The Tax Treaty Saving Clause: How it works to export US worldwide taxation offshore to other countries
January 13, 2019 - Participants Include:
John Richardson - @Expatriationlaw
Tim Smyth - @Tpsmyth01
My last podcast featured a discussion with David Lesperance where we discussed how tax treaties impact the global mobility decision. That podcast included some discussion about the "saving clause".
This is an excerpt from a 2019 podcast which features an interesting discussion of the standard tax treaty "saving clause". This podcast was extracted from a longer discussion about Representative Holding's 2018 Tax Fairness For Americans Abroad act.
The "saving clause" is a standard feature of U.S. tax treaties which denies US citizen individuals the benefit of U.S. tax treaties except in very limited and specific circumstances. Notably, the "saving clause" prevents US citizens from using tax treaties to sever tax residency with the United States. Green Card holders ARE (although it may trigger the S. 877A Expatriation Tax) use the tax treaty tie break provisions to sever tax residency with the United States.
Interestingly: US citizenship-based taxation could be ended by simply either:
1. Eliminating the saving clause from the Standard US tax treaty; and/or
2. Including some kind of "citizenship-based tie breaker" that could be used by dual citizens.