Stop Tax Haven Abuse Act of 2011 Seeks to Close Offshore Tax Loopholes

The 61-page Stop Tax Haven Abuse Act contains a number of proposed provisions to combat offshore and tax shelter abuses, according to U.S. Senator Carl Levin.

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 (CDS) 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 aider and abettors of tax evasion by increasing the maximum fine to 150% of any ill-gotten gains.

Sen. Levin, together with cosponsors Senators Conrad, Bill Nelson, Sanders, Shaheen, and Whitehouse, explained that the legislative proposal that they unveiled seeks to close offshore tax loopholes and strengthen offshore tax enforcement.

The 112th Congress is the fifth Congress in which a comprehensive anti-tax haven bill has been introduced 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.

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