Tax thoughts from abroad

Living abroad is definitely not about the money. Just ask Rod Burton.

Burton, an American tax planner, moved to London nearly 30 years ago and never looked back. As director of the European-American Tax Institute, he counsels other nonresident Americans on ways to save taxes, both in the United Kingdom and abroad.

While he has chosen to retain his U.S. citizenry, it still angers him to read the rhetoric from Capitol Hill.

"It's kind of discouraging because you listen to some people in Congress and I'm somewhere between a traitor and a terrorist," he says. "It's crazy."

The very idea that the European Union holds tax advantages for Americans strikes Burton as ludicrous. As a nonresident American, Burton is eligible for the $80,000 foreign income exemption on his annual IRS return, but he pays 40 percent income tax in Britain vs. 35 percent back home.

"The one pain in the neck is you have to file a fairly lengthy tax return proving that you don't owe any (U.S.) tax," he says.

Burton says the fun of living overseas is the different mix of goods and services available.

"If you moved over here and tried to replicate the lifestyle you had in any major U.S. city, you would have problems. Gasoline costs $6.50 a gallon, for instance, so you don't see a lot of SUVs, you see energy-efficient cars. On the other hand, for less than $100, I can fly to Barcelona for the weekend."

Sure, he's heard of taxpatriates. He's just never met one.

"Because the U.S. is the only country that taxes on citizenship, anybody that gives up their citizenship is going to reduce their U.S. tax, and the congressmen claim you're doing it for tax purposes. It's just because the U.S. imposes tax on me that, if I were to give up citizenship, they would say, 'Oh, you're doing that for tax purposes.' When in fact, if I did it, I'd do it because frankly I'm fed up with filing a tax return, not because I'm paying much in the way of U.S. tax."

The price of being an American
How much is U.S. citizenship worth? Burton found out with one wealthy client.

"I had one client who was an American, who earned a lot of money in America, had a lot of stock options and came over to France to live, and if he exercised his stock options, he would have a gain of $50 million.

"It was on a Friday and I said to the guy, 'Look, you've got to give up your citizenship. When I go down to renew my passport, it costs me $56, when you go down to renew yours next time, it's going to cost you $13 million. Think about it over the weekend.'

"He came back on Monday and said, 'I'm not giving up my citizenship.' And he paid the $13 million. If there was ever a case for giving up your citizenship, he was the guy."

Burton thinks it's high time the United States changed its tax policy to reflect the new global realities. He recommends that the United States follow the Organization for Economic Cooperation and Development principles on taxing based on two criteria: where your tax residence is and where your income is sourced. In these cases, if you are not a tax resident (Burton's case in the United Kingdom), you are only charged tax on income you make within the country.

"That's the way every country does it," he says. "I think the U.S. should just join the rest of the world."

Jay MacDonald is a contributing editor based in Mississippi.