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.

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To better understand the saving clause see the following three blog posts ...

 

Why U.S. citizens cannot use a tax treaty tie break to sever tax residency:

 

http://citizenshipsolutions.ca/2016/05/26/savings-clause-in-us-tax-treaties-guarantees-us-right-of-taxation-on-residents-and-citizens-of-other-nations/

 

A bit of commentary on this issue - particularly the saving clause - in relation to the 2016 Model Tax Treaty:

 

http://citizenshipsolutions.ca/2016/07/13/analyze-the-new-2016-us-treasury-model-tax-treaty-what-does-it-mean-for-your-country/

 

Why Green Card holders can use a tax treaty tie break to sever tax residency (see the very last part) - but note that NOT all treaties are the same with respect to Green Card Holders (compare for example the treaties that the US has with Canada and the UK).

 

http://citizenshipsolutions.ca/2018/07/30/non-citizenship-has-its-privileges-an-overlooked-reason-why-a-green-card-holder-may-not-want-to-become-a-u-s-citizen/