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Information about everything from tax bureaucracy to international audits. News and updates. Speeches, conferences and workshop registrations. Packing advice. Phil’s jet-lagged musings on Swiss banks and the “quitting conversation.”

Tax Strategies for Micromultinationals – Singapore

I was in Singapore for a week, and spoke at the Dynamite Circle event on February 21-22, 2015. Jeans and wrinkly travel shirt mandatory, right?

Over to the left is Ian Schoen, one of the proprietors of Dynamite Circle. His partner, Dan Andrews, is taking the picture. They also own The Portable Bar Company, Modern Cat Designs, The Valet Spot, and Tropical MBA. Dan and Ian also do a podcast (highly recommended). You can listen to the episode about the Singapore weekend event.

MacBook Pro + Bank Account = PFIC

The Passive Foreign Investment Corporation and Controlled Foreign Corporation rules are the government’s countermeasures against a logical tax strategy–tax deferral.

If your business operates through a foreign corporation … you probably have a latent Passive Foreign Investment Corporation on your hands, or (“less bad”) you probably have a Controlled Foreign Corporation.

It’s the paperwork, stupid

It’s time to channel my inner Bill Clinton. (OK, maybe that’s not such a good idea). When he was running for election, his campaign manager’s mantra was “It’s the economy, stupid.”

Anecdotally, the people we help expatriate complain about the expense, burden, and risk of U.S. tax paperwork when they are living abroad. Quite often they owe no income tax to the United States. Despite that, they must prepare a tax return far more complex than the one that a U.S. resident would have — with the accompanying expense and risk for screwing up. And there are many opportunities for screwing up that are simply not available to a person living in the United States. :-)

The science is settled. We now have academic confirmation. A recent study led by Dr. Amanda Klekowski von Koppenfels of the University of Kent (in Brussels) looked at U.S. citizens and expatriation. (Hat tip to Jackie Bugnion at American Citizens Abroad for alerting me to this). A summary on the University’s website refers to the paperwork and penalty problems as being central to renunciation considerations.

FBAR Filing In the Year of Expatriation

This week’s question comes from someone who was flummoxed by ambiguity and the IRS’s inability to answer questions. I will quote the whole email because it make me happy.

Dear Phil H,

Thank you for helping me navigate through the murky waters of expatriation. Your writings have been both a ray of illumination and a catalyst for the fight or flight response. You have been infinitely clearer than the folks at the IRS, helplines, Embassies, etc.

Thinking that I was at last free from the unreasonable demands of a country I have not lived in for many decades, and relieved that my financial accounts/career/financial security/etc. have been saved from FATCA inspired oblivion, I was propelled into another few hours of frenzy by something you wrote in this week’s newsletter… about a FinCen 114 being due for the year of expatriation. To confirm your information, I sent an email to this IRS recommended address: FBARquestions@irs.gov. Here follows the reply I received. Its beauty might appeal to you. It is a record of incomprehension and increasing anxiety from both parties. I am being told that the FinCen 114 is not needed in the year of expatriation.

I’ve been left with the impression that my command of English is inadequate, and that I have seen ambiguity where none exists. Alas, it is the only language I speak with fluency. Perhaps, as a lawyer, you will be able to clearly see what I could not.

The question is whether, in the year of expatriation, you must file the dreaded FBAR, now named FinCen Form 114.

The Buckets and Pipes Theory of Tax Planning

Saturday morning in Singapore I will be talking to about 30 entrepreneurs about tax stuff – a bit for themselves, but mostly about their businesses. And that means talking about cross-border tax strategies. “Can I do what Apple does?”

The answer is yes. It’s just not cost-effective until you are operating at scale. For younger companies, the better strategy is to optimize for simplicity. Spend less money on tax brains and pay a bit more in tax. Stay away from the shiny.

Simplicity will make your business nimble, and your time and attention will be directed toward what really matters: creating customers. An entrepreneur’s time and attention is worth far more than taxes saved.

You don’t get wealthy by paying less tax. You get wealthy by creating customers. Look at Apple. Of course Apple is saving tax with clever international tax strategies. But first, painfully and over a long time, they created customers.