Antarctica's not a country, guys

Along with a few others, Ciarán's amused by the US tax court's ruling that work carried out by American citizens in Antarctica doesn't qualify for "foreign earned income" exemption because Antarctica isn't a foreign country. Which it isn't. A country, I mean.

It's an entire continent subject to various competing claims, which remain unresolved. The 1959 Antarctic treaty which prohibits military activity and seeks to support scientific research and environmental protection purposely defers these claims.

And it's certainly not a "foreign country" with a government which might want to levy a tax on anyone working in its jurisdiction. I would think the reason for an exemption on foreign earned income is a recognition that income earned in a foreign country will be subject to the tax regime in that country and that a reciprocal rule would apply - any citizens of that foreign country working in the US would be subject to the US tax regime. Given that no Antarctican government exists and no Antarctican citizens are working in the US, all bets are off and the sad fact is that the American government asserts a right to a slice of the fruits of its citizens' labour and will only forego that right in favour of another government with what it considers to be a superior claim on that slice.

Comments

[Ciarán]

Ach. Can't a man be amused without having 'facts' rubbed in 'his' face????

[Frank McGahon]

Ah the petty intolerance of mere facts. But sure, don't I have to do something to kickstart this dead horse of a weblog of mine.

[Ciarán]

Just read to the end of the ruling. Basically, US courts, including the Supreme Court, have found Antarctica to be a foreign country in other cases (regarding Tort and Labour Law), but not regarding tax law because the tax code defines a foreign country as a territory over which some other government has sovereignty. Since, according to the Antarctic Treaty 1959, Antarctica is sovereignty-less, it can't be a foreign country.

So it's not precisely as you put it. That is, it's not a case of 'if no-one else claims it it's Uncle Sam's.' Rather the ruling rested on a treaty that placed Antarctica specifically outside the 'foreign country' definition of the Internal Revenue Code.

[Frank McGahon]

I don't think this is all that different from my (admittedly inexpert) reading. I don't mean to claim that the US sees untaxed income in Antarctica as some sort of unclaimed bounty but rather it stakes a claim on a slice the income of all American citizens except where another sovereign government has a preceding claim on it

[Ciarán]

Sorry - I had meant to end my previous comment with a 'not that that's a million miles from what you said.'

But I do think you make too much play on 'we get taxes from our citizens unless someone else has a prior claim.' This may seem uber-pedantic but it's not the prior claim that matters per se. Rather, it's the capacity to make the prior claim. The ruling was ultimately over a matter of territory.

[Frank McGahon]

This may seem uber-pedantic but it's not the prior claim that matters per se. Rather, it's the capacity to make the prior claim

This seems to me like a distinction without a difference in that a prior claim surely presumes a capacity to make a prior claim?

[Ciarán]

Yeah: that's put really badly.

I suppose what I am trying to say is that what you wrote suggests that the American tax regime is motivated by the absence or presence of alternative tax regimes. But the case didn't ride on a question of tax regimes as such. It rode on what the tax code defines as a foreign country. And a foreign country is defined as 'being under the sovereignty of a government other than that of the United States.' Given that one could imagine a possible sovereign territory that didn't tax its citizens, the tax regime isn't the point. The existence of a sovereign government in a territory is the point.

Antarctica is an anomaly, not because one is not taxed there, but because it is a space not subject to sovereignty claims.

[Frank McGahon]

Again, this is more or less what I'm saying above. You'll note that I made specific reference to the sovereignty claim issue (which makes Antarctica an anomaly) plus the term I used was "income earned in a foreign country will be subject to the tax regime in that country" which doesn't preclude a tax regime which consisted of not levying an income tax - Even if there is no income tax, you are still subject to whatever regime/system/rules obtain in that country. Point being you live in country X, you are subject to country X's system (whatever that might be) which may offer an exemption from the US's system.

[Frank McGahon]

Looking back, I think the last sentence of my original post was poorly worded - you're right: the foreign government mightn't have a claim on the slice of income if they don't levy an income tax in the first place. It was an attempt at a simplification (given that in most cases the foreign government does claim that slice) which ended up as an obfuscation.

[Chuckles]

[.... I would think the reason for an exemption on foreign earned income is a recognition that income earned in a foreign country will be subject to the tax regime in that country and that a reciprocal rule would apply...]

I dont see this: Surely it is the purpose of taxation in the context of the relationship between the State and the Individual that determines exemption: In fact, it is because the State assumes benefit within its jurisdiction that it taxes within its jurisdiction. Ergo, income earned in Antarctica should be exempt from American tax laws. The reason that Foreign earned income is exempt from taxation is not only because of the assumption that another State has a preceding claim to a slice; but because benefit has occured in a jurisdiction that isnt ones own. Since Antarctica doesnt fall within American jurisdiction, income earned there should be exempt: If we allow, as I do; that the a priori assumption informing any kind of taxation is benefit within ones jurisdiction. And the purpose of taxation is further provision etc - which isnt exactly possible in Antarctica.

[Frank McGahon]

My point here is to note that the ruling is internally consistent and not an ad hoc response rather than to defend it objectively. My understanding is that the US government does claim a right to tax its citizens, even when they are living and working abroad. Not that I agree with this, but the rationale presumably being that the citizen has benefited in the past and will benefit in the future from residency on US soil.

I'm not sure if I agree entirely with your characterisation of the foreign earned income exemption (my inexpert guess is that this is also tied into the desire for the US government to tax citizens of foreign countries working in the US leading to a reciprocal arrangement/convention) but even under this formulation one could say that as there is no Antarctican government providing the (admittedly nebulous) benefits traditionally provided by the government (In fact, I'd guess that life in Antarctica is even more heavily subsidised than life elsewhere), then no benefit has occurred in another jurisdiction, ergo there is no obligation on the US to assent to a "foreign earned income exemption".