Washington, DC – In the wake of the explosive Paradise Papers, Senator Sheldon Whitehouse (D-RI) and Congressman Lloyd Doggett (D-TX) called on Republicans to take up legislation to crack down on the use of offshore tax havens by corporations and the ultra-wealthy. The Stop Tax Haven Abuse Act, introduced in April by Whitehouse and Doggett, would limit the ways corporations can game the U.S. tax system by moving jobs and assets abroad.
“These documents pull back the curtain on a complex shell game, where corporations’ staggering profits disappear offshore and rematerialize when the time is right and the tax liability is the lowest,” said Whitehouse and Doggett. “Middle-class American families can’t set up their own Grand Cayman subsidiaries. Instead, they’re left paying a bigger share of taxes than they should. As the Paradise Papers show, we need to shut down tax havens and bring jobs and earnings back to our shores, not hand out more goodies to the super-rich, as the Republicans’ tax plan would do. Congress needs to take up the Stop Tax Haven Abuse Act now.”
The Paradise Papers, released this week by the International Consortium of Investigative Journalists and a network of media partners around the globe, show how American corporate goliaths like Apple and Nike avoid paying tens or even hundreds of billions of dollars in taxes using complicated schemes involving shifting profits through subsidiaries in low-tax foreign jurisdictions. According to the New York Times’s review of the Paradise Papers, Apple has stashed away at least $128 billion in profits offshore by exploiting tax law in the English Channel island of Jersey, which has no corporate income tax. And Apple is just one of numerous major companies found in the trove of Paradise Papers documents. “U.S. multinational firms are the global grandmasters of tax avoidance schemes,” former corporate tax adviser Edward D. Kleinbard told the Times.
The Stop Tax Haven Abuse Act (S.851; H.R.1932) would close a number of tax loopholes, eliminate incentives for U.S. companies to move assets and operations offshore, and make it harder for companies to shirk their tax bills through cross-border mergers. It would also give the government new tools to crack down on the use of illegal tax shelters.
Stop Tax Haven Abuse Act
- Currently, an American company can merge with a smaller foreign firm and incorporate in the foreign country for tax purposes, even if the bulk of its operations and employees remain in the U.S. The bill would discourage corporations from using these “inversions” by deeming the product of a merger between a U.S. company and a smaller foreign firm to be a U.S. taxpayer, no matter where in the world the new company is headquartered.
- Under current law, a company can choose to defer paying taxes on profits, while deducting the expenses incurred to produce the profits. The bill would require companies to delay taking deductions until they pay taxes on the related profits.
- Right now, companies are allowed to simply “check the box” on an IRS form and pretend that some of their foreign subsidiaries don’t exist for tax purposes. The bill would repeal this nonsensical rule.
- Some U.S. corporations are organized in tax havens, like the Cayman Islands, but really do business in the United States. For instance, one modest building in the Cayman Islands, Ugland House, is the legal home of over 18,000 companies, many of them really American companies in every other sense. This bill would discourage U.S. companies from incorporating abroad by deeming corporations worth $50 million or more that are managed and controlled in the U.S. to be U.S. taxpayers.
- Currently, banks must abide by anti-money-laundering due diligence standards before taking on new customers. The bill would extend this commonsense requirement to professionals who help set up shell corporations.
- The bill would make it easier for the IRS to obtain the names of the owners of suspicious foreign bank accounts. It would also increase penalties for corporate insiders who fail to disclose offshore dealings.
By making it harder for corporations and the wealthy to use foreign tax shelters, the Joint Committee on Taxation has estimated provisions of this bill would cut the federal budget deficit by tens of billions of dollars each year.
The bill has the support of the Financial Accountability and Corporate Transparency (FACT) Coalition, Americans for Tax Fairness, Fair Share, the Institute on Taxation and Economic Policy, the Main Street Alliance, Oxfam America, Public Citizen, U.S. PIRG, and American Sustainable Business Council.
A section-by-section summary of the bill is available here.
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