Washington, DC – Today, Congressman Lloyd Doggett (D-TX), a member of the Ways and Means Committee, and Senator Sheldon Whitehouse (D-RI), a member of the Finance Committee, introduced the Stop Tax Haven Abuse Act to close egregious offshore tax loopholes that allow companies with armies of lawyers to avoid taxes by making profits earned here in America magically appear on the books in tax havens like the Cayman Islands. It would also crack down on the type of illegal tax evasion by the superrich that was revealed by the Panama Papers and Paradise Papers leaks.
“This legislation would shut down the complex shell games that allow corporations and the superrich to hide their profits in island tax havens, forcing working families and small businesses to make up the difference,” said Congressman Doggett. “Tax-dodging is not a victimless offense. These gaping corporate tax loopholes provide troubling incentives to invest abroad instead of at home, shipping jobs offshore and harming our communities at the same time that they deplete our ability to pay for our national security and other important public services.”
“Hard-working American families don’t get offshore tax shelters to avoid paying taxes, so why let big multinational organizations and the ultra-rich have this dodge?” said Senator Whitehouse. “This bill would crack down on big corporate tax evaders and wealthy tax cheats, making the tax code fairer for those who don’t have special access.”
Republicans claimed their tax law would end incentives for multinational corporations to dodge taxes by sending their profits offshore. Instead, the Congressional Budget Office found that multinationals will continue to shift $235 billion abroad annually under the GOP tax law. Another study estimated that the U.S. loses an estimated $90 billion in revenue annually to offshore tax dodging. Closing loopholes that allow tens of billions in tax dollars to slip through the cracks each year would restore much-needed revenue, level the playing field for domestic businesses small and large, and improve public confidence in our tax system.
The Stop Tax Haven Abuse Act would limit tax gaming through its provisions to:
- Crack down on offshore tax cheats. This legislation includes several measures to improve tax enforcement, making it easier to identify tax evaders and hold them accountable. It would crack down on those who use offshore entities to conceal tax evasion; give Treasury new tools to stop foreign financial institutions from impeding U.S. tax enforcement; increase penalties for corporate insiders who fail to disclose stock holdings and transactions with affiliated offshore entities; and improve disclosure of offshore accounts.
- Repeal rules that allow U.S. companies to avoid U.S. taxes by making offshore subsidiaries “disappear” for tax purposes. U.S. corporations would no longer be able to check a box on an IRS form to make offshore subsidiaries and their taxable income “disappear” when calculating their U.S. taxes.
- Require full and honest reporting from companies to determine if they’re booking profits to places where they are doing legitimate business, versus a tax haven subsidiary with no employees. The bill would require companies to disclose information on taxes paid and investments made on a country-by-country basis. Companies already provide this information to the IRS, but it remains unavailable to investors looking to assess the riskiness of tax avoidance strategies.
- End interest-free loans from U.S. taxpayers to multinational corporations. The Republican tax law rewarded multinationals that had stashed over $2 trillion offshore with a more than half-off discount on their taxes. On top of that break, these multinationals were given eight years to pay their discounted tax bill, amounting to an interest-free loan from U.S. taxpayers. This provision would require multinationals to pay what they owe right away, or face the same interest rate ordinary taxpayers face for late payments.
- Strengthen Anti-Money-Laundering laws. This legislation would extend anti-money-laundering requirements to formation agents – parties who help taxpayers form corporations and trusts – and extend anti-money-laundering “know your customer” requirements to investment advisors to hedge funds and private equity funds registered with the SEC.
This legislation would also:
Strengthen the Base Erosion and Anti-Abuse Tax (BEAT). Created under the Republican tax law to stem tax avoidance, particularly by foreign multinationals, it contains major loopholes and exemptions that limit its effectiveness. This legislation would:
- Require tax-avoiding companies with more than $100 million in gross receipts (as opposed to the current $500 million) to be subject to the BEAT, aligning it with other anti-avoidance measures in the tax code.
- Close a loophole allowing royalty payments to escape the BEAT entirely
- Eliminate the arbitrary three percent exemption threshold so that all tax avoidance payments are included when determining a company’s BEAT liability.
- Eliminate tax breaks for foreign oil and gas companies.
- Under the Republican tax law, oil and gas extraction income earned abroad gets an even further break on the already half-off rate other industries pay on their offshore profits. This legislation would eliminate this special tax break for big oil companies by restoring a provision of Subpart F of the tax code related to foreign oil-related income.
- Oil and gas companies can currently claim foreign tax credits for payments made to foreign governments in exchange for specific benefits even though such payments are not taxes. This legislation would close this loophole, as proposed in President Obama’s budgets.
- Close loophole that allows partnerships with foreign partners to transfer income offshore. Current law limits tax avoidance opportunities for corporations that transfer intellectual property offshore. This legislation would extend this limitation to partnerships.
