoya jake jaker u.s tax lawyer based in dubai which reflects her 35 years of i'm not even going to say experience i would say extraordinary service to americans abroad through her tremendous educational initiatives and i thank you for that virginia and i think that our listeners would would echo my thanks so uh i appreciate that yeah yeah great stuff my blog on on this it'll give more detailed information and we'll provide links to the actual uh proposal and uh again i think the most important thing is for people not to stick their head in the sand and for the people abroad to start looking at am i married to a non u.s person what's that going to mean for me am i thinking of expatriating should i be thinking about it my whole life is here in this foreign country our children are here our families here our life is here do i want to remain a u.s person virginia it's not it's not a question of wanting okay people don't renounce because they want to they're renounced because they have to now for all of the reasons that we're given it's not an option anymore it's it's the united states of america has completely destroyed the value of american citizenship the reality is that u.s citizenship is probably the only citizenship in the world where people have to renounce you know to be able to live a normal life it's shocking i think that's a topic for that's a topic for perhaps another podcast all right thank you so so much this has been great [Music]