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Citizenship and Tax, 11 World Tax Journal 2 (2019)

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Abstract

Since the time of the ancient Greeks and Romans, citizenship has defined the membership of an individual to a polity. Despite being a central pillar of national states and a supranational institution like the European Union, the importance of citizenship has progressively declined due to globalization and increased cross-border mobility. Indeed, citizenship has almost been abandoned as a connecting factor for establishing a state's tax jurisdiction. This article, however, argues that such a perception is partly misplaced. Far from being a relic of the past, citizenship still maintains relevance in today's international tax arena. Citizenship can serve, at times, either to extend or restrict a state's taxing rights over an individual's income. And yet, the use of citizenship for tax purposes is often instrumental and does not reflect the effective participation of an individual in a polity, which might ultimately suggest abandoning citizenship altogether as a relevant connecting factor in jurisdictional tax matters. "Birthright citizenship… moves down the generations like a form of untaxed inherited property." “At Nomad Capitalist, our motto is simple: go where you’re treated best.”

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Citizenship is a form of ‘legalized discrimination,’ in the sense that polities make categorical distinctions in their laws on the basis of defined membership criteria with regard to allocation of benefits and rights. These distinctions are justified because citizenship is viewed as a constitutive element of political community: without a stable membership conception of the group of persons that is entitled to the benefits and rights of a community, political self- determination is generally held to be impossible. Territory, an equally vital constituent element of statehood, has been divided between states as a result of warfare, international treaties, and arbitration in such a way that all permanently inhabited territories are ruled by one state and one state only. For people, the international convention is that states are sovereign in determining their own population, which entails that they can, within certain limits set by international law, exclude populations inside their territory or include others beyond their borders. As a result there is significant variation between political communities both with regard to the access to status as well as the extent to which it discriminates in terms of rights and duties. This chapter discusses comparative research on the regulation of the acquisition and loss of citizenship status and of the implications of having this status or not, which broadly speaking can be designated as the research agenda of the comparative study of citizenship regimes. This discussion will follow the comparative literature on citizenship regimes, which is, broadly speaking, organized around three sets of research questions where citizenship regimes are approached, respectively, as typologies; dependent variable; and independent variable. The first question is descriptive (along which dimensions can citizenship regimes be differentiated?), the latter questions are explanatory (focusing on explaining, respectively, which factors structure variation in citizenship regimes and how citizenship regimes impact on social, economic, and political outcomes). While these questions partly drive separate research agendas, they are better viewed as part of an integrated agenda where each of these questions provides necessary steps towards a comprehensive understanding of the dynamics of citizenship regimes. The concluding section reflects on such an integrated comparative research agenda and discusses theoretical and methodological challenges faced by scholars analyzing these questions.
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This paper presents a rival proposal to that presented by Dietsch and Rixen to ensure international background justice. It explains the notion of background justice and how this is challenged by the lack of international co-operation on taxation policy. It then presents the principles which Dietsch and Rixen propose in order to respond to this concern: the principle of membership and the principle of constraint. The paper proposes alternative principles of relationship and counter-incentive, which are argued to be superior means to achieve the aim of global background justice. This is because the alternative principles do not interfere with the right of states to set the tax-rates that they desire. The counter-incentive approach instead rewards the states who set higher taxes and provides them with revenues from taxpayers who have left either to seek lower taxes elsewhere or for any of a number of other reasons.
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Taxation of the worldwide income of U.S. citizens has been a feature of the U.S. income tax since the Revenue Act of 1913. This Article proposes that the United States abandon its imposition of income tax based on citizenship and institute a new system for taxing individuals based solely on residence. This includes (1) a revised definition of “residency status” that would be based on physical presence and be monitored through an entry-exit system, (2) a proposal for an exit tax imposed on termination of residence with respect to unrealized appreciation accrued during the period of residence, and (3) new transitional treatment of residents who have left the United States within the past three years but have not yet made a decision to break off residential ties. These proposed rules are designed to achieve more uniform compliance, to reduce the administrative burden for U.S. taxpayers, and to facilitate IRS efforts to enforce U.S. tax obligations.
