The Bill would close loopholes connected with offshore credit-default swaps and foreign subsidiary deposits and would require firms to do country-by-country reporting.
Under present legislation, credit-default swap payments from the US to offshore jurisdictions are considered foreign-source income so they are not taxable. Under Levin’s Bill, such payments would be labelled as originating from the US.
Section 106 of the Act would also tax US-based, dollar-denominated bank accounts that contain funds from offshore subsidiary accounts opened by US firms.
“If [US companies] bring that income here to the US to seek the protections and benefits of having it deposited in US currency at US financial institutions, then those deposits should be treated as repatriated and subject to the same taxes that other domestic corporations pay,” stated a press release from Levin’s office.
The country-by-country reporting stipulation, under section 201 of the Bill, would force multinational corporations to register operations in individual jurisdictions rather than report overseas operations in composite. This information would be furnished to the US Securities and Exchange Commission.
Section 101 of the Bill would present to US authorities a menu of punitive measures with which to punish offshore banks deemed to be hindering US tax collection efforts. For example, credit cards issued by such banks could not be used in the US.
Section 102 aims to strengthen and clarify disclosure obligations under the Foreign Account Compliance Act (FATCA). Once FATCA goes into effect in 2013, it will force foreign financial institutions to disclose information on accounts held by US persons.
Levin said during the press conference that the US is losing an estimated $100 billion a year in revenue in offshore accounts.
“Clamping down on offshore users is one way to bring down the deficit,” he said.
Repatriating offshore funds has been in the news over the past several weeks as lawmakers and the Obama administration debate ways to alleviate the country’s deficit. The recession has prompted the government to track down hidden sources of revenue. Going after offshore accounts is one way to recoup funds without raising taxes, as well as aid smaller businesses without the resources to develop overseas holdings.
“Small businesses simply can’t be at parity with these multinationals,” said Frank Knapp, president and CEO of the South Carolina Small Business Chamber of Commerce, at the press conference.
Levin was more direct in his final comments. “We gotta shut down these darn tax havens,” he said.
