U.S. News

Tax bill demands reporting by banks, rich

WASHINGTON (Reuters) - U.S. Democrats aim to stop rich Americans from hiding assets offshore to evade taxes by slapping penalties on individuals and foreign banks, according to legislation introduced in the U.S. Congress on Tuesday.

Senator Max Baucus, chairman of the Senate Finance Committee, on Capitol Hill in a file photo. REUTERS/Jason Reed

The bill, which would raise $8.5 billion over a decade by collecting taxes in previously secret accounts, was praised by President Barack Obama.

“A small number of individuals and businesses hide their assets overseas solely in order to shirk their responsibilities, even as the vast majority of hard-working Americans honor the obligations of citizenship and fulfill their responsibilities,” Obama said in a statement.

Leaders of the key tax-writing panels, Senate Finance Committee Chairman Max Baucus and House Ways and Means Committee Chairman Charles Rangel, introduced the legislation along with several other Democrats. No Republicans backed the bill.

The tax evasion legislation is tougher than an earlier draft circulated by Baucus this year, according to a watchdog group that had criticized his first pitch as weak.

“This is a great start,” said Monique Danzinger, a spokeswoman for Global Financial Integrity, which advocates more transparency in international capital flows. “We’re happy that he stepped up and introduced something and our hope would be to strengthen it.”

The United States this year escalated a crackdown on individuals who hide income offshore and the banks that help them. By one estimate, the United States loses $100 billion to offshore tax evasion annually.

A central plank in the U.S. effort was its lawsuit against UBS AG, which agreed to pay $780 million to settle a criminal lawsuit and consented to eventually turning over 4,450 names of U.S. account holders.

Under the new legislation, foreign banks will be forced to disclose information about American customers, or face a 30 percent tax on their income from U.S. financial assets.

Lawmakers also targeted shell companies by requiring a foreign corporation or trust to give the U.S. Treasury Department the names of Americans who own more than 10 percent of shares.

“This bill offers foreign banks a simple choice -- if you wish to access our capital markets, you have to report on U.S. account holders,” Rangel said in a statement.

Any American owning more than $50,000 in foreign assets would be required to declare accounts to the Treasury, under the bill. Asteep 40 percent penalty would be imposed on understatements of foreign assets by American taxpayers.

To give the U.S. Internal Revenue Service more time to go after tax cheats, the bill would extend the statute of limitations to six years, from current three years, for major tax evasion cases.

The bill would also impose a 30 percent tax on so-called dividend equivalent payments, which investors use to avoid taxes on dividends, currently taxed at that same rate.

Foreign investors use certain derivative transactions to avoid the tax, according to the bill’s sponsors.

Reporting by Kim Dixon; Editing by Tim Dobbyn, Bernard Orr