Legislative update - Senator Levin’s “tax haven abuse” proposal 

September 19: Senator Carl Levin (D-MI) today introduced a bill that aims at closing “offshore corporate tax loopholes” and would repeal the “check-the-box” and the “CFC look-thru” rules.

Read text of the proposed legislation—the Stop Tax Haven Abuse Act [PDF 121 KB]

As chairman of the Senate permanent subcommittee on investigations, Senator Levin has focused on the taxation of offshore income.

In February 2013, he reintroduced a bill, the Cut Unjustified Tax Loopholes Act (S. 268), to address tax haven income. Read TaxNewsFlash-United States: Legislative update - Senator Levin’s “CUT loopholes” bill targets foreign earnings of U.S. multinationals, carried interests, executive compensation

Summary of provisions

Certain measures in the proposed legislation (a complete list is provided below) would:

  • Prevent the use of intellectual property transfers as tax-avoidance tools by taxing excess income earned from transferring intellectual property to offshore subsidiaries
  • Provide Treasury with greater authority to address foreign governments and financial institutions that aid tax avoidance, including the ability to prohibit U.S. banks from doing business with foreign banks in jurisdictions that impede U.S. tax enforcement
  • Require SEC-registered corporations to disclose employment, revenues and tax payments on a country-by-country basis
  • Eliminate the tax incentive for companies to move jobs and operations offshore by limiting their ability to claim immediate tax deductions for expenses related to those offshore operations while deferring the U.S. tax on the income those operations generate
  • Repeal “check-the-box” and “CFC look-through” rules, thereby making offshore subsidiaries “disappear” for tax purposes and treating taxable passive income as tax-deferred active income
  • Prevent multinationals from using short-term loans from their offshore subsidiaries essentially to repatriate income while avoiding taxes that would apply to repatriated money

Complete list of provisions in the bill

  • Authorizing special measures against foreign jurisdictions, financial institutions, and others that significantly impede U.S. tax enforcement
  • Strengthening the Foreign Account Tax Compliance Act (FATCA)
  • Treatment of foreign corporations managed and controlled in the United States as domestic corporations
  • Reporting U.S. beneficial owners of foreign owned financial accounts
  • Swap payments made from the United States to persons offshore
  • Country-by-country reporting
  • Penalty for failing to disclose offshore holdings
  • Deadline for anti-money laundering rule for investment advisers
  • Anti-money laundering requirements for formation agents
  • Strengthening “John Doe summons” proceedings
  • Improving enforcement of foreign financial account reporting
  • Allocation of expenses and taxes on basis of repatriation of foreign income
  • Excess income from transfers of intangibles to low-taxed affiliates treated as subpart F income
  • Limitations on income shifting through intangible property transfers
  • Repeal of check-the-box rules for certain foreign entities and CFC look-thru rules
  • Prohibition on offshore loan abuse

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