Citizenship and Denizenship in the International Tax Context in an Era of Global Economy

Abstract

This paper 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 de-facto does not tax the vast majority of its citizens living abroad as it offers a generous exclusion for their foreign source income.

This paper analyzes how modern developments in the global economy affect the case for citizenship-based taxation. We conclude that though citizenship is closely connected to state sovereignty and is based on the concept of nationalism and may seem to contradict the globalization trend that is based on the concept of cosmopolitanism, the increase of cross-border human capital mobility in fact strengthens the relevance of citizenship-based taxation in the international tax setting. We also argue the status of “denizenship” can improve and strengthen the citizenship status by complementing a “residency" requirement in the citizenship criterion that is formal and does not require a territorial allegiance between a state and its citizen.

Keywords: Tax, International Tax, Tax Policy, Immigration, International Law

JEL Classification: K34, K37, K33