Two bills proposed in the Senate last year that take aim at tax havens and the U.S. taxpayers that operate in them have been given greater impetus by the recent European and U.S. probes into accounts in Liechtenstein that were alleged to hide assets from national taxing authorities. S. 396, introduced by Sen. Byron Dorgan, D-N.D., would prevent American companies from deferring the imposition of a second layer of tax on their foreign-source income if they operate in selected low-tax nations. It would amend the Internal Revenue Code to treat certain controlled foreign corporations created or organized under the laws of a tax-haven country as domestic corporations for tax purposes. It sets forth a list of “tax-haven” countries, and grants the Treasury authority to remove or add a country from the list.

S. 681, the Stop Tax Haven Abuse Act, would establish legal presumptions against the validity of transactions involving offshore secrecy jurisdictions, including foreign tax havens identified in the act, and by the Treasury.

“Clearly, the recent Liechtenstein scandal and GAO investigation in the Caymans should make it easier to move S. 681 and similar anti-tax haven legislation forward than would otherwise be the case,” said Martin Tittle, a Washington, D.C.-based international tax attorney.

THE IRS TAKES ACTION

The IRS is currently initiating enforcement action involving more than 100 U.S. taxpayers to ensure proper income and tax payment in connection with accounts in Liechtenstein. The investigations began after Germany’s intelligence service obtained a list of foreign account holders from a former employee of Liechtenstein Bank LGT.

The IRS announced that the tax administrations of Australia, Canada, France, Italy, New Zealand, Sweden, the U.K. and the U.S. are working together following the revelations.

Meanwhile, the Government Accountability Office is continuing its investigation of potential offshore tax evasion by U.S. companies and individuals in the Cayman Islands.

As a follow-up to requests from the Senate Finance Committee, the GAO sent investigators to the Cayman Islands to check on a five-story Cayman Islands building listed as the address of thousands of U.S. and international companies. Investigators were also scheduled to meet with the primary tenant of the building in question. Ranking member Charles Grassley,

R-Iowa, said that the Finance Committee hopes to use the GAO’s findings to gain a greater perspective on the problem of offshore tax evasion.

BACK TO THE BILLS

Sen. Carl Levin, D-Mich., who introduced S. 681 along with Sens. Norm Coleman, R-Minn., and Barack Obama, D-Ill., said that it targets offshore tax abuses that drain $100 million away each year from the U.S. Treasury.

The bill establishes presumptions to combat offshore secrecy by allowing U.S. tax and securities law enforcement to presume that non-publicly traded offshore corporations and trusts are controlled by the U.S. taxpayers who formed them or sent them assets, unless the taxpayer proves otherwise.

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