I’ll bet you haven’t heard of the Spain-USA tax treaty.
A safe wager to offer, you may think, to stateside readers who may visit transitophile only in search of hotty train photos, who harbor no interest in moving abroad.
Alas, I will with grim confidence extend this wager to my fellow U.S.-to-Spain expats, to emigrants who may have retained U.S. citizenship while living in Spain for decades. In fact, I’ll even extend the bet to some professional preparers of expat taxes. I’ll bet that some also haven’t heard of the treaty, or haven’t regarded it as relevant to their work.
I certainly hadn’t heard of the treaty.
I saw no mention of the treaty in the Ernst & Young tax guide that I read before my first dual-country filing, which I naively regarded as a kind of expat bible. I also saw no mention of it in the no-longer-online 2017 Deloitte International Tax Spain Highlights, or in any of the other sources I checked before my international move. I could have heard of it if I’d plugged the magic phrase “Spain-USA Tax Treaty” (or something similar) into a search engine, as the treaty is not new, dates to 1990, but that phrase never occurred to me, and no money-minded guardian angel whispered the phrase to me in a dream.
The treaty docs are online in English at the IRS web site . (Which also hosts a complete A-to-Z treaty list for expats elsewhere.) They are anything but light reading, made more opaque by the IRS’ apparent unwillingness to merge the 1990 original with a slew of 2013 amendments. Some may fare better with the treaty as published in Spanish, as the Spanish page permits readers to click effortlessly between versions.
Some provisions of the treaty … ummm … differ from what I had believed when I moved here.
‘Differ’ has a nice, genteel ring to it, don’t you think?, for something that’s costing me cabbage. Differ. “Don’t quite jibe with.” “Are at variance with.”
If you’ve read this far, you likely want to know what provisions I mean.
Well, I’m not going to tell you, or at least not in a straightforward way. The cremated remains of a few late wordsmith relatives may now spin in the firmament at the mealy-mouthed blandenguería I am about to foist on this blog. I’m not a tax professional. Plugging the above-mentioned magic phrase into a search engine will turn up the silvery prose of web authors who are tax professionals, and they’ll be more specific. I’d rather be deliberately vague than give bad advice.
I will say:
(♦) I think retired expats will be interested in Article 20 (Pensions, Annuities, Alimony and Child Support) and that retired U.S. public sector employees (like me) will be interested in Article 21 (Government Service).
(♦) I think that expats receiving income from U.S. based investments will be interested in a whole passel of articles in the treaty, including, but not limited to, Article 7 (Business Profits), Article 10 (Dividends), Article 11 (Interest), and Article 13 (Capital Gains).
(♦) The treaty includes a ‘savings clause’ in paragraph 3 of Article 1 that strikes me as a Kafkaesque weasel, allowing either government to tax as it sees fit, “as if the Convention had not come into effect.” However, the treaty reader also will find a Mutual Agreement Procedure in Article 26, which permits arbitration. I don’t know how John Q. Expat has fared in efforts to seek arbitration as an individual.
(♦) The treaty includes language to discourage expats who hope to duck a tax bill by hopscotching nationalities. See pages 22 and 23 of the Protocol of the 1990 original.
No, the IRS didn’t come after me. I found out about the treaty this year. Some of the treaty’s provisions have been expensive bad news for me, but I’d rather pay up with amended 1040-Xs than live in the figurative shadows.
If I had it to do all over again, what would I do differently?
(♦) I would not give up hopes of moving abroad.
The treaty showed that I’d been paying too little to Uncle Sam and too much to Tía Hispania. My overall tax bite is worse now, because I have to pay additional IRS charges and don’t know how much I’ll be able to recoup from Spain’s Agencia Tributaria. But I don’t think that tax bite would have been significantly worse if I’d known about the tax treaty from the git-go.
(♦) Before fulfilling expat tax obligations for the first time — which is to say, filing taxes in both the U.S. and Spain — I’d make myself read through the whole tax treaty at least once. I wouldn’t expect myself to remember everything, but I’d read it, and the reading would be closer to ‘read’ than to ‘skim,’ with special attention to whatever portions of the treaty might relate to me.
(♦) Thus prepared, I’d look for a U.S. tax preparer who knows at least as much about the treaty as I do, and would expect to have to rule out some preparers in the process. I also would be at least a bit leery of a preparer who barks a knee jerk “savings clause” at every contentious point.
I was grateful to work this year with Diego E. Alarcon of Alien Tax, who can prepare tax declarations for both Spain and the United States. However, angloparlantes should know that Diego’s business is conducted almost entirely in Spanish.
I also note that I had no trouble making an in-person appointment for clarification at the Agencia Tributaria’s Guzmán el Bueno office in Madrid, and that a cordial staffer there helped walk me through treaty provisions. (I don’t yet know how cordial they’ll be about ponying up those overpaid euros for years past.)
7/12/2024: A clarification: I knew of treaties to avoid double taxation when I moved to Madrid, but never thought that the treaty between Spain and the U.S. would spell out what country gets dibs on which tax obligation, and that not knowing some specifics could be costly.
We are all descended from immigrants. And are excellent long-distance runners. Good in small groups, not so much in crowds. US seems to be coming apart as all empires do. Happy and wise, the person of two cultures. But I’ll end my days here in the People’s Republic. Nice to hear you alive and blogging.