US Senators Set Sights On Offshore Tax Abuse

by Leroy Baker, Tax-News.com, New York

01 August 2006

Internal Revenue Service chief Mark W. Everson will today be called to testify before a Senate committee which is studying the issue of offshore tax havens and their impact on the US federal tax system.

The Permanent Subcommittee on Investigations hearing, entitled: 'Tax Haven Abuses: The Enablers, The Tools & Secrecy,' is the latest in a line of hearings by the committee on the subject of corporate and individual tax evasion through offshore-based entities and tax planning schemes.

Today's hearing will present case histories on the use of offshore trusts and corporations to circumvent US tax, securities and anti-money laundering laws. In addition to Everson, witnesses will include securities firms, banks, law firms, US taxpayers, a trust protector, and tax and securities experts.

The committee believes that such "offshore abuses" drain billions of dollars every year from the US Treasury and undermine the tax system and law enforcement efforts.

Sen. Norm Coleman (R - Minn) and Sen. Carl Levin (D - Mich), the chairman and ranking member of the committee respectively, have tried repeatedly to get an anti-offshore bill through the Senate to combat what they term "abusive tax shelters and uncooperative offshore tax havens used by businesses and individuals to dodge payment of their US taxes".

Although a 2004 bill was unsuccessful, some of its provisions made it into law by being attached to other pieces of legislation, including stronger penalties for failing to report interests in foreign financial accounts, civil fines for tax practitioners such as accountants and attorneys who violate specified standards of practice, stronger penalties for failing to register or provide to the IRS required information regarding a potentially abusive tax shelter, and stronger penalties for failing to maintain a list of participants in potentially abusive tax shelters.

The latest hearing has been welcomed by the US branch of the Tax Justice Network, a pressure group established in 2003 which campaigns against corporate and individual offshore tax avoidance.

"Tax avoidance now occurs on a massive global scale. Assets held offshore, beyond the reach of effective taxation, are already estimated to equal one-third of total global assets," claimed the TJN.

According to a Tax Justice Network report based on statistics from Merrill Lynch / Cap Gemini's 'World Wealth Report' and the Boston Consulting Group's 'Global Wealth Report,' 16.2% of the private wealth of North Americans, $1.6 trillion, is held offshore. The group contends that the "overwhelming reason" for this is tax evasion.

"We think that the US Congress and the President should take steps to stop the use by Americans of secret companies and bank accounts set up in tax havens to facilitate evasion of US taxes," the group has argued.

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