By Catherine Snowdon
Source: www.opensecrets.org |
Charles Rangel's new legislation is expected to raise $8.5 billion over the next 10 years |
House Ways and Means Committee chairman Charles Rangel and Senate Finance Committee chairman Max Baucus have introduced legislation to give the Internal Revenue Service (IRS) greater ability to "detect, deter and discourage offshore tax abuses" involving US taxpayers with foreign assets.
The legislation features a number of proposals that are similar to individual offshore tax compliance provisions included in the Obama Administration's FY2010 budget.
The rules would require increased reporting on certain foreign bank accounts by imposing a 30% withholding tax on income from US financial assets held by a foreign financial institution, unless the bank agrees to disclose the identity of the US account holder as well as some additional information on account transactions.
Foreign corporations would be asked to provide withholding agents with information identifying any US individual that is a substantial owner of the corporation, that is, holding more than 10% of the stock by vote or value.
The Bill would exempt publicly held and certain other foreign corporations from these reporting requirements, and would grant the Treasury department regulatory authority to exclude other recipients.
Similar rules would apply to foreign trusts. A 30% withholding tax would apply for failure to comply with the proposed reporting requirements
Any individual or entity with foreign accounts or financial instruments worth more than $50,000 in aggregate would have to file an information return with the taxpayer's annual tax return.
The changes would also impose a 40% penalty for underpayments attributable to undisclosed foreign financial assets.
An important proposal is the extension of the statute of limitations from three years to six years for certain underreporting of income in connection with foreign financial assets and failure to comply with new information return reporting requirements.
The limitation period would not begin to run until the taxpayer files an information return disclosing reportable foreign assets.
Despite these significant plans, the legislation gets a sigh of relief from advisers based in popular offshore locations.
"We are delighted by the proposals," said James Bergstrom, of law firm Ogier based in the Cayman Islands.
"They give the IRS focused administrative tools to deal with the tax cheats, but allows [low tax] jurisdictions that are responsible to stay in business."
In comparison to the controversial anti-tax haven bills introduced by Senator Carl Levin and Representative Lloyd Doggett, the changes outlined in the Foreign Account Tax Compliance Act are more specific, which pleases Bergstrom.
"The Levin proposal was very broad, discriminating legislation against offshore centres," he said.
The Act is estimated to raise $8.5 billion over 10 years, according to Joint Committee on Taxation analysis.
For now, taxpayers are widely accepting of the legislation.
"We knew something was coming and have already been preparing," said one taxpayer.
"This is a thoughtful piece of legislation," said Bergstrom. "The general view is that this has been dealt with, let's move on."
