A pair of Democratic lawmakers in the House and Senate have re-introduced legislation aimed at preventing the abuse of offshore tax havens by multinational companies.
Rep. Lloyd Doggett, D-Texas, a senior member of the tax-writing House Ways and Means Committee, and Sen. Sheldon Whitehouse, D-R.I., a member of the Senate Budget Committee, introduced the Stop Tax Haven Abuse Act on Monday. The bill would close a number of offshore tax breaks, eliminating many tax incentives for U.S. companies to move jobs and operations offshore, and modifying the rules on corporate inversions for businesses dodging U.S. taxes. Doggett and Whitehouse introduced similar legislation in 2013 (see Congressman Introduces Bill to Stop Corporate Tax Haven Abuse).
“While most Americans contribute their fair share to our national security and vital public services, some large corporations still are not,” Doggett said in a statement Monday. “They revel in single-digit effective tax rates, and in some years, many pay their lobbyists more than they pay in federal taxes. Corporations that renounce their citizenship not only invert their business operations but pervert our tax laws. This bill is a step toward righting some of these inequities and ensuring that taxpaying small businesses are provided a more level playing field.”
Among the provisions in the bill are ones that would strengthen the Foreign Account Tax Compliance Act, or FATCA, prohibiting U.S. banks from dealing with foreign banks that violate FATCA and ensuring that credit and debit cards issued by the offending foreign banks do not work in the U.S. Any money transferred to an offshore account would be considered taxable income that has not yet been taxed.
The bill would also strengthen FATCA disclosure requirements to ensure that checking accounts and derivatives are disclosed and require foreign holding companies and passive foreign investment companies to file tax returns.
Another provision would treat foreign corporations managed and controlled in the U.S. as domestic corporations to address the problem of U.S. corporations that organize in tax havens such as the Cayman Islands but really do business from the U.S. The bill would require banks and brokers that discover through due diligence to safeguard against money laundering that the beneficial owner of a foreign account is a U.S. taxpayer to disclose that information to the IRS. Swaps payments made from the U.S. to persons offshore would be treated as taxable income.
“Big corporations shouldn’t be allowed to play games with the tax code and benefit from shipping jobs overseas,” Whitehouse said. “This bill would force corporations that are dodging their responsibilities to pay their fair share of taxes, and create an even playing field for American companies that already play by the rules.”
The bill would also require multinational companies to disclose in their public SEC filings basic country-by-country information, including revenues, profits and the number of employees. There would also be a penalty for failing to disclose offshore holdings, creating a new monetary penalty of up to $1 million for noncompliance.
Other provisions would repeal the check-the-box rules for certain foreign entities and the controlled foreign corporation look-through provision.
The bill also aims to curb the practice of corporate tax inversions by deeming the product of a merger between a U.S. company and a smaller foreign firm to be a U.S. taxpayer, no matter where in the world the new company is headquartered. This majority ownership test would replace an “80-20 test” enacted in 2004 that allowed U.S. companies to avoid taxes through foreign mergers as long as the new company had less than 80 percent of the same shareholders as the original U.S. company.
The Joint Committee on Taxation has estimated that provisions similar to those in this bill would raise at least $278 billion in revenue over 10 years. For a more detailed summary of the bill, click here.
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