Migrants with Retirement Plans: The Challenge of Harmonizing Tax Rules

Cynthia Blum


Many countries seek to encourage retirement savings for their residents by offering tax preferences for privately-operated “qualified retirement plans.” These tax preferences generally take the form of delaying taxation of contributions made to the plan and of the earnings thereon until funds are withdrawn by the participant during retirement. In a few cases, countries instead tax contributions immediately but forgo further tax. Because these rules encompass the tax treatment to be accorded throughout an individual’s lifetime, the individual is able to plan for retirement with some assurance of the eventual tax consequences. However, in recent years, it has become increasingly likely that an individual who has accumulated qualified retirement savings in one country will later migrate and retire in another country and, as a result, face unexpected tax consequences.
This Article examines (1) the tax rules commonly applied by the country of emigration in order to maintain its ability to tax a departing participant in a qualified plan, and (2) the tax rules commonly applied by the country of immigration when its new resident has accumulated savings in another country’s qualified plan. The Article then analyzes how the interaction of the two countries’ rules may lead to inappropriate tax consequences and administrative burdens. In addition, it considers the various ways that bilateral treaties and model tax treaties seek to ameliorate these concerns.
The Article concludes that the provisions regarding pensions in the U.S. Model Treaty achieve a reasonable degree of coordination of the two countries’ tax rules, but also could be improved in a variety of ways. The Article also explores further coordination methods in light of the improbability that bilateral treaties with the improved rules will become universal. The Article recommends adoption of a multilateral agreement for information-sharing and for taxation of qualified retirement plans and the establishment of an International Retirement Plan (“IRP”) to facilitate the operation of the multilateral agreement. The IRP would have the limited administrative role of accepting deposits from qualified individual retirement accounts established in participating countries; collecting withholding tax pursuant to the tax rules (including treaties) of the participating countries; and promoting the flow of information between the participating countries.

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Published by the University of Florida Press on behalf of the University of Florida Levin College of Law.