* Country-by-country corporate reporting proposed
* Offshore credit default swap payments loophole hit
* Levin promises 2004 repatriation tax holiday study
By Kevin Drawbaugh
WASHINGTON, July 12 (Reuters) - U.S. multinational corporations would have to report financial results on a country-by-country basis, potentially revealing much about their offshore tax and accounting practices, under legislation introduced in the Senate on Tuesday.
Saying that offshore tax abuses cost the government $100 billion a year in lost revenue, Democratic Senator Carl Levin said his bill would additionally close a loophole that allows credit default swap payments to escape taxation if sent from the United States to persons offshore.
The outlook for the bill was not immediately clear. Levin wants it folded into a deficit reduction package this year and Democrats have called for closing offshore tax loopholes to be part of a deficit solution.
“All in all, it strikes me as a bit of a hodgepodge,” said Scott Michael, a lawyer at Caplin & Drysdale in Washington, who was dismissive of the measure’s chances of full passage.
Parts of similar bills offered in the past by Levin have made it into law, such as measures to curb abusive foreign trusts and close offshore dividend tax loopholes.
“People are sick and tired of tax dodgers using offshore trickery and abusive tax shelters to avoid paying their fair share,” Levin said in a statement. His bill, one in a series he has offered in recent years, has five Senate co-sponsors.
“This bill offers powerful new tools to combat offshore and tax shelter abuses, raise revenues and eliminate incentives to send U.S. profits and jobs offshore,” he said.
The Levin bill would treat credit default swap payments sent offshore as taxable U.S. source income. It would end multinationals’ ability to consolidate global financial results with little or no country-by-country detail.
It would let the U.S. Treasury secretary take action against countries or financial institutions that impede U.S. tax enforcement while making it easier for the Internal Revenue Service to understand and control offshore entities.
Corporations managed and controlled mainly in the United States would not be able to claim foreign status and would be taxed as domestic corporations under the measure, while penalties slapped on tax evasion promoters would be stiffened.
Representative Lloyd Doggett, a fellow Democrat who like Levin has pushed for many years to check offshore tax abuses, will introduce companion legislation in the House of Representatives.
“This bill offers specific ways to not only raise revenue, but also level the playing field for small businesses and fix a broken tax system that facilitates job loss, crime and economic devastation,” said Nicole Tichon, executive director of Tax Justice Network, a tax fairness activist group.
“Any discussion of fiscal responsibility cannot stop at our shores,” Tichon said.
Another provision of the bill would treat as taxable U.S. dollars and other assets physically deposited in U.S. accounts but presently allowed to have offshore status.
The Senate Permanent Subcommittee on Investigations, which Levin chairs, will soon release a report on the results of the Bush administration’s 2004 offshore profits repatriation tax holiday, he said.
Bush allowed multinationals then to bring back into the United States approximately $299 billion in foreign profits that they had stored away overseas to avoid paying the 35-percent corporate income tax rate. Bush allowed the profits to be repatriated at a tax rate of just 5.25 percent.
At the time, Bush said the holiday would help boost jobs, but studies have suggested that corporations instead used most of the money for stock buybacks and shareholder dividends.
U.S. multinationals today have about $1 trillion in offshore profits packed away in foreign jurisdictions and want another holiday to bring them home at a discounted tax rate. (Editing by Howard Goller)