Because it would be really foolish for our tax system to do that, and cripple US competitiveness.

Imagine Samsung builds phones in China. It's chinese subsidiary has to pay Chinese taxes on the profits from selling those phones. But it doesn't have to pay income taxes to the US on them.

Now Apple builds phones in China. It's Chinese subsidiary has to pay China income taxes on the profits from selling those phones. Now it also has to pay and additional 40%+ income tax combined to the US & the state of California, all because the subsidiary is owned by Apple USA?

Samsung would say, thank you US tax code! Our high end Galaxy phones can now sell for substantially less than iPhones and we'll get even more market share!

The way things are today is and enough. Apple still owes that 40% whenever the subsidiary pays those profits back to Apple US. Hopefully they'll pass a repatriation bill so the federal rate will drop to 12% or so (20%ish with CA state income tax), and Apple will bring the profits back.

You should really think about whether corporations should pay any income taxes at all. Profits are either reinvested in growing the business (and creating jobs), or paid to shareholders, who already have to pay taxes on them. Double taxing profits before they can be paid to shareholders, or single taxing them before they can be reinvested, is a significant disincentive to investing in the US. It's trapped trillions in US capital overseas.

Corporations shouldn't get taxed only if they reinvest the money. More often than not, it's stashed in the Cayman islands or some other tax haven.

Yea, the money in the Cayman islands is "invested", it's earning interest only because it's being loaned out to other businesses.

But my point is rather than trap US capital in overseas bank accounts earning limited interest, it's far better to have it brought back to the US and invested directly in businesses (or returned to shareholders).

You get that the only reason they do that is because of taxes ..., right?

Perhaps you shouldn't be either. The US is one of very few countries that do this

Actually, most countries do this.

Don't confuse the taxes levied on a US citizen's income when living abroad with Apple's situation.

Apple is a US corporation.

Not sure why this is downvoted to gray, it is correct. In most countries, if you are a tax resident, your foreign income is taxed. What is unusual about US is that it also taxes foreign income for US citizens that are living abroad, almost no countries do this.

Well, we are in good company with Eritrea I guess... https://en.wikipedia.org/wiki/International_taxation#Citizen...

I think because the original comment is ambiguous. It isn't clear whether by "income I earn overseas", he's referring to income earned while a tax resident of another country (for example living and working there) or income earned while a tax resident of the US (for example through overseas investment or < 1yr work).

One commenter appears to have assumed the former, the person replying assumes the latter.

Even foreign income that the host country considers to be a pension with special tax treatment (like 401k)

http://www.afr.com/business/accounting/irs-chases-us-citizen...

I know someone who is giving up US citizenship on return to Australia for this reason.

Well if you look at it from a Govt's perspective it makes sense. Even though you are US citizen living outside US you still part of the club for which you have to pay membership fees. If you dont like that you are free to leave the club and take some other citizenship.

No, because you don't cost the govt anything. You don't use any public services in the USA, you use the public services where you live. You're paying for literally nothing but a passport.

> You're paying for literally nothing but a passport.

Which is exactly what I meant, you are paying the membership fees whether you use the services or not. The US govt knows that, if you dont like you are free to give up that passport which I am sure you wont.

Renouncing US citizenship is not something you do by filing in a form and sending it along with your passport to the US embassy. It can take years, plus many lawyers, and in the mean time you have to continue paying taxes, and pay for the process thereof.

It's not that simple.

and it even costs a fixed fee to get a passport.

If switching citizenship was on the level of ease like switching rental apartments, complex but doable, then you'd have a point, but you generally don't have that much choice in your citizenship. It is one of the last bastions of socially accepted generational discrimination. Countries try to keep you in their club and try to keep others out of it, even if discriminating between people based on where they were born is objectively morally wrong.

Not that I think it's a good idea to get rid of borders today, just that a natural extrapolation of western morality, which favors choice over birth, leads you down a path to a borderless world.

I am a citizen of a foreign country, I have a job in that country, I store my money in that country, I buy practically all of my products in that country. Why should the fact that when I was a baby, the US government decided to give me citizenship cause me to pay more taxes (or at least pay more to file) than my neighbor who is not a US citizen?

So why dont you renounce your US citizenship?

The US govt knows that most non resident US citizens even if they dont like paying taxes are still going to pay it because those citizens still want to be part of club US.

Renouncing citizenship is expensive and non-trivial. The US global taxation regime is a trap.

Yes I know its convoluted but do want to keep paying taxes every year or just renounce citizenship , it's your choice.

Just renouncing US citizenship costs several thousand dollars in legal fees and could take up to 5 years. What you are suggesting is similar to telling someone who is complaining about rent prices to just buy a house.

Well why doesn't the US government just decide to tax its citizens the same as nearly every other country in the world? You're saying that the solution to a bad system is to move, rather than just making the system less terrible.

I am talking about realistic scenarios, that person can renounce US citizenship, changing the US tax code is not in his hands, is it?

It is not correct until that "As an individual I am taxed on income I earn overseas. Why shouldn't a corporation?" implied living overseas as well.

I always thought this kind of made sense. I mean, you still enjoy the benefits of being a US citizen. You are also more likely to use the embassies and consulates.

"Apple is a US corporation"

But the overseas profits were earned outside of the US by non-US corporations, so why should they be taxed in the US? If I buy shares in Samsung, it doesn't suddenly have to pay 35% of its Korean income as taxes to the US.

> Apple is a US corporation.

IIRC, the US considers corporations as people. Am I wrong?

You don't lose your constitutional rights just because you form a corporation, a nonprofit, a group, or a party. That's the meaning of corporations are treated like people, laws restricting the ability of corporations to express themselves have to be weighed against the owners rights to express themselves.

