Abstract
This Article addresses a fundamental issue underlying the international tax system in the 21st century: the use of citizenship as a jurisdictional basis for imposing income tax liability. As a general matter, the United States is the only developed country that allegedly taxes its citizens living overseas on their worldwide income. However, even the United States does not, de facto, tax the vast majority of its citizens living abroad as it offers a generous exclusion for their foreign source income.
This Article analyzes how modern developments in the global economy affect the case for citizenship-based taxation. Though citizenship is closely connected to state sovereignty, is based on the concept of nationalism, and may seem to contradict the globalization trend that is based on the concept of cosmopolitanism, we conclude that the increase of cross-border human capital mobility strengthens the relevance of citizenship-based taxation in the international tax setting.
However, since citizenship-based taxation in its current form does not gain widespread support as it may lead to unjust results, we offer a novel concept of a denizesnhip-based tax regime that would be easily administered and more economically meaningful.
We also argue that recent developments in international taxation weaken the case for giving preferential tax treatment to income earned by citizens working abroad.
For these reasons, we propose revising the mechanisms that would eliminate double-taxation under the new regime and to incorporate a novel mechanism that would turn double-non-taxation impractical.
Part I explores the significance of citizenship and the ways it is acquired. Part II presents the magnitude of this phenomenon, the number of cross-border migrants, and its economic impact. Part III then explores the existing rules (criteria) that determine fiscal residency for tax purposes in 38 Organization for Economic Co-operation and Development (OECD) member states, the manner in which fiscal residency is determined according to all three model tax conventions, and the way in which tax residency is determined when a taxpayer is deemed to have dual or even multiple tax residencies. Part IV explores the only true citizenship-based tax system that was set in the United States, the main voices that find it unjustified and call for abandoning it altogether, and the main voices that advocate in favor of such a system. Lastly, Part V proposes our model, explains the necessary adjustments that must be made to better enforce it, and concludes our findings.
Recommended Citation
Tamir Shanan and Doron Narotzki,
Citizenship and Denizenship in the International Tax Context in an Era of Global Economy,
35 Fla. J. Int'l L.
121
(2023).
Available at: https://scholarship.law.ufl.edu/fjil/vol35/iss1/3