GENEVA — Disenchantment confirmed. The number of Americans renouncing their nationality has risen six-fold since the same period last year. The numbers have jumped from 189 to 1,131 during the second quarter of 2013 amid diplomatic reform for Americans living abroad, the latest U.S. figures reveal.
This trend coincides with the implementation of stricter fiscal rules, owing to the infamous Foreign Account Tax Compliance Act (FATCA). That measure requires financial institutions to communicate information about the foreign bank accounts of American clients to the Internal Revenue Service, the American tax authority. This form of automatic exchange has reportedly pushed more and more binationals to abandon their blue passports. In addition, since November 2012, the IRS 8939 form not only demands to see details of bank accounts held abroad, but also life insurance contracts, loans and holdings in non-U.S. companies. All who fail to comply face a fine of $50,000 and can incur a penalty of up to half of the non-declared account, should it be discovered.
Fiscal motives alone aren’t the cause for the dramatic rise in citizens renouncing their U.S. citizenship, argues Anne Hornung-Soukup, a board member for American Citizens Abroad. She is also the wife of Genevan lawyer Douglas Hornung, who defends Swiss bank employees targeted by the American tax authorities.
“It’s more the combination of administrative costs, the logistics and the threat of fines that push my compatriots into action,” she says. Indeed, failing to declare to the IRS is punishable even in the case where there would be no taxation.
“An American passport has become toxic” for binationals, she says, in large part because banks have not reacted well to the new requirements. “More and more banks refuse us benefits, loans, mortgages or life insurance under the pretext that we are U.S. citizens. One of the envisaged solutions for our association is to campaign for taxation according to place of residence, not by nationality, as is the case today.”
How it began
The practice of Americans giving up their nationality peaked here a few years ago amid the scandal case involving UBS, the Swiss global services company. “At that time, the embassy in Bern had a waiting list far longer than other U.S. embassies around the world,” says Charles Adams, an American lawyer working in Geneva.
Binationals in other countries have also followed suit. But like Hornung-Soukup, Adams doesn’t believe the rush to renounce U.S. citizenship is related to the disclosures required by expats per se. “Every taxpayer, no matter where they reside, has an obligation to fill out an annual fiscal declaration and, where necessary, to pay their due tax,” he says. “For expatriates, an income equal to 80,000 Swiss francs ($86,299) is exempt from taxation, and for almost 90% of Americans living abroad, there is no fee whatsoever owed to the tax authorities after the taxation of their country of residence.” After all, the FATCA standards apply to financial institutions, not to individuals.
But the figures confirm that the renunciations in Switzerland remain high. This is particularly true for bi- or trinational citizens, whose U.S. passports were issued because they were born there (the U.S. practice of jus soli dictates this).
The case of a 30-year-old legal expert in Geneva, who wishes to remain anonymous, is revealing. Her parents arrived in the United States in the 1980s and returned to Switzerland a few years later. The young woman was born during this period, and now is considering starting the process of returning her passport. Her nationality, originally perceived as an advantage because of the prospect of studying in the U.S., has increasingly become a handicap.
In 2009, the “invasive” nature of the administration stemming from her double nationality finally convinced her to take action. “It was a difficult decision,” she says. “Although I only have the passport, it’s still the place where I was born.” After letting the document expire, she will begin the process of renunciation.
Hornung-Soukup has been confronted with numerous cases of expatriation and deplores the aggressive nature of American administrative procedures. “Lists of the names of Americans who have renounced their nationality are regularly published on the U.S. Federal Register,” she says. “They are accessible to the public in order to create a feeling of shame and awkwardness. Among the 200 people who have renounced their American nationality in the last three months of this year, I personally know seven Swiss citizens.”
Making it official
The ambassador to Bern, Donald Beyer, said at an American International Club dinner in Geneva this year that 900 people renounced their American nationality in Switzerland in 2012 alone, according to American Citizens Abroad.
Aside from the Swiss-born in the U.S. (those Charles Adams calls “Accidental Americans”), there are also “true Americans” who plan to become Swiss and, as a last resort, abandon their original nationality.
One thirty-something American residing in Geneva says that she wouldn’t renounce citizenship based on tax issues, though related administrative issues do pose difficulties. “I declare my income and I have no problem whatsoever that the IRS receives direct information about my bank,” she says. “I’m considering naturalization. But renouncing my American nationality, that’s a whole other step. I have family there. That said, opening a savings account or a pension has become a real headache for me. If there is extra paperwork, I may review my position.”
For candidates to renunciation, the American embassy in Bern has information about the consequences of this move. Over the phone, officials there claim not to have statistics concerning place of renunciation, referring callers instead to the Federal Register. Likewise, they offer little response when asked about the motives of Americans giving up their passports or becoming Swiss citizens.
After having completed the necessary — and lengthy — documentation, an interview (both obligatory and under oath) at the embassy is required. A whole system is then set into motion. The request passes through the Department of State to the Department of the Treasury in Washington, D.C. And it is only with the agreement of the IRS that the certificate of renunciation is delivered. It allows former Americans to return to the U.S. without difficulty. Without it, the phrase “born in New York” on a Swiss passport would risk a raised eyebrow from customs officials, who requires U.S. citizens to enter the country with their American passports.