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Pacific Island tax havens have apparently collected $153,450,000 from (mostly ethnic Chinese) purchasers of passports. This paper considers the evolution of passport sales in Tonga, Samoa, the Marshall Islands, Vanuatu and Nauru and internal and international opposition to them. Tension exists between different conceptions of citizenship within the world-system. Sales reflect classical liberal, individualistic, free market conceptions of citizenship. Opponents invoke both conservative and democratic conceptions of citizenship. This paper favours democratic solutions to many problems sales create. Sales schemes involve secrecy and corruption which attenuates following exposure by media, opposition politicians, watchdogs and crusaders against international terrorism. Pacific Island havens currently have no legal, official passport sales schemes, but this paper demonstrates that sales probably continue. Yes Yes
International law displays some influence over national citizenship laws, for instance, in cases in which the right of diplomatic protection is invoked. For a discussion on this matter, see S. Trevisanut, Nationality Cases before International Courts and Tribunals
  • O Dörr
O. Dörr, Nationality, in Max Planck Encyclopedia of Public International Law (Oxford Public International Law 2011, Online Edition). International law displays some influence over national citizenship laws, for instance, in cases in which the right of diplomatic protection is invoked. For a discussion on this matter, see S. Trevisanut, Nationality Cases before International Courts and Tribunals, in Max Planck Encyclopedia of Public International Law pp. 385-390 (Oxford Public International Law 2011). Compare also European Parliament, Topical Debate: EU Values and the Proliferation of Corruption and Crime through Golden Visas (transcript) (30 May 2018), available at http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+CRE+20180530+ITEM-019+DOC+XML+V0// EN&language=EN (accessed 8 Mar. 2019), where the EU Commissioner for Transport, Violeta Bulc, affirmed that, "while it is for each Member State to lay down the conditions for the acquisition and loss of its nationality, this must be done in full respect of Union law", having in particular regard to the principle of "sincere cooperation" between Member States and EU institutions enshrined in art. 4(3) Treaty on European Union (TEU).
) the individual agreed to pay an annual tax for the naturalization, amounting to CHF 1,000, of which CHF 600 were paid to the Commune of Mauren, while CHF 400 directly to the Principality of Liechtenstein (however
  • In Notably
  • Nottebohm
Notably, in Nottebohm (6 Apr. 1955) the individual agreed to pay an annual tax for the naturalization, amounting to CHF 1,000, of which CHF 600 were paid to the Commune of Mauren, while CHF 400 directly to the Principality of Liechtenstein (however, it was provided that both these special levies could be offset against ordinary taxes due by the individual).
For an insightful discussion on the various ways of citizenship attribution, see R. Baub ̈ock, Studying Citizenship Constellations
For an insightful discussion on the various ways of citizenship attribution, see R. Baub ̈ock, Studying Citizenship Constellations, 36 Journal of Ethnic and Migration Studies 5, pp. 847-859 (2010).
The Pennsylvania State University Press 1992), stating that "citizenship in the modern world is a lot like feudal status in the medieval world. It is assigned at birth; for the most part, it is not subject to change by the individual's will and efforts
  • J H See
  • Carens
See J.H. Carens, Migration and Morality: A Liberal Egalitarian Perspective, in Free Movements. Ethical Issues in the Transnational Migration of People and of Money p. 26 (B. Barry & R.E. Godin eds., The Pennsylvania State University Press 1992), stating that "citizenship in the modern world is a lot like feudal status in the medieval world. It is assigned at birth; for the most part, it is not subject to change by the individual's will and efforts; and it has a major impact upon that person's life chances".
Against this view, see , however, D. Sarmiento, EU Competence and the Attribution of Nationality in Member States , Investment Migration Council Working Papers, IMC-RP2019/2
  • V Reding
V. Reding, Citizenship Must Not Be Up for Sale (15 Jan. 2014), available at http://europa.eu/rapid/press-release_SPEECH-14-18_en.htm (accessed 8 Mar. 2019). Against this view, see, however, D. Sarmiento, EU Competence and the Attribution of Nationality in Member States, Investment Migration Council Working Papers, IMC-RP2019/2, pp. 24-25 (2019), who contends that by waiving the requirement of a "genuine connection" or "genuine link" and, in particular, that of "physical presence" in its territory, "a Member State is granting a third-country national a swift and less restrictive route to accessing EU citizenship".
European Parliament Resolution on the Rule of Law in Malta
  • E G See
  • European Parliament
See, e.g., European Parliament, European Parliament Resolution on the Rule of Law in Malta (10 Nov. 2017) (2017/2935), where the entire European Parliament urged the Commission to take action against the Maltese CIP.
Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions
European Commission, Report from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions. "Investor Citizenship and Residence Schemes in the European Union", COM (2019) 12 final.
The report was criticized by law firms and agencies operating in the "citizenship industry", which claimed that it failed to present or reflect "the fundamental societal and economic benefits that these investment programmes bring
  • Id
Id., at pp. 9-21. The report was criticized by law firms and agencies operating in the "citizenship industry", which claimed that it failed to present or reflect "the fundamental societal and economic benefits that these investment programmes bring". See Investment Migration Council, Investment Migration Council Press Statement European Commission Report on Investor Citizenship and Residence Schemes in the European Union (23 Jan. 2019), available at https:// investmentmigration.org/wp-content/uploads/European-Commission-Report-on-Investor-Citizenship-2019_with-statement.pdf (accessed 8 Mar. 2019).
A legislative proposal to abolish the scheme was instead turned down by the majority of the Portuguese parliament in
  • Sun Sea
  • Easy Visa Lure China
  • Buyers
Sea, Sun and Easy Visa Lure China Buyers, Financial Times (8 Oct. 2014). A legislative proposal to abolish the scheme was instead turned down by the majority of the Portuguese parliament in January 2019. See Portugal Continues Refusal to Abolish Golden Visa Scheme (12 Jan. 2019), available at https://www.occrp.org/en/daily/9105-portugal-continues-refuses-to-abolish-golden-visa-scheme (accessed 8 Mar. 2019).
For a perspective on competing views about "global tax justice", see M. Ronzoni, Tax Competition: A Problem of Global or Domestic Justice? , in Global Tax Governance. What's Wrong with It and How to Fix pp
  • G Beretta
G. Beretta, Citizenship and Tax, 11 Word Tax J. 2 (2019), Journals IBFD (accessed 2 April 2019) 182. For a perspective on competing views about "global tax justice", see M. Ronzoni, Tax Competition: A Problem of Global or Domestic Justice?, in Global Tax Governance. What's Wrong with It and How to Fix pp. 201-214 (P. Dietsch & T. Rixen eds., ECPR Press 2015).
Online Books IBFD, who, with regard to the use of "nationality" in the tie-breaker rule of art. 4(2) OECD Model, considers that the test "does not seem to raise particular interpretative issues". In a similar vein, see Vogel, supra n. 61
  • See J Sasseville
See J. Sasseville, Chapter 7 -History and Interpretation of the Tiebreaker Rule in Art. 4(2) of the OECD Model Tax Convention, in Residence of Individuals under Tax Treaties and EC Law (G. Maisto ed., IBFD 2010), Online Books IBFD, who, with regard to the use of "nationality" in the tie-breaker rule of art. 4(2) OECD Model, considers that the test "does not seem to raise particular interpretative issues". In a similar vein, see Vogel, supra n. 61, at p. 63, who observes that "either the taxpayer is a national of a State with respect to a period in question or he is not. There is no room for legal interpretation".
1323, who argues that "there is a compelling administrability argument for citizenship-based taxation: citizenship is an administrable proxy for domicile, an individual's permanent home
  • See Zelinsky
See Zelinsky, supra n. 90, at p. 1323, who argues that "there is a compelling administrability argument for citizenship-based taxation: citizenship is an administrable proxy for domicile, an individual's permanent home".
90 , at p. 490, who considers that "a citizenship-based tax regime minimizes the role of taxes in a citizen's residency decision
  • See Kirsch
See Kirsch, supra n. 90, at p. 490, who considers that "a citizenship-based tax regime minimizes the role of taxes in a citizen's residency decision".
Demographic Boundary Maintenance in World Politics , in Identities, Borders, Orders
  • R Koslowski
Quoted in R. Koslowski, Demographic Boundary Maintenance in World Politics, in Identities, Borders, Orders, p. 206 (M. Albert, D. Jacobson & Y. Lapid eds., University of Minnesota Press 2000).
Types of British Nationality , under "British Overseas Citizen
  • U K See
  • Government
See UK Government, Types of British Nationality, under "British Overseas Citizen", available at https://www.gov.uk/types-of-british-nationality/british-nationaloverseas (accessed 8 March 2019).
