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Levin Introduces Another Anti-Offshore Bill Into US Senate

by Mike Godfrey, Tax-News.com, Washington

07 February 2013


Carl Levin (D – Michigan), Chairman of the Senate Permanent Subcommittee on Investigations, and Kent Conrad (D – North Dakota), Chairman of the Senate Budget Committee, have introduced legislation that should, it was said, help reduce the United States budget deficit by closing offshore tax loopholes.

Based on estimates from the Joint Committee on Taxation and the Office of Management & Budget, the Cut Unjustified Tax Loopholes Act should yield at least USD155bn in US deficit reduction over 10 years: with at least USD130bn coming from the offshore tax provisions of the bill alone.

As Levin and Conrad suggest, the bill would accord with the Democratic Party’s focus on applying tax increases as well as moderate spending cuts in any future deficit reduction agreement. Similar proposed offshore tax legislation introduced by the two Democrats in the past was supported by President Barack Obama when he was a senator.

“We can’t achieve significant deficit reduction and meet important priorities by focusing on spending cuts alone,” Levin said. “Many in Congress have refused to consider revenue measures to meet our budget challenges, but there should be bipartisan support for closing these indefensible tax loopholes.”

“The CUT Loopholes Act is a win-win as it promotes tax fairness and it will help reduce the budget deficit,” said Conrad. “This legislation identifies a series of steps we can take now to end egregious tax loopholes and offshore tax abuses. The revenue raised by cutting these tax loopholes will reduce the deficit and help pay for pressing domestic needs, such as an extension of the payroll tax cut.”

The bill is a product of the investigative work of the Senate subcommittee which Levin chairs. As his previous attempts to pass such clauses have met with fierce resistance from major business organizations, and from the Republican Party, in the past, it is not clear that the new bill will meet with any more success than its predecessors, especially given the Republican majority in the House of Representatives.

Among other measures, the bill would give the Treasury Department authority to take specified steps against foreign jurisdictions or financial institutions “that impede US tax enforcement,” including prohibiting US financial institutions from doing business with a designated foreign jurisdiction or foreign bank.

It would also establish rebuttable presumptions to treat non-publicly traded offshore entities as controlled by the US taxpayer who formed them, sent them assets, received assets from them or benefited from them, unless the taxpayer proves otherwise; and treat foreign corporations that are publicly traded, or have gross assets of USD50m or more, and whose management and control occur primarily in the US, as US domestic corporations for income tax purposes.

In addition, the bill would eliminate tax incentives for moving US jobs and transferring intellectual property offshore; determine foreign tax credits on a pooled basis to prevent US corporations from manipulating and taking excess foreign tax credits to reduce their US taxes; and close the offshore swap payments loophole by treating swap payments that originate in the US as taxable US source income.

The other major focus of the bill is closing a corporate tax loophole that provides a tax subsidy to corporations that compensate executives using stock options. It would prohibit corporations from taking a larger income tax deduction for stock option expenses than is recorded on their financial books. Between 2005 and 2009, this loophole allowed US corporations to take between USD12bn to USD61bn annually in excess tax deductions.

The bill would preserve current tax treatment for individuals who receive stock options and for incentive stock options commonly used by start-up companies; but apply to stock options the same USD1m overall limit on corporate tax deductions for executive pay that applies to other forms of compensation.

TAGS: individuals | tax | business | tax incentives | law | intellectual property | banking | capital markets | tax credits | offshore | multinationals | legislation | United States

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