A tax exile is one who chooses to leave a country and instead to reside in a foreign nation or jurisdiction because personal taxes there are appreciably lower or even nil. Going into tax exile is a means of tax mitigation or avoidance.
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Legal status
In most countries one becomes liable to be taxed in that country if one is resident there. For taxation purposes residence is often defined as spending 6 months (or some other length of time) in any one year in the country, and/or having an abiding attachment to the country, such as fixed property.
UK rules
Under UK law a person is "tax resident" if that person visits the country for 183 days or more in the tax year or for 91 days or more on average in any four consecutive tax years.[1]
U.S. rules
Under the Internal Revenue Code, the income of a U.S. citizen is taxable without regard to the citizen's place of residence, and, significantly, without regard to where the income is earned or produced. Hence, a US citizen can eliminate his tax liability only by both moving abroad and renouncing citizenship.
The process of renunciation requires the US citizen to appear at a foreign US embassy or consulate, prove that another citizenship has already been obtained (so that the renunciation will not make one a stateless person), and sign various documents which basically state that you are of good mental health, acting without force or duress, and realize that the renunciation is irrevocable. The State Department then reviews the documentation and may decide to permanently bar the person from entering the US - even for visits. This decision is based upon whether or not State decides that the person renouncing is or is not doing so for tax reasons alone. For the purposes of the IRS, the effective date of the renunciation becomes the final day that US income taxes are due - assuming that all US assets are liquidated and have left US jurisdiction.
An immigrant who has been granted permanent resident status in the U.S. is generally treated as a citizen for tax purposes. An immigrant not legally admitted for permanent residence (such as a guest worker) becomes liable for U.S. taxes if he spends more than 122 days in the year in the United States.
The US tax law, at the state and federal level -- broadly speaking -- only tolerates Americans taking money outside the US. As long as money taken outside the US is never brought back into the US there is no violation of the law. It is broadly understood that Americans can use corporations or trusts to cover moving money outside the US, providing that said corporations or trusts are not based in nations that would raise suspicion.
Broadly speaking, the US taxation rules encourage people to move their assets offshore -- and to retire offshore. This creates a permanent outflow of United States dollars into other currency zones.
Criticism
In 2008, the charity Christian Aid published a report, Death and taxes: the true toll of tax dodging, which criticised tax exiles and tax avoidance by some of the world's largest companies, linking it to the deaths of millions of children in developing countries. [2]
Famous tax exiles
- Ronnie Corbett and Ronnie Barker spent 1979 in Australia to avoid taxation on their previous year's income. [3]
- David and Frederick Barclay live on Brecqhou, one of the Channel Islands, located just west of Sark, and give their address as Avenue de Grande-Bretagne, Monte-Carlo.[4]
- Stelios Haji-Ioannou who was quoted as saying: "I have no UK income to be taxed in the UK." Source: David Leigh, Monday, July 10, 2006, The Guardian.
- In the 1970s, Mick Jagger, with the rest of The Rolling Stones, became tax exiles.
- In 1978, the members of the band Pink Floyd spent exactly one year outside of Great Britain, also for tax reasons.
- In 1968, Shirley Bassey started living as a tax exile, and currently lives in Monte Carlo.
- David Bowie moved to Switzerland in 1976, first settling in Blonay and then Lausanne in 1982. [5]
- Michael Caine moved to the United States in the late 1970s to avoid the 82% tax on top earners that existed in Britain at the time. He spent several years in the United States before returning to Britain. [6]
- Bad Company moved to Malibu, California in 1975 to avoid what Mick Ralphs described as “ridiculously high tax in England”. [7]
In popular culture
- "The Tax Exile" was the title of a 1989 novel by Guy Bellamy.
- In various versions of The Hitchhiker's Guide to the Galaxy, by Douglas Adams, the rock star Hotblack Desiato is reported as "spending a year dead for tax reasons".
- Also in The Hitchhiker's Guide to the Galaxy, the character of Veet Voojagig "was finally sent into tax exile, which is the usual fate reserved for those who are determined to make a fool of themselves in public".
- The 1982 novel The Skull Beneath the Skin, a murder mystery by P. D. James, features a character, Ambrose Gorringe, who has previously spent a year in tax exile (after the unexpected success of his novel, Autopsy).
See also
References
- ^ http://www.hmrc.gov.uk/pdfs/ir20.htm
- ^ "Tax evasion 'costs lives of 5.6m children'". http://www.independent.co.uk/news/uk/home-news/tax-evasion-costs-lives-of-56m-children-826252.html.
- ^ Corbett, Ronnie. And it's goodnight from him.... Penguin, 2006. ISBN 9780718149642. p. 194.
- ^ http://www.guardian.co.uk/media/2004/jun/23/pressandpublishing.business
- ^ "David Bowie". http://montreuxmusic.com/mmm/content/view/99/135/lang,english/.
- ^ "Michael Caine comes full circle". http://www.walesonline.co.uk/showbiz-and-lifestyle/2009/11/02/unknown-91466-25073719/.
- ^ "Bad Company". http://www.mickralphs.co.uk/bio.shtml.
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