Swiss Binationals Continue to Renounce US Citizenship
The first half of 2013 has seen record-breaking numbers of U.S. citizens renouncing their citizenship in a single year. As the trend to renounce US citizenship continues to gain traction on a worldwide scale, Switzerland has distinguished itself through its extraordinarily high expatriation rates.
In a recent speech at an American International Club dinner, Donald Beyer, the former U.S. ambassador to Switzerland, announced that 900 Americans chose to renounce US citizenship in Switzerland last year. According to the IRS, the number of Americans who officially expatriated in 2012 totaled 932. If Beyer’s claims are accurate, this places Switzerland as the clear leader in the American expatriation movement. And with 2013 setting an even greater pace for expatriation (with over 1,809 citizens having renounced in the first half of the year alone), it’s no surprise that Swiss binationals figure heavily among these numbers.
One of the reasons attributed to the expatriation movement is the recent implementation of the Foreign Account Tax Compliance Act (FACTA), which requires foreign banks to disclose financial information about the accounts of American citizens. FACTA was implemented to help the IRS track down undisclosed assets of American citizens who have foreign bank accounts.
The enforcement of FACTA has had a disproportionate effect on the Swiss banking system, which was formerly renowned for its discretion in the management of foreign assets. In one of the most widely publicized FACTA crackdowns, Switzerland’s oldest bank, Wegelin & Co., pleaded guilty to concealing more than $1.2 billion in American-owned assets from the IRS. Following this revelation, Wegelin & Co. was forced to close its doors forever.
As a result of cases like this, banks throughout Switzerland have become wary about their American clientele. This includes Swiss nationals with second citizenships in the United States. Rather than endure the scrutiny of the IRS, many banks are opting to turn away individuals who are American citizens. This poses a significant problem for Swiss binationals who were issued American passports because they were born in the U.S.
While a majority of those individuals with second citizenship will not face additional taxation under FACTA, the banking system’s discriminatory behavior is enough to push many to consider renouncing their American citizenship all together.
Right now, renunciation appears to be largely a tool for wealthy individuals with undeclared assets in foreign accounts. Fewer than 10 percent of Americans living abroad will face additional taxation under FACTA, but those who do may be subject to steep penalties for delinquent taxes or undeclared assets. Those individuals who fail to declare financial assets held in foreign institutions stand to receive a fine of more than $50,000 and the loss of up to half of their non-declared accounts. And so while expatriation is an extreme measure, it is becoming a popular method of asset protection for wealthy tax delinquents living abroad.
On the other hand, some feel that expatriation represents a greater financial risk for those individuals looking to escape the IRS. Because official expatriation requires the expressed permission of the IRS, it’s believed that renouncing one’s citizenship would only call in greater scrutiny of financial holdings. In some cases, the greatest form of asset protection is to make efforts to legitimize any undeclared holdings, absorb any applicable penalties and continue to live as an American citizen.