Sen. Carl Levin, D-Mich., and several other senators have introduced a bill to close offshore tax loopholes and strengthen offshore tax enforcement.
The “Stop Tax Haven Abuse Act” builds upon earlier bills that Levin has introduced in past congressional terms, and is a product of the investigative work of the Permanent Subcommittee on Investigations, which Levin chairs (see Senate Probes Offshore Dividend Tax Dodges). Over the years, the subcommittee has conducted multiple inquiries into offshore abuses, including the use of offshore corporations and trusts to hide assets, the use of tax haven banks to set up secret accounts, and the use of U.S. bankers, lawyers, accountants and other professionals to devise and conduct abusive tax shelters.
The bill is co-sponsored by Senate Budget Committee Chairman Kent Conrad, D-N.D., along with Senators Bill Nelson, D-Fla., Bernie Sanders, D-Vt., Jeanne Shaheen, D-N.H., and Sheldon Whitehouse, D-R.I.
“Offshore tax abuses are not only undermining public confidence in our tax system, but increasing the tax burden on middle America,” Levin said in a statement. “People are sick and tired of tax dodgers using offshore trickery and abusive tax shelters to avoid paying their fair share. This bill offers powerful new tools to combat offshore and tax shelter abuses, raise revenues, and eliminate incentives to send U.S. profits and jobs offshore. Its provisions, which can help stop the $100 billion per year drain on the Treasury, will hopefully be part of any deficit reduction package this year, but should be passed in any event.”
The 112th Congress is the fifth Congress in which Levin has introduced a comprehensive bill to combat offshore and tax shelter abuses. A number of provisions from past bills have made it into law, such as measures to curb abusive foreign trusts, close offshore dividend tax loopholes, and strengthen penalties on tax shelter promoters. Levin’s efforts also helped spur enactment of the Baucus-Rangel Foreign Account Tax Compliance Act to increase detection of hidden offshore accounts.
President Obama, when he was a member of the Senate, co-sponsored Levin's offshore tax bills in 2005 and 2007. Rep. Lloyd Doggett, D-Texas, joined by multiple co-sponsors, has introduced House companion bills in the past and will do so again.
“It is long past time to take effective action to stop offshore tax dodging.” said Doggett, a senior member of the House Ways and Means and Budget Committees. “Revenue lost to these tax avoidance schemes contributes to the soaring budget deficit and increases the burden on small businesses, families, and others who play by the rules.”
The 61-page Stop Tax Haven Abuse Act contains a host of measures to combat offshore and tax shelter abuses. The first section would authorize the Treasury Secretary to take special measures against foreign jurisdictions or financial institutions that impede U.S. tax enforcement. The next section would create rebuttable presumptions to help the IRS establish ownership and control of offshore entities. The third section would stop corporations whose management and control are located primarily in the United States from claiming status as foreign corporations, instead treating them as domestic corporations for tax purposes.
Another provision would close an existing tax loophole that allows credit default swap payments to escape taxation if sent from the United States to persons offshore, such as an offshore hedge fund or foreign bank. The bill would close this CDS loophole by treating CDS payments sent offshore from the United States as taxable U.S. source income.
Another provision would address U.S. dollars and other assets that are supposedly kept offshore by foreign subsidiaries of U.S. corporations but, in reality, are deposited into accounts physically located in the United States. The bill would deem the funds deposited into U.S. accounts as taxable distributions by the foreign subsidiaries to their U.S. parents.
Still another provision would increase publicly available information about multinational corporations by requiring them to include basic information on a country-by-country basis in their filings with the Securities and Exchange Commission to increase transparency and facilitate IRS inquiries into transfer pricing, foreign tax credits, and abusive offshore tax shelters.
In addition, the bill would strengthen penalties on tax shelter promoters and aiders and abettors of tax evasion by increasing the maximum fine to 150 percent of any ill-gotten gains.
The bill is supported by a wide array of small business, labor, and public interest groups, including the Financial Accountability and Corporate Transparency Coalition, American Sustainable Business Council, Business for Shared Prosperity, Main Street Alliance, AFL-CIO, SEIU, Citizens for Tax Justice, Tax Justice Network-USA, U.S. Public Interest Research Group, Global Financial Integrity, Global Witness, Jubilee USA, and Public Citizen.
However, the prospects for getting such a bill passed are slim, especially in the House, as Republican lawmakers have staunchly opposed any tax increases. Still, Congress has been holding a series of hearings on tax reform, and some Republicans have expressed a willingness to close some tax loopholes in a revenue-neutral way in exchange for lower overall tax rates.
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