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In January 2013 after a lengthy dispute with the French government over taxes on the wealthy, Gérard Depardieu famously invoked rage amongst some of his fellow French nationals when he first moved to Belgium and then dropped his French citizenship for a Russian passport. More specifically, Depardieu’s departure was in defiance of President Francois Hollande’s Socialist party which imposes a 75 percent tax rate on incomes above one million Euros ($1.3 million). This move divided France as many celebrities lined up to critique Depardieu, there were just as many who defended his actions. Since then, there has been a media focus upon such cases where taxes have become the primary reason for people to drop their citizenship in one country in favour of another.
And today the country which is forcefully going after its citizens who live abroad is the United States, one of only two countries in the world which has citizenship-based taxation. The only other country that has citizenship-based taxation is Eritrea. In 2011, there were 1,781 Americans who renounced their citizenship compared with just 231 three years earlier when US tax laws changed. The rates have been steadily increasing from 2012 with the most recent data showing that 5,411 Americans renounced their citizenship in 2016. Even former London mayor, Boris Johnson, New York born, recently renounced his citizenship. The reasons for these renunciations is well known in the financial sector: taxes.
Still, there are many who are unaware of the depth of tax law for U.S. citizens and dual nationals living abroad. Take for instance last week’s case of Jeffrey Pomerantz, a Vancouver-based resident with dual Canadian-U.S. citizenship who didn’t file the Report of Foreign Bank and Financial Accounts (FBAR). The U.S. government is now suing him for $860,300 US and before he can even consider renouncing his U.S. citizenship, Pomerantz must put his accounts in order with the “tax man.”
The spike in numbers of citizenship renunciations is largely due to newer tax laws, including the Foreign Account Tax Compliance Act (FATCA) of 2010. While FATCA attempts to “combat tax evasion by U.S. persons holding accounts and other financial assets offshore,” it penalises those without means to pay taxes in two countries and becomes an onerous task for anyone who is poor or middle class. For instance, FATCA necessitates the reporting of U.S. taxpayers on their foreign financial accounts and offshore assets; their foreign financial institutions regarding financial accounts held by U.S. taxpayers; and foreign entities in which U.S. taxpayers hold a substantial ownership interest. Under FATCA, certain U.S. taxpayers with financial assets outside the U.S. that total more than the reporting threshold must report their assets to the IRS, using Form 8938, Statement of Specified Foreign Financial Assets (today this would apply for those with “specified foreign assets” upwards of $200,000).
FATCA requirements are in addition to the Report of Foreign Bank and Financial Accounts (FBAR), which has been the long-standing process for reporting foreign financial accounts. The penalties for failing to comply are significant, and, in some cases, involve criminal liability. In the UK, for instance, many banks are refusing accounts to U.S. citizens due to the extra burden it puts on the bank to report to the U.S. government. Additionally, these laws affect middle-class and poor American citizens who are expected to pay capital gains tax to the U.S. government if they sell a property abroad even if that property is their main residence. And there is the issue of double taxation which citizen-based taxation imposes. While foreign tax credits and the 1031 exchange can reduce the tax burden, they do not eliminate all double taxes, particularly for higher-income earners (the threshold today is $106,000 before double taxation kicks in) who end up filing and paying taxes both in the U.S. and abroad.
