The Stop Tax Haven Abuse Act bill introduced by Senator Carl Levin earlier this week is a refinement - that now contains powerful new tools to combat offshore tax abuse - of an earlier attempt in 2007 that did not pass into law. In the two years since, the United States Senate Permanent Subcommittee on Investigations has gathered extensive evidence from hearings, case histories, research, whistleblowers and criminal prosecutions to expose the veil of purported "secrecy" in offshore tax havens.

Truly, for us average life-style folks, there has been so much rich succulent material to graze on. How could anyone at this point ignore all of the salacious details (and horrendous personal stories) regarding the Madoff, and Stanford Financial alleged illicit operations offshore? Or, the indictment, arrest and imprisonment of private bankers from a supposedly reputable global financial operations for helping US millionaires and billionaires hide assets from US taxation? Or the sale of a list of thousands of secret clients of a Liechtenstein bank to the Republic of Germany?

According to Senator Levin, "the bill's target is offshore tax abuses that rob the US Treasury of an estimated $100 billion each year, reward tax dodgers using offshore secrecy laws to hide money from Uncle Sam, and offload the tax burden onto the backs of middle income families who play by the rules".

The US Internal Revenue Service (IRS) is pursuing this global tax collection initiative aggressively, filing suit against UBS AG (probably no longer you and us), a Swiss bank, for release of the names of 52,000 account holder with US citizenship. According to Bloomberg, March 1, 2009: "Sarkozy and other European leaders from the Group of 20 nations a week ago said they will crack down on tax havens, including considering sanctions for non-cooperation, as they seek to boost transparency and apply uniform rules governing financial markets in the wake of the global economic crisis." The Tax Justice Network, an international non-profit organisation dedicated to fighting tax evasion, has estimated that wealthy individuals worldwide have stashed $11.5 trillion of their assets in offshore tax havens with an annual tax revenue loss of 250 billion dollars. http://www.taxjustice.net/

A summary of the Proposed STHA Act Sections are as follows. Note that these are still proposals, not as yet, US law.

Section 101 Rebuttable Evidentiary Presumptions and Initial List of Offshore Secrecy Jurisdictions. Are you presumed guilty until you demonstrate you are innocent? The Stop Tax Haven Abuse Act would establish five rebuttable evidentiary presumptions, three for civil tax enforcement and two for enforcing US securities laws.

1. A presumption that a US taxpayer who "formed, transferred assets to, was a beneficiary of, or received money or property" from an offshore entity, such as a trust or corporation, is in control of that entity;

2. A presumption that funds or other property received from offshore are taxable income, and that funds or other property transferred offshore have not yet been taxed; and

3. A presumption that a financial account controlled by a US taxpayer in a foreign country contains enough money - $10,000 - to trigger an existing statutory reporting threshold and allow the IRS to assert the minimum penalty for non-disclosure of the account by the taxpayer;

4. If a director, officer, or major shareholder of a US publicly-traded corporation were associated with an offshore entity, that person would be presumed to control that offshore entity;

5. Securities nominally owned by an offshore entity are presumed to be beneficially owned by any US person who controlled the offshore entity.

These presumptions are rebuttable, which means that the US person who is the subject of the proceeding could provide clear and convincing evidence to show that the presumptions were factually inaccurate. To rebut the presumptions, a taxpayer could establish, for example, that an offshore corporation really was controlled by an independent third party, or that money sent from an offshore account really represented a nontaxable gift instead of taxable income.

If the taxpayer wished to introduce evidence from a foreign person, such as an offshore banker, corporate officer, or trust administrator, to establish those facts, that foreign person would have to actually appear in the United States proceeding in a manner that would permit cross examination in order for the taxpayer to rebut the presumption. A simple affidavit from an offshore resident who refused to submit to cross examination in the United States would be insufficient.

There are limitations to ensure that the presumptive operations are fair and reasonable. These apply to civil and enforcement proceedings where the IRS or the SEC were to challenge a matter. They do not affect a person's ordinary reporting obligations on a tax return or a Securities and Exchange Commission (SEC) filing, nor are the presumptions applicable to where either the US person or the offshore entity is a publicly traded company.

Section 102 deals with special measures and innovative approaches such as sanctions to counter money laundering; Section 103 - Deny Tax Benefits for Foreign Corporations Section 102 deals with special measures and innovative approaches such as sanctions to counter money laundering; Section 103 - Deny Tax Benefits for Foreign Corporations Managed and Controlled in the United States; Section 104 - Extension of Time for Offshore Audits; Section 105 - Increased Disclosure of Offshore Accounts and Entities; Section 106 - Closing Foreign Trust Loopholes; Section 107- Legal Opinion Protection from Penalties; Section 108 - Closing the Dividend Tax Loophole; Section 109- PFIC Reporting Requirement; Section 201- Stronger Penalty for Failure to Make Required Securities Disclosures; Sections 202 and 203 - Anti-Money Laundering Programs for Hedge Funds and Company Formation Agents; Section 204 - IRS John Doe Summons; Section 205 - FBAR Investigations and Suspicious Activity Reports

In the next of the Tax Series for 2009, we will comment on the specific sections that may impact multi-nationals (see description above) residents of Bermuda. We will focus, in particular, on Section 109 Passive Foreign Investment Corporation reporting requirements, Section 106, closing foreign tax loopholes, Section 205 - FBAR Investigations and one of the more onerous, the powerful IRS tools under Section 204 IRS John Doe Summons.

The Stop Tax Haven Abuse Act - at this writing - has not been passed into US enforceable law, nor have other types of measures slated for serious discussion at the G-20 and other high-level multiple government meetings scheduled for April.

For the readers of this article who managed to plow through until the end, you may feel it is completely unrelated to your life. But please pass this information along for those hundreds, perhaps thousands, of residents in Bermuda who are US citizens or have US connections through dual-citizenship, green cards, multi-national marriages, relatives, employment, estates and trusts, beneficiaries, investments and real estates. The Stop Tax Haven Abuse Act bill represents changes in US tax law that may have an impact on your personal and family situation.

Now is the time to review your financial affairs and get them in order. You may need the services of qualified professional planning specialists who are knowledgeable in cross-border international tax, risk management, trust and state and investment planning. See list below.

Sources:

Bloomberg, March 1, 2009

Sarkozy Says Switzerland 'Could Be' Placed on Tax-Haven List By Helene Fouquet and Jonathan Stearns

March 2, 2009

Contact: Senator Levin's Office

Phone: 202.224.6221

Statement of Senator Carl Levin on Introducing the Stop Tax Haven Abuse Act, Part II

Martha Harris Myron: confidential email can be sent to martha.myron[AT]gmail Disclaimer: This article is for general information purposes only and is not to be used as specific tax advice for any individual situation. For your personal tax queries, you are advised to seek the services of professionally qualified and licensed internationally experienced tax and financial planning practitioners. International professionally qualified Tax and Financial Planning firms in Bermuda: Ernst & Young; Chris Larkin, Tax Manager; KPMG; Patterson Partners Ltd. IRS Circular 230 Notice: Pursuant to recently enacted US Treasury Department Regulations, I am now required to advise you that, unless otherwise expressly indicated, any federal tax information (or advice) expressed above was neither written, nor intended by the author to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed under US tax law.