Washington — Offshore tax havens might be a thing of the past, if some in Congress get their way.
Several legislators are pushing for new rules that would affect businesses, particularly the numerous online adult companies that operate overseas, in tandem with a new U.S. study, titled “Tax Haven Abuses: The Enablers, the Tools and Secrecy.”
That Senate report says offshore tax havens hold trillions of dollars in assets and allow wealthy U.S. citizens to avoid paying $40 billion to $70 billion in taxes each year.
After looking at numbers for more than a year, a Senate Homeland Security and Governmental Affairs Committee panel released those numbers in the report for a formal hearing slated this morning that describes offshore tax havens as a “black box,” allowing U.S. individuals and businesses to hide money from taxation, regulation and law enforcement.
Further, the report found that offshore businesses hide the money with the backing of “an armada of professionals” in specific countries, like Belize, the British Virgin Islands, the Cayman Islands, the Isle of Man, Nevis and Panama.
The offshore industry uses those countries for promising secrecy and anonymity to people doing business there. Local providers help fill out paperwork, pay appropriate fees and do business on behalf of the client. The corporations and trusts they create become the new owners of money and assets that the client moves offshore.
In many cases, according to the report, the arrangements make it appear that money sent offshore is no longer in the user’s control.
The report pins the most blame on lawyers who provide guidance to clients and financial institutions that allow access in the U.S. to money stashed overseas through credit and debit cards.
Sen. Carl Levin of Michigan, the top Democrat on the investigative subcommittee, says that to address the problem, tax, securities and money laundering laws should be changed to presume that a U.S. citizen should be taxed on money in a trust or corporation in a country known to the Treasury Department to be a tax haven.
The report pointed to one tax shelter that delivered $2 billion in capital gains sheltered from taxation in an arrangement known as POINT, or Personally Optimized Investment Transaction, which took advantage of offshore secrecy.
Its promoters created the shelter by making billions of dollars in securities transactions to generate billions of dollars in capital losses, but the transactions were all fake, the study said.
The report said that investors used the havens to offset their capital gains and erase taxes owed, and the government lost $300 million. Promoters of the scheme told the investigators that the transactions were valid under U.S. tax laws.
“We’ve got to end the tax haven abuses. We’ve got to take some major legislative steps,” Levin said. “I believe these schemes will not be found to be legal.”
Sen. Norm Coleman, R-Minn., the subcommittee chairman, agrees. “Using offshore jurisdictions to shelter income is unfair, and I intend to fix this problem,” he said.
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