Taxing Potential Community Members , 70 Tax Law Review 1
  • D Shaviro
D. Shaviro, Taxing Potential Community Members, 70 Tax Law Review 1, pp. 75-110 (2016), addresses "resident aliens" as "potential community members" or "PCMs".
General Report , in Tax Avoidance Revisited in the EU BEPS Context sec. 1.3.5 (A.P. Dourado ed
  • A P Dourado
For an overview on general anti-avoidance rules (GAARs) and specific anti-avoidance rules (SAARs), see A.P. Dourado, General Report, in Tax Avoidance Revisited in the EU BEPS Context sec. 1.3.5 (A.P. Dourado ed., EATLP International Tax Series 2017). With regard to GAARs and tax treaties, see P. Rosenblatt & M.E. Tron, General Report, in Anti-Avoidance Measures of General Nature and Scope (IFA Cahiers, vol. 103a, 2018), Online Books IBFD. With regard to SAARs in tax treaties (e.g. the LOB clause included in article 29 of the 2017 OECD Model or provisions regarding the "beneficial owner" with regard to passive income), see E. Furuseth, The Interpretation of Tax Treaties in Relation to Domestic GAARs ch. 19 (IBFD 2018), Online Books IBFD.
For a discussion on domestic GAARs and SAARs to counter such kinds of abuses
  • See G Maisto
For a discussion on domestic GAARs and SAARs to counter such kinds of abuses (although in the context of company taxation), see G. Maisto et al., Dual Residence of Companies under Tax Treaties, Intl. Tax Stud. 1, sec. 5.2.2.1 (2018), Journals IBFD.
EB-5 Visa Program", can be accessed by foreign entrepreneurs and their relatives, provided they make an investment starting from USD 500,000. See US Department of Homeland Security, US Citizenship and Immigration Services
  • U S The
  • Cip
The US CIP, called "EB-5 Visa Program", can be accessed by foreign entrepreneurs and their relatives, provided they make an investment starting from USD 500,000. See US Department of Homeland Security, US Citizenship and Immigration Services. EB-5 Immigrant Investor Program (2017), available at https://www.uscis.gov/eb-5 (accessed 8 Mar. 2019).
Types of British Nationality, under
  • U K See
  • Government
See UK Government, Types of British Nationality, under "British Overseas Citizen", available at https:// www.gov.uk/types-of-british-nationality/british-national-overseas (accessed 8 Mar. 2019).
Stakeholder Citizenship and Democratic Participation in Migration Contexts
  • R Bauböck
R. Bauböck, Stakeholder Citizenship and Democratic Participation in Migration Contexts, in Conference: The Ties That Bind: Accommodating Complex Diversity in Canada and the European Union. Brussels (November 17-19, 2005) p. 6 (2005).
For an overview on general anti-avoidance rules (GAARs) and specific anti-avoidance rules (SAARs), see A.P. Dourado, General Report, in Tax Avoidance Revisited in the EU BEPS Context sec
For an overview on general anti-avoidance rules (GAARs) and specific anti-avoidance rules (SAARs), see A.P. Dourado, General Report, in Tax Avoidance Revisited in the EU BEPS Context sec. 1.3.5 (A.P. Dourado ed., EATLP International Tax Series 2017). With regard to GAARs and tax treaties, see P.
Singapore has a strict single-citizenship policy which requires proof of relinquishment of all other citizenships that the applicant holds. See GuideMe Singapore, supra n. 134. 197. Quoted in R. Koslowski, Demographic Boundary Maintenance in World Politics
The loss of a country's citizenship for acquisition of another country's nationality is a requirement under the citizenship laws of some countries. For instance, Singapore has a strict single-citizenship policy which requires proof of relinquishment of all other citizenships that the applicant holds. See GuideMe Singapore, supra n. 134. 197. Quoted in R. Koslowski, Demographic Boundary Maintenance in World Politics, in Identities, Borders, Orders, p. 206 (M. Albert, D. Jacobson & Y. Lapid eds., University of Minnesota Press 2000).
sec. 2; British Nationality (Hong Kong) Act
  • Hong Kong
Hong Kong Act 1985, 4 Apr. 1985, sec. 2; British Nationality (Hong Kong) Act 1990, 26 July 1990, sec. 1. 200. UK: British Nationality Act 1981, 30 Oct. 1981, part I, sec. 4.