Ultimately, the cases of Depardieu and the many Americans living outside the United States, raise many questions as to the links between citizenship and participation in the state through taxation. In ancient Greece, taxation was the primary source of revenue for the city-state and demonstrated the citizen’s participation to this political system and inextricably intertwined with the construction of the city-state and citizenship. There was an accepted principle in Greek cities that the wealthy had a moral obligation to pay taxes intended to be spent on the public good. Thus, in many cities like Athens, citizens were obliged to undertake what were called liturgies [λειτουργία], a type of community service which took two forms: gymnasiarchia [γυμνασιαρχία], the financial maintenance of the gymnasium, and the choregia [χορηγία], the public duty of financing the choir members of the theater for dramatic competitions. Another tax on the rich was known as the trierarchy [Τριηραρχία] where the citizen who performed this was responsible for the outfitting, maintenance, commissioning, and command of a warship known as a trireme. The eisphorá (εἰσφορά) was a tax on the wealth of the very rich which was usually only levied only when needed, such as in times of war. Economic activity was also taxed within the city-state as well which often took the form of indirect taxes were levied on houses, slaves, herds and flocks, wines, and hay, among other forms of trade. The metics (non citizens) in Athens had to pay a special tax called a metoikion [μετοίκιον] which was set up to symbolically to value them less than citizens. But the link between political or economic participation in the state was clearly linked to citizenship early on.
Citizenship originated with the “city-state,” a sovereign area of a city and often its dependent territories, a collection of settlements with political unity, known as the polis [πόλις]. The members of the polis would make up the collectivity of citizens creating a political state connecting a human community and a determinate territory. Aristotle writes in Politics of the polis: “The partnership finally composed of several villages is the city-state; it has at last attained the limit of virtually complete self-sufficiency, and thus, while it comes into existence for the sake of life, it exists for the good life.” Herodotus notes that the the polis went beyond this grouping of geographical and political commonality and turned on the concept of “equality,” where power is diffused. This format of citizenship remained the leading model of citizenship in Greece from approximately the eight through the fourth centuries BCE. There was another model of citizenship within Greece which was a flexible form of association over a broad territory, sometimes composed of city-states, called the ethnos [ἔθνος]. Based on ethnic identity, the ethnos was a grouping of people who lived in small, free communities political joined in league or federation with others (ie. the Athenians, the Lacedaemonians, the Corinthians), each ethnos being independent and having no unity other than political. Thus every city-state enjoyed territorial sovereignty and in accordance with it its politeia [πολιτεία] (community of citizens) made its own laws.
Three governmental institutions were common to all the city-states: a large Assembly that brought together all or part of the polites [πολίτες] (“citizens,” though in exclusion of minors, foreigners, “metics,” women, and slaves); one or more smaller councils, generally entrusted with preparing and executing the decisions made by the Assembly; and a certain number of public offices (the archai [ἀρχαί], magistracies), exercised in alternation by certain people. The politeia specific to each polis presented different challenges from the writings of Herodotus to Plato. The politês who is the member of the polis incurred two types of framing within the city-state depending on this citizen’s participation: the politeia designates either the citizens’ participation in the city-state constituting “citizenship” or the citizen was part of a collective organisation of all citizens into a whole, thus forming a “constitution” or “regime.” In both definitions, however, the citizen participates in the city-state either through direct participation or through membership, belonging.
Over time, the system of tax changed, such that during the Roman Empire citizens were more generally taxed 1% and over the centuries taxes grew as did the ethos for taxation. For instance, the eighteenth century employed microeconomic (Utilitarian) theories of maximising social welfare in the individual’s responsibility to the society of which they are participating members.
As for Depardieu and others handing in their passports to opt out of this civic participation—to include those who must get “creative” in avoiding the payment of taxes—there are other duties expected of expatriates abroad such as the notable task of learning a foreign language or the transfer of professional qualifications to another country. At the end of the day, one might interrogate the standard of civic participation in an era where citizenship has been become a rally cry for political agendas ranging from putting up walls to kicking out foreigners. If money is now the standard of citizenship, which it certainly is in countries like the U.S. and the U.K., we ought to better understand why those with investments of £2,000,000 are given a paved road to citizenship while Americans without means living abroad must pay extortionate rates just to rescind their citizenship. While money is a driving force for those who do opt out of their natal citizenship, there are others who have made a U-turn in their desire to return to their homeland for other rewards. When French author, Michel Houellebecq returned from his own tax exile in Ireland where there is a special exemption of taxes for writers and artists, he said, “Let’s say that money is important, but it’s not the most important thing.”