WASHINGTON – Stating that “tax havens are engaged in economic warfare against the United States, and honest, hardworking Americans,” Sen. Carl Levin, D-Mich., Sen. Sheldon Whitehouse, D-RI, Sen. Claire McCaskill, D-Mo. and Sen. Bill Nelson, D-Fla., today introduced comprehensive legislation to stop offshore tax haven and tax shelter abuses. A companion bill was introduced in the U.S. House of Representatives by over 40 Members led by Rep. Lloyd Doggett, D-Tex. and Rep. Rosa DeLauro, D-Conn.
Offshore tax abuses cost the U.S. Treasury an estimated $100 billion each year in lost tax revenues, including $40-$70 billion from individuals and $30-$60 billion from corporations. Abusive domestic tax shelters cost tens of billions of dollars more.
“Offshore tax haven and tax shelter abuses are undermining the integrity of our tax system and increasing the tax burden on middle income families,” said Levin, chairman of the Permanent Subcommittee on Investigations which has conducted numerous inquiries into offshore abuses. “We cannot tolerate $100 billion in offshore tax abuses burning a hole through our budget each year. We can fight back against secrecy jurisdictions and shut down offshore tax abuses if we have the political will. This bill provides a powerful set of new tools to clamp down on offshore tax and tax shelter abuses.”
“When over 80% of our largest companies have subsidiaries in tax havens, and one major recipient of taxpayer bailout monies achieves a 1% effective tax rate through ‘changes in geographic earnings mix,’ it is long past time to take effective action to stop offshore tax dodging.” said Congressman Doggett, a senior member of the House Ways and Means and Budget Committees, and a long-time foe of offshore tax havens. “These outrageous tax havens add to the soaring budget deficit and shift the tax burden to small businesses and families, who play by the rules.”
The Stop Tax Haven Abuse Act is an improved version of legislation introduced in the last Congress by Levin, Sen. Norm Coleman, R-Minn., then Sen. Barack Obama, and others in the Senate and by Doggett and 47 cosponsors in the House, including then Rep. Rahm Emanuel. The bill has been strengthened with the addition of three new provisions 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 non-U.S persons 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.
The bill will be referred to the Finance Committee in the Senate and the Ways and Means Committee in the House.
Among other measures, the 84-page bill would:
• ESTABLISH PRESUMPTIONS TO COMBAT OFFSHORE SECRECY (§101) by allowing U.S. tax and securities law enforcement to treat for tax purposes non-publicly traded offshore entities as being controlled by the U.S. taxpayer who formed them, sent them assets, received assets from them, or benefited from them, unless the taxpayer proves otherwise.
• IMPOSE TOUGHER REQUIREMENTS ON U.S. TAXPAYERS USING OFFSHORE SECRECY JURISDICTIONS (§101) by authorizing Treasury to develop a list of jurisdictions starting from an initial 34 jurisdictions identified in IRS court proceedings.
• AUTHORIZE SPECIAL MEASURES TO STOP OFFSHORE TAX ABUSES (§102) by giving Treasury authority to take special measures against foreign jurisdictions and financial institutions that impede U.S. tax enforcement.
• CURE THE UGLAND HOUSE PROBLEM OF SHELL COMPANIES RUN FROM THE UNITED STATES CLAIMING FOREIGN STATUS (§103) by treating foreign corporations that are publicly traded or have gross assets of $50 million or more and whose management and control occurs primarily in the United States as U.S. domestic corporations for income tax purposes.
• STRENGTHEN DETECTION OF OFFSHORE ACTIVITIES (§105) by requiring U.S. financial institutions that open accounts for foreign entities controlled by U.S. clients, open accounts in offshore secrecy jurisdictions for U.S. clients, or establish entities in offshore secrecy jurisdictions for U.S. clients, to report such actions to the IRS.
• CLOSE OFFSHORE TRUST LOOPHOLES (§106) by taxing distributions, gifts and loans from foreign trusts of real estate, artwork, or jewelry to U.S. persons, and treating U.S. persons who receive offshore trust assets as trust beneficiaries.
• CLOSE THE OFFSHORE TAX DIVIDEND LOOPHOLE (§108) by treating all U.S. corporate dividend-based payments to non-U.S. persons as taxable income subject to withholding.
• EXPAND IRS REPORTING REQUIREMENTS (§109) for passive foreign investment companies (PFICs) to include not only U.S. persons who own a PFIC but also those who have formed, sent assets to, received assets from, or benefitted from a PFIC.
• REQUIRE ANTI-MONEY LAUNDERING PROGRAMS (§203) for hedge funds and company formation agents to ensure they screen their clients and any offshore funds.
• STRENGTHEN PENALTIES (§§301-302) on tax shelter promoters by increasing the maximum fine to 150% of their ill-gotten gains, and on corporate insiders who hide offshore stock holdings by increasing the maximum fine to $1 million per violation of U.S. securities laws.
• BAN TAX SHELTER PATENTS (§303) by prohibiting the U.S. patent office from issuing patents for “inventions” designed to minimize, avoid, or defer taxes.
A more detailed summary of the Stop Tax Haven Abuse Act, the bill text, and a floor statement by Levin explaining its provisions in more detail are available at levin.senate.gov.
Tara Andringa (Levin) 202-228-3685
Wyeth Ruthven (Doggett) 202-225-4865