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Stop Tax Haven Abuse legislation reintroduced

On July 12 2011, Senator Carl Levin once again introduced his latest version of the Stop Tax Haven Abuse Act (Bill). Representative Lloyd Doggett recently introduced the same legislation in the House.

Edward TanenbaumTola Ozim

The Bill no longer contains the list of tax haven countries. In its place, however, are a host of increased reporting provisions imposed on taxpayers and financial institutions alike, as well as provisions that build upon the Hire Act and, in particular, FATCA.

As to the Hire Act and FATCA, the Bill proposes to clarify certain definitions and requirements of the FATCA disclosure legislation-such as inclusion of checking accounts within the disclosure requirements of financial institutions, as well as assets in the form of derivatives and swap agreements; limiting the ability of the Internal Revenue Service (IRS) to waive compliance by certain entities to only those that present a low risk of tax evasion, and a host of others.

In addition, the IRS would be given the authority to issue increased sanctions against foreign jurisdictions and foreign financial institutions, especially toward non-FATCA compliant institutions-such as limiting such an institution's access to the US markets through US correspondent banks and prohibiting US institutions from conducting transactions with such foreign institutions. There would also be imposed various rebuttable evidentiary presumptions against US taxpayers,who form, maintain or transfer assets to offshore accounts with non-FATCA institutions.

Two interesting loopholes are also targeted. The first, involving credit default swaps, would treat payments made from the US by counterparties on credit default swap payments as US source payments subject to withholding. The second, referred to as the foreign subsidiary deposits loophole, would treat offshore funds of controlled foreign corporations (CFC) as a sec. 956 deemed dividend to the extent that the funds are parked in US-located bank accounts held in the name of the CFC.

There are also numerous other provisions in the Bill designed to enhance anti-money laundering programmes and to deal with summons enforcement, tax shelters (and their promoters) and Circular 230 standards.

Perhaps the most substantive and far-reaching provision is the one dealing with corporations managed and controlled in the US. As in prior versions, the Bill would treat as a domestic corporation any foreign corporation that is publicly traded or that has aggregate gross assets of $50 million or more, if it is managed and controlled in the US. The Bill clearly targets, but it is by no means limited to, hedge funds with addresses outside the US whose key personnel or investment advisors are located in the US.

The future of the legislation is still unclear. While many Republicans will be opposed to many (but not all) of the provisions, its continued introduction could pave the way for it to eventually become law.

Edward Tanenbaum ( and Tola Ozim (, New York
Alston & Bird
: +1 (212) 210-9400
Fax: +1 (212) 210-9444

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