Sorting out globetrotters' tax dilemma

Sorting out
globetrotters’
tax dilemma

Daniel Costello
on Finance

Since the days of Roman tax collectors,
people have been willing to
hoe pits in olive gardens, sew precious
stones into lined outer garments,
skirt the fraying edges of
empires, and trick the trade of
treaty nations in an effort to outwit
or outrun their government’s outstretched
hand.

Individual tax audits appear a
quiet affair. No one really wants to
wear that scarlet letter or hire
enough fingers to pin it. U.S. IRS
Commissioner Charles Rossotti estimated
in 2002 that the tax collecting
organization is incapable of collecting
about $30 billion in known
due taxes annually. That’s about the
cost of a national health care
scheme.


How is your country doing? The
only writer I have read so far who
extrapolates a global tax evader’s
role in extralegal economic growth
would be the Peruvian economist
Hernando De Soto. He apologizes
for extralegal non-taxable income in
developing nations as legislative
failures to adapt quickly enough to
integrate the working poor into the
system of shared global growth.
Paradoxically according to
Leonard E. Burman of the Urban
Institute, the working poor are the
only people the IRS continues to
monitor for compliance. These days
intra-national labor mobility could
be said to be freer and faster than at
any time in history for similar reasons,
so a similar De Soto-ian apology
might be made in terms of global
individual income taxation where a
complex set of bilateral tax treaties
govern over smaller individual expatriate
incomes.

So expatriates who complain
about taxes may be divided into two
classes: those who pay them locally
through reciprocal tax treaties and
those who have deferred until a later
date. In many nations one may
delay tax filings indefinitely on the
assumption of a non-residency status
waiver. Such a determination
requires that minimal residential
ties be maintained.

Know who and what you are in
terms of your tax status.

Often it appears as a case by case determination.
For example, take the case of an
expat, let’s call him Frank, stirring
his green tea on the streets of Seoul
and saving his earnings here in the
ROK for five years. At the same
time he collects rent by direct deposits
on Madame Hortense’s hotel
back home. He fears his entire international
income is at risk for levee
at his home nation’s deemed resident
taxation rates. Accountants
have even told him this is the case.
The opportunity to declare non-residency
for tax purposes is not an option
where the continued maintenance
of significant residential ties
such as home rental and mortgage
payments may have coincidentally
been a major factor in his decision to
leave the country.

When Frank returns to his country,
the taxman will be waiting.
That smacks of catch-22 for a lot
of people. Some start singing Steve
Miller’s “Take the money and run.”
International income to a certain
maximum is exempted from most
OECD resident tax requirements,
which many appear unaware of.
Also there is often no criminal
penalty for late filing of overdue taxes
if you do the cometh-ing. There
could be, however, significant interest
payments owed. Burman of the Urban Institute
also reveals, as of 1998, that the IRS
estimated an entire tax gap of $232
billion overdue. That would amount
to at least $532 billion in total overdue
in the United States alone in
the coming Year of the Rat.
Only through voluntary compliance
policies are taxes often, if ever,
effectively collected. If in doubt, file
today?

Australia
The Australian Taxation Office:
www.ato.gov.au

Canada
Canada Revenue Agency:
www.cra-arc.gc.ca/international

The U.K.
HM Revenue and Customs:
www.hmrc.gov.uk/cnr/faqs_general.htm

The United States
The IRS: http://www.irs.gov/

Pakistan
Paktax: www.paktax.com.pk/main.htm

Egypt
Egyptian Income Tax Rules:
www.incometax.gov.eg

To contact Daniel, visit his website at
http://crossculturalreviews.blogspot.com — Ed.
(The Korea Herald)