An increasing number of Americans living in Switzerland are renouncing their citizenship as a result of ever intrusive demands from the tax authorities in their “home” country.
The US embassy to Switzerland told swissinfo.ch that it had processed 411 renunciations in the first nine months of this year. This compares to 180 Americans giving up their passports in 2011.
While the number of Americans that turn in their passports is a small fraction of the estimated 35,000 to 40,000 US citizens living in Switzerland, the rise in such renunciations is causing concern for US ambassador Donald Beyer.
“At the moment this phenomenon is bigger in Switzerland than anywhere else in the world,” Beyer told the Handelszeitung newspaper. “US passports are becoming less attractive due to the implementation of stricter US laws.”
The latest law causing the greatest concern is the Foreign Account Tax Compliance Act (Fatca) that requires banks worldwide to report the financial assets and transactions of their US clients. Switzerland is due to phase in the law from 2014.
Fatca is often described as the straw that broke the camel’s back of many foreign based US citizens that are already required to file tax returns on overseas earnings even if they live abroad. Eritrea is the only other country in the world that makes this demand of its citizens.
Weakest links
In addition, the ongoing tax evasion investigations by the US authorities has resulted in many Swiss banks refusing to open bank accounts for new US clients. Many people living in the US – including Swiss citizens – have also had their Swiss accounts closed.
Speaking to swissinfo.ch last year, Jackie Bugnion, director of the Geneva-based American Citizens Abroad organisation, said that renouncing citizenship has become far more common in the last few years.
“Now the cool thing among 18-year-olds is to renounce their nationality as soon as they are 18 as they don’t want to get into this tax filing mess,” she said.
Ambassador Beyer also stated in the Handelszeitung that most of the people handing in their US passports are those who had either been born abroad and had citizenship through their parents or moved away from the US at an early age.
The US Foreign Account Tax Compliance Act (FATCA) was enacted in 2010 as part of the Hiring Incentives to Restore Employment (HIRE) Act.
Conceived as a way to enlist the world in a crackdown on wealthy Americans evading tax, it gives global financial institutions and investment entities a choice: either collect and turn over data on US clients with accounts of at least $50,000, or withhold 30 per cent of the interest, dividend and investment payments due those clients and send the money to the IRS.
Foreign institutions and entities that refuse, or fail, to do so face bills for the taxes due, a draconian penalty of 40 per cent of the amount in question and heightened scrutiny by the IRS.
FATCA is supposed to raise $8 billion in extra tax revenues over the next ten years.