Billionaires' Ball by Linda McQuaig

Author:Linda McQuaig [McQuaig, Linda]
Language: eng
Format: epub
ISBN: 978-0-8070-0340-4
Publisher: Beacon Press
Published: 2012-03-15T00:00:00+00:00

All that was encouraging. The Western nations, led by the United States, seemed to have acquired new energy for clamping down on tax havens in cases involving out-and-out tax evasion. None of this however would do anything to restrict the use of tax havens for practices like “transfer pricing,” which are less overtly illegal but still drain billions each year from the U.S. Treasury and from the treasuries of other countries around the world. Typically, corporations set up dummy companies in tax haven countries, then juggle their books so that their profits are transferred to these dummy companies, which are subject to the extremely low tax rates of the tax haven jurisdictions. In the spring of 2009, the Obama administration promised to go after this longtime and highly lucrative tax avoidance scheme in an effort to collect an extra $200 billion a year in taxes from U.S. corporations. But after a deluge of corporate lobbyists descended on Capitol Hill, the White House backed off a few months later, saying that the promised reform would have to wait. As the Wall Street Journal explained: “The Obama administration has shelved a plan to raise more than $200 billion in new taxes on multinational companies following a blitz of complaints from businesses.”12

Meanwhile, the Senate subcommittee has kept up pressure for tougher action. In July 2011, Senator Levin brought forward a bill—the Stop Tax Haven Abuse Act—which would, among other things, tackle the problem of transfer pricing. It would require corporations to make detailed annual reports that break down country-by-country exactly where their production, staff, and sales are located. This would make it much more difficult for them to claim profits in tax haven jurisdictions, where their only operations usually consist of dummy companies with no staff and no production facilities, and often just a mailbox.

In addition, Levin’s bill would stop the kind of gimmick that the Wylys used. Under the proposed law, U.S. citizens transferring property (including stock options) to a foreign trust would have to continue to pay tax on any income earned from that property, regardless of whether or not they controlled the trust. The bill would also increase penalties substantially for those caught violating U.S. tax laws. Interestingly, an earlier version of this bill was cosponsored by then Senator Barack Obama.

For that matter, while Obama backed off on his promise to collect an extra $200 billion from multinationals engaging in transfer pricing, his administration did push through a change that could have far-reaching implications for tax evasion. In the spring of 2010, it won Congressional approval for the Foreign Account Tax Compliance Act (FATCA), which forces all foreign financial institutions—banks, stockbrokers, hedge funds, pension funds, trusts, and insurance companies—to make extensive reports about their U.S. clients to the IRS. The reporting must include detailed information about financial activities in all bank accounts held by U.S. clients.

FATCA, which is scheduled to come into effect in 2014, attracted relatively little attention when it passed through Congress, but it has generated a storm of opposition since then from foreign financial institutions.

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