Leadership Re-introduces a Bill to Minimize Offshore Tax Havens

Legislators Re-introduce a Bill to Reduce Offshore Tax Havens

 

Reduce overseas tax havens

Reduce overseas tax havens

 

American frustrated with paying more taxes than certain billionaire corporations may soon find their concerns addressed in Congress. Texas Representative Lloyd Doggett and Rhode Island Senator Sheldon Whitehouse have re-introduced their 2013 legislation to reduce overseas tax havens for U.S. corporations.

Tax Haven Abuse Act

Tax Haven Abuse Act

 

What Is the Tax Haven Abuse Act

The Tax Haven Abuse Act aims to reduce the abuse of foreign tax havens, a common way for American businesses to avoid paying taxes. In addition, the tax break for offshore revenue also creates an incentive for American corporations to move factories and other operations to foreign countries, reducing the jobs available in the United States. The tax breaks for operating in another country are deep enough to actually encourage multinational businesses to move jobs to other countries, a poor decision for the American economy.

Foreign Account Tax Compliance Act

Foreign Account Tax Compliance Act

 

Reducing Incentives, Raising Penalties

The bill aims to reduce incentives to move offshore by strengthening FATCA, or the Foreign Account Tax Compliance Act. FATCA requires disclosure of checking accounts and other foreign income while mandating that foreign holdings and investment companies owned by Americans file tax returns. In addition, this bill would require foreign banks to report apparent money laundering to the IRS. Although foreign banks cannot be forced to comply, the newly strengthened FATCA would forbid American banks from dealing with banks that do not comply, which would mean that these foreign banks’ checks and debit cards would not work in the United States. Under the new proposed law, money or income put in a foreign account would be considered taxable income.

Multinational Corporations

Multinational Corporations

 

How Are Multinational Corporations Currently Using Offshore Tax Havens?

There are many ways that US multinational companies currently use foreign tax havens to avoid paying American income tax. Many will set up a sham corporation in a country with no taxes, such as the Cayman Islands, and continue to do business in the United States while revenues are placed in this offshore account. The people owning the company can spend this untaxed money in the United States, using foreign debit and credit cards. This is a form of money laundering that is currently legal in the United States.

Corporate Tax Inversion

Corporate Tax Inversion

 

An End to Corporate Tax Inversion?

Corporations also use a practice known as corporate tax inversion to avoid paying in taxes. In corporate tax inversion, a large US conglomerate will merge with a much smaller foreign company and then claim that they are now a foreign conglomerate despite continuing to do the majority of their business in the United States. In many cases, the conglomerate has actually created the foreign company that they are merging with in order to avoid taxes in this manner.

Current US tax code allows these companies to avoid taxes if the new company has less than 80 percent of the same shareholders, known as the 80-20 test. The new proposed law would lower the 80 percent to 50 percent, so that companies that are more than half American will be taxed as American companies.

House Ways and Means Committee

House Ways and Means Committee

 

The Battle Ahead

Senate and House Republicans were resistant to this bill when it was introduced in 2013, which is why it never left the floor. However, Rep. Doggett and Sen. Whitehouse appear ready to take on a conservative majority this time around. Whitehouse is a member of the Senate Budget Committee while Doggett is a senior member of the House Ways and Means Committee, which writes tax code. Both feel that the current laws regarding offshore tax havens harm Americans by moving jobs overseas while also putting tax-paying small businesses at a sizable disadvantage.

Doggett was quoted on Monday as saying, “While most Americans contribute their fair share to our national security and vital public services, some large corporations still are not.” Doggett cited examples of billionaire corporations paying tax rates in the single digits, less than the average American middle class family. He called the current situation a perversion of tax laws. Whitehouse agreed in a similar statement, saying that “Big corporations should be allowed to play games with tax code and benefit from shipping jobs overseas.

American tax code

American tax code

 

Although the new bill would raise $278 billion in new tax revenue, it faces steep opposition from Senate and House Republicans. Many of the same lawmakers who kept the 2013 version of the bill from even being debated are still in Congress. Similar bills have been introduced over the past two decades by other lawmakers and have not been passed. However, Doggett and Whitehouse remain optimistic about their chances at leaving a last mark on American tax code and the corporate culture of offshoring.

With all this said, a CPA or Tax preparer should always be on the lookout for ways to serve their clients without breaching any legal guidelines. This article should have you thinking about ways to advise your business clients on possible ways the Tax Haven rules could affect their bottom lines. On top of this, think about improving your processes this season. If you’re not efiling your tax forms, you should give it a try.

Choosing to efile 1099 and other tax forms could save you lots of time, and the expense of printing and mailing copies to recipients. Not a bad outcome for your practice at all. Like most tax professionals, you may have clients with employees and contractors dispersed geographically. If you’re manually sending out forms, you can slash that time and effort by 60% very shortly. Simply use eFile4Biz.com to file 1099 online for clients, and use the spare time however you choose. The video below will show you exactly what I mean.

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