As part of a host of measures to combat offshore and tax shelter abuses, Senate legislation would would close an existing tax loophole that allows credit default swap payments to escape taxation if sent from the United States to persons offshore, such as an offshore hedge fund or foreign bank. The Stop Tax haven Abuse Act would close this credit default swap loophole by treating CDS payments sent offshore from the United States as taxable U.S. source income. 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 SEC to increase transparency and facilitate IRS inquiries into transfer pricing, foreign tax credits, and abusive offshore tax shelters. The legislation was introduced by Senator Carl Levin (D-MI) and has picked up a number of co-spnsors. A companion bill is expected to be introduced in the House.
The legislation would also 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.
Rebuttable presumptions in the legislaiton are designed to combat offshore secrecy. For example, in tax and securities law enforcement proceedings, non-publicly traded offshore entities would be presumed to be controlled by the U.S. taxpayer who formed them, sent them assets, received assets from them, or benefited from them when those entities have accounts or assets in non-FATCA institutions, unless the taxpayer proves otherwise.
The legislation would also set a penalty for company insiders that hide offshore holdings by authorizing a fine of up to $1 million per violation of securities laws.
In addition, the measure would require anti-money laundering programs for hedge funds and private equity funds to ensure that they screen clients and offshore funds.