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Cablegate: Hmt Stands Firm On Non-Dom Tax Change

VZCZCXRO7576
PP RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV
DE RUEHLO #0074/01 0090841
ZNR UUUUU ZZH
P 090841Z JAN 08
FM AMEMBASSY LONDON
TO RUEHC/SECSTATE WASHDC PRIORITY 6933
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

UNCLAS SECTION 01 OF 02 LONDON 000074

SIPDIS

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD CASC UK EINV
SUBJECT: HMT STANDS FIRM ON NON-DOM TAX CHANGE

REF: A) 07 LONDON 004659 B) 07 LONDON 004547 C)07 LONDON

0004503 D)07 LONDON 004342

1. THIS IS AN ACTION REQUEST. SEE PARA 08

2. (SBU) Summary: HM Treasury (HMT) told us that the
proposed non-domiciled tax changes will take effect in
April 2008 as planned despite complaints from U.S. business
and other groups. They say they have fully considered the
concerns raised by British American Business (BAB)(Ref A),
but will not extend the consultation period. However, HMT
said that there is scope for adjusting the legislation to
ease the pain of implementation for affected individuals.
HMT will introduce the draft legislation in "about two
weeks." HMT is also investigating how the proposed tax
change might affect the pensions and incomes of middle
class and lower income non-domiciled residents. HMT is very
open to the idea of meetings with individuals and groups
affected by the proposal for further discussions. HMT also
briefed Staffdel Odintz on this issue. Post is seeking
guidance and approval of its action plan. End Summary

HMT NOT EXTENDING CONSULTATION PERIOD
-------------------------------------

3. (SBU) On January 7, 2008, Steven Effingham of HMT's
International Direct Personal Tax Team told EconOff that
HMT will almost certainly implement the proposed changes to
the tax laws for non-domiciled residents of the UK in April
as laid out in the pre-budget report and consultation
paper. He said an extension of the consultation period is
very unlikely (Ref B). (Note: Currently non-domiciled
residents of the UK do not pay UK income tax on their
foreign earned, unremitted income. The proposed change
would require non-domiciled individuals, who are resident
in the UK seven of ten years, to pay UK income tax on their
entire worldwide income or pay a 30,000 GBP ($60,000)
charge in addition to the taxes on their UK income. (Ref D)
Effingham said that Chancellor Darling wishes to finalize
this issue in hopes of removing any uncertainty about it.
End Note) Effingham said that the favorable tax status for
non-domiciled individuals has been under review by HMT
since 2002. He said the issue is an "easy target" for the
press, trade unions, and other individuals who wish to make
an example of HMT's unfair taxation policies. To assist in
the consultation process, HMT will introduce the draft
legislation in "about two weeks." The consultation period
will end on February 28, 2008. The law, which may not be
enacted until Summer 2008, will nonetheless be effective
from April 2008.

4. (SBU) Effingham said that HMT has carefully reviewed
BAB's concerns raised in their recent letter to the
Chancellor. (Ref A) He said that HMT understands that the
changes will increase the UK tax burden for a number of
long-term resident American citizens. However, he says that
the substantial UK public support for removing tax
advantages for non-domiciled residents outweighs concerns
that these individuals might choose to leave the UK.
Effingham reiterated the consultation paper's survey data
which suggest that the vast majority of individuals
seconded to the UK for a temporary assignment reside in the
country for less than five years and will not be affected.
Effingham said that for these reasons, HMT expects this
proposal will not have a great impact on U.S. investment in
the UK, attractiveness of seconding U.S. employees to the
UK, nor will it render the UK an unattractive location for
headquarters operations.

HMT SEEKS USG INPUT
-------------------

5. (SBU) Effingham said that HMT is very open to
suggestions on how changes to the draft legislation might
be altered to minimize unnecessary hardship for American
citizens. He said that HMT is open to suggestions for the
terminology used to describe the 30,000 GBP charge. He said
that if U.S. Treasury had a suggestion for a term which
might make it easier for Amcits to deduct the charge from
their U.S. tax liability, HMT would seriously consider it.
Effingham also said that HMT could possibly consider
drafting the legislation so that Amcits could submit their
financial data in calendar year format instead of the
fiscal year format currently required. He said HMT
understands this causes extra hassle and costs to tax
compliance for not only Americans, but citizens of many
other countries. Effingham said that after the draft
legislation is introduced in two weeks, it will be easier
for individuals to make constructive suggestions.


LONDON 00000074 002 OF 002


6. (SBU) HMT is also investigating how the proposed tax
changes might affect the retirement pensions and other tax
deferred retirement schemes. Effingham said that the
legislation was not intended to overly burden middle and
lower income non-domiciled residents. He said that HMT
welcomes examples of how Amcits' tax deferred savings plans
might be affected. He says they will study any examples and
hope that the U.S. - UK Double Taxation Convention will
prevent any individual from suffering undue hardship. HMT's
goal was to ensure that long-term UK residents "pay their
fair share," but not to wipe out anyone's savings or
retirement plans. Amcits have previously told us that they
are concerned that Independent Retirement Accounts (IRA's)
and Roth IRA's could be especially impacted by the proposed
tax changes. A tax expert at Deloitte and Touche told us
that these retirement accounts would probably be covered
under the Double Taxation Convention, and individuals might
have to pay the higher UK tax rate, but nothing else. Post
is trying to corroborate this.

7. (SBU) Effingham said that HMT would be very willing to
discuss this issue with any groups or individuals the
Embassy suggests. He believes many expatriates have heard
untrue rumors and are unnecessarily panicking. Effingham
said that he would be happy to participate in an Embassy
outreach to resident Amcits. This outreach would allow
Amcits to voice their concerns directly to HMT and also
allow HMT to dispel myths and rumors. He suggested timing
such an event after the publication of the draft
legislation, but before it takes effect in April.

ACTION REQUEST
--------------

8. (SBU) Given the UK's offer to discuss the issue and take
into account U.S. concerns, post seeks assistance of USG
tax experts to engage with HMG and simultaneously
demonstrate USG support for American taxpayers resident in
the UK.

---Post recommends the scheduled review of the U.S. - UK
Double Taxation Convention take place before February 28,
2008. A meeting in February would give HMT sufficient time
to alter draft legislation before its April implementation.
Please advise ASAP whether U.S. Treasury officials would be
available on that schedule.

---Post would like to hold a town hall meeting for resident
Amcits on the non-domiciled tax changes. Post plans to
invite HMT officials, USG tax experts, and private industry
experts to address and answer questions from interested
American expatriates. Post requests attendance by U.S.
Department of Treasury tax policy officials. Failing that,
post requests U.S. Treasury attendance via DVC. The town
hall would ideally be timed to coincide with the review of
the Double Taxation Convention.

---Post will continue raising the concerns of BAB and other
American citizens with HMT as outlined in Ref A.

LEBARON

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