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Levin Launches New Anti-Tax Haven Salvo

by Mike Godfrey,, Washington

04 March 2009

US Senator Carl Levin, the long-time enemy of offshore territories, has once again declared war against the tax haven with the introduction of a strengthened 'Stop Tax Haven Abuse Act' and, with the backing of the President and a Democrat majority, this time he might succeed.

Stating that “tax havens are engaged in economic warfare against the United States, and honest, hardworking Americans,” Levin was joined by three Democratic Senators, including Sheldon Whitehouse, Claire McCaskill and Bill Nelson in introducing comprehensive new legislation which aims to recover an estimated USD100bn in tax revenues supposedly lost by the United States each year as a result of 'tax haven abuse' by US corporations and individuals. A companion bill was introduced in the US House of Representatives by over 40 members led by Rep. Lloyd Doggett, (D-Tex.) and Rep. Rosa DeLauro, (D-Conn.).

“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 Senate Permanent Subcommittee on Investigations, in one of his now familiar verbal barbs. “We cannot tolerate USD100bn 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.”

Levin introduced a similar bill in February 2007, supported by then Senator Barack Obama, but with a slimmer Democrat majority in Congress, and with a Republican administration, the political will to make the legislation succeed was not as strong. However, over the past 12 months the deepening financial crisis and allegations of offshore tax evasion by wealthy individuals around the world have once again brought the issues of banking secrecy and 'unfair' tax competition to the fore. Coupled with the fact that Obama, who has publicly pledged a fresh offshore crackdown, is now in the White House, the legislation may have a better chance of succeeding this time around.

The new Stop Tax Haven Abuse Act is a fortified version of the bill introduced into Congress two years ago with the addition of three new provisions that would: treat foreign corporations managed and controlled in the United States as domestic corporations for income tax purposes; repeal tax laws that enable foreign entities to avoid US taxes on stock dividends paid by US companies; and expand the tax return reporting requirements for passive foreign investment corporations (PFICs) to include US persons who don’t own a PFIC, but have formed, sent assets to, received assets from, or benefited from a PFIC.

In other measures, the 84-page bill would:

  • allow US tax and securities law enforcement to treat for tax purposes non-publicly traded offshore entities as being controlled by the US taxpayer who formed them, sent them assets, received assets from them, or benefited from them, unless the taxpayer proves otherwise;
  • authorize the Treasury Department to develop a list of 'offshore secrecy' jurisdictions, starting from an initial 34 jurisdictions identified in IRS court proceedings, and impose tougher reporting requirements on US taxpayers with dealings in these listed jurisdictions;
  • give the Treasury Department authority to take "special measures" against foreign jurisdictions and financial institutions that impede US tax enforcement;
  • treat foreign corporations that are publicly traded or have gross assets of USD50m or more and whose management and control occurs primarily in the United States as US domestic corporations for income tax purposes.
  • require US financial institutions that open accounts for foreign entities controlled by US clients, open accounts in offshore jurisdictions for US clients, or establish entities in offshore jurisdictions for US clients, to report such actions to the IRS;
  • tax distributions, gifts and loans from foreign trusts of real estate, artwork, or jewellery to US persons, and treat US persons who receive offshore trust assets as trust beneficiaries.
  • treat all US corporate dividend-based payments to non-US persons as taxable income subject to withholding.
  • require hedge funds and company formation agents to comply with anti-money laundering programs to ensure they screen their clients and any offshore funds;
  • strengthen penalties on tax shelter promoters by increasing the maximum fine to 150% and increasing the maximum fine for failure to report offshore stock holdings to USD1m per violation of US securities laws;
  • prohibit the US patent office from issuing patents for inventions designed to minimize, avoid, or defer taxes.

A comprehensive report in our Intelligence Report series examining offshore confidentiality is available in the Lowtax Library at and a description of the report can be seen at

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