I wasn't saying that I would loose my rights once I form a corporation. I was trying to say that corporations, as considered people, can [should?] be treated as such regarding taxes or expression or fill-the-blank just as you or I am.

If I am taxed by the US for every single penny I earn regardless of source, why should not US Corporation LLC Inc? We are both people. We both have income. Perhaps we both have foreign bank accounts. Every inch of my income gets taxed but US Corporation LLC Inc gets to stash big monies with no regard? I am confused.

When you invest in any corporation as a US person, you are only taxed on income you receive as dividends, or capital on your gains if you sell the investment (and any imputed income); not on your share of the undistributed income of the corporation. It's the same for a US corporation, they generally conduct business overseas through a wholly owned subsidiary corporation, organized within the overseas jurisdiction. If the subsidiary passes income back to the parent (a dividend), the parent will have to pay income tax on that; if the income remains within the subsidiary, so does the tax burden.

If the US corporation directly accumulates income overseas, then it would be liable for US income tax as well.

It's a lot easier for a large corporation to arrange its affairs in this manner than a natural person, though.

Also the corporation has to pay taxes on it's income, then you have to pay taxes on that same income if it's paid to you.

You actually have it better than the corporation!

That's right. You have to pay taxes when you produce your work overseas. Corporations do not have to pay taxes when they produce their work overseas. It sounds unfair, but if you subscribe to the idea that corporate profits are more important than human life, as many in the US do, it makes perfect sense.

Only for the free speech ammendment, and if you reinterpret "free speech" as "money". The most ironic part of that decision is that it's called Citizens United

Its even worst than that. Read about FATCA - a total failure of US Government (politicians) implementing draconian bill that force other countries to report US Citizens offshore accounts back to USA.

Only few politicians were against really knowing how the law will play. While those who push the law wanted all the countries involved to simply report on USC, the report itself is very complicated and confusing. Result? Majority countries that signed up for FATCA simply stopped opening USC account and shut down all accounts that belong to us citizens.

Two of my friends shut down their legitimate companies in Hong Kong overnight because they didn't have bank account anymore. Another friend started working with HK citizen so that he will represent him on paper and got screwed up out of his business. Result -- discrimination against USC around the word in terms of banking and less competition around the world from us-people.

That is one of the most ridiculous US tax laws we have. Even though we're only taxed on income over 100k.

Actually earned income over 100k. Unearned income is taxed from the first dollar -- including things like social security benefits, capital gains and more.

You're confusing it with citizenship based taxation which is a different infuriating issue. Most countries tax your global income when you're a resident.

Most countries don't tax you though when you are NOT a resident.

Dutch citizen working and living in the US does not file taxes in The Netherlands. US citizen living and working in The Netherlands does file taxes in the US.

"I got beat with a stick, why shouldn't he?" What sort of fucked up reasoning is that you have to suffer too?

I dont think either the individual nor corporation should be taxed on overseas income but if you disagree that's fine, but at least put forward a non crabs in a bucket style argument.

No other sane country I know of does that. Must countries have mutual agreements, where income is only taxed in the country where the money is earned (certain rules apply of course). Only the US as I am aware, has these pretty nonscense rules of double taxation.

As a non-citizen living in the US I am taxed on income I earn in my home country. This is literally taxation without representation!

You're still entitled to vote as a nonresident citizen.

That's heavily dependent on your citizenship. Some countries limit the right to vote depending on how long you've been out of the country.

I cannot vote in the US while the US taxes my income earned in other countries. This is very weird.

You can vote using the last residence you lived at while in the U.S. Unless you've never lived there, then you have to use your parents' last address or something. Not that the tax system isn't terrible for other reasons.

Canada does the same thing: residents are taxed on their worldwide income while they reside in Canada regardless of their citizenship.

Is this really true?

When I worked for US corporates I had to get a US ITIN, and then fill in some paperwork annually and/or at the start of each job. The paperwork (W8BEN, I think) told Accounting not to collect tax in the US, because the earnings would taxed in the UK under a reciprocal treaty.

The US is one of the very few countries to demand that US citizens pay tax to the US gov on all their earnings, and then pay tax again to whichever country they're resident in.

This tragic/hilarious asymmetry between ordinary citizens and corporations says a lot about the balance of power in the US.

It is, but generally speaking due to tax treaty you're not double taxed. All your US taxes paid are credits in Canada.

The old loop hole used to be that if you were (Or intended to be) non-resident for 2 years or more you didn't owe taxes to Canada (you would need to do a deemed disposition of all your assets for tax purposes though). But then you couldn't vote either...

I've had to fill in a W8BEN for my investment account in Canada (it would potentially allow me to buy US-located assets).

And keep in mind that the vast majority of countries have tax treaties with the US such that you'll get tax credits for foreign taxes paid. You'd only pay taxes in both countries if you're living somewhere with lower taxes than the US.

Overseas corporation isn't a US corporation.

Let's fix that: it's ridiculous that I pay US taxes on income I earn overseas. Other than Eritrea, the US is the only country that taxes its diaspora.

Also China. But yes, it's rare.

That's also bullshit.

Because a individuals earning income from the corporation will already pay taxes too. The taxes on the corporation are essentially a double-tax.

"double-tax" is a nonsense concept. There are dozens of overlapping taxes in the world.

> There are dozens of overlapping taxes in the world

And we shouldn't have any of it.

It's not nonsense. You have to determine what level of taxation is appropriate on investment, if you ignore secondary taxes you are ignoring the real cost to investors.

If you think 50% is a reasonable tax on investment, then fine. But don't pretend it doesn't exist.