New Legislation Would Combat Tax Haven Abuse Increase Transparency and Accountability The introduction today of legislation to "restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation" by Senator Carl Levin (D-MI) represents a crucial step towards improving U.S. tax assessment and collection, and increasing transparency and accountability in the global financial system. The Stop Tax Haven Abuse Act is similar to a previous bill, S. 681, introduced by Senator Levin in 2007 and cosponsored by then-Senator Barack Obama with 3 significant new additions that would: (1) treat foreign corporations managed and controlled in the United States as domestic corporations for income tax purposes; (2) close an offshore tax dividend loophole that enables offshore hedge funds and others to dodge payment of U.S. taxes on U.S. stock dividends; and (3) expand the tax return reporting requirements for passive foreign investment corporations (PFICs) to include U.S. persons who don't own a PFIC, but have formed, sent assets to, received assets from, or benefitted from a PFIC. Current cosponsors of the Senate bill include Senators Sheldon Whitehouse (D-RI), Claire McCaskill (D-MO), and Bill Nelson (D-FL). The House version will be introduced by Representative Lloyd Doggett (D-TX) with multiple cosponsors. The bill will be referred to the Committee on Finance in the Senate, and to Ways and Means Committee in the House. "The provisions set forth in this bill are designed to prevent the types of illegalities and financial obfuscations that lay at the heart of the on-going legal battle between U.S. authorities and Swiss bank UBS and the Stanford Financial Group fraud case," said Global Financial Integrity (GFI) director Raymond Baker. "This is a systemic problem that goes beyond one or two financial jurisdictions or dishonest individuals," added Baker. "Last December the Government Accountability Office (GAO) released a report showing that 83 of the 100 largest, publicly-traded U.S. companies and contractors have subsidiaries in tax havens. Furthermore, four of those 83 companies are banks which received $127 billion in TARP bailout funds. In the midst of historic economic crisis the U.S. cannot afford to be complicit of these illicit financial practices which cost the U.S. hundreds of billions of dollars every year."
Highlights of the 84-page bill: --------Establish presumptions for entities and transactions in Offshore Secrecy Jurisdictions; Determine "Offshore Secrecy Jurisdictions;" Authorize special measures against foreign jurisdictions, financial institutions, and others that impede U.S. tax enforcement; Treat foreign corporations managed and controlled in the United States as domestic corporations for income tax purposes; Allow more time for investigations involving Offshore Secrecy Jurisdictions; Increase disclosure of offshore accounts, transactions, and entities; Prevent misuse of foreign trusts for tax evasion; Limit legal opinion protection from penalties with respect to
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transactions involving Offshore Secrecy Jurisdictions; Close the offshore dividend tax loophole; Increase penalty for failing to disclose offshore holdings; Require anti-money laundering rule for hedge funds; Apply anti-money laundering obligations to company formation agents; Strengthen John Doe summons use in offshore tax cases; Strengthen foreign financial account reporting requirements; Strengthen tax shelter penalties; Deter financial institution participation in abusive tax shelter activities; Strengthen law enforcement through information sharing; Require tougher tax shelter opinion standards for tax practitioners.
"From the European Commission's recent adoption of measures to improve cooperation between EU member states and increase transparency in tax assessment and collection to the G-20's stated intent to crack down on tax havens when they meet in April, calls around the world are growing for definitive action on the problem of tax havens," said Mr. Baker. Global Financial Integrity (GFI) promotes national and multilateral policies, safeguards, and agreements aimed at curtailing the cross-border flow of illegal money. In putting forward solutions, facilitating strategic partnerships, and conducting groundbreaking research, GFI is leading the way in efforts to curtail illicit financial flows and enhance global development and security. For additional information please visit www.gfip.org. Source: Global Financial Integrity