Obama’s And Offshore Financial Centers

President Obama has had a dislike for offshore financial centers since he was a Senator.  He co-sponsored a bill called the Stop Tax Haven Abuse Act and it appears that his administration will pursue the bill in the near future.

President Obama pledged to crack down on “tax havens” during his election campaign.  He has vowed to investigate and put pressure on banking secrecy in over thirty-four jurisdictions that practice a high level of protection that may lead to tax evasion and fraud.

The then Senator Obama was a cosponsor of the Stop Tax Haven Abuse Act, which was introduced on February 17 2007.  A House bill was developed simultaneously, but no action was taken on either bill.  Obama aides have indicated that the bill may be resurrected.

Since the recent scandals with banks like UBS and the investigation into tax evasion coupled with the recession and the financial fall out, Senate Permanent Subcommittee on Investigations has placed a priority on international investigations of individuals with connections to offshore financial centers.  Similar pressure is happening in other countries.

The Stop Tax Havens Abuse Act would restrict the use of offshore financial centers by imposing that transactions between US persons and offshore jurisdictions be taxable.  It will also raise the reporting requirements and increase the penalties for tax evasion with the use of offshore jurisdictions.  The Committee feels that an additional $50 billion in additional tax revenue will be gained.

Within the Act is a provision that would force taxpayers to prove that they do not have control over any offshore entities with which they contract and the act takes a “guilty until innocent” approach.  The Act  presumes that a US citizen has control of entities including trusts, corporations, limited liability companies and partnerships created or domiciled in a so-called Offshore Secrecy Jurisdiction if the US person directly or indirectly formed, transferred, received assets or is a beneficiary of that entity.

The objective of the Stop Tax Havens Abuse Act creates taxable income for all transfers to offshore entities and presumes that income from these transactions remains unreported.

The thirty-four jurisdictions include almost every Offshore Financial Center such as Guernsey, the Isle of Man, Switzerland, the Cayman Islands, the British Virgin Islands, the Cook Islands, the Bahamas, Bermuda, Hon Kong, Jersey, Belize and Costa Rica.