President Obama Outlines Plan to Close Tax Loopholes, Raise U.S. Revenue
From pbs.org
President Barack Obama outlined a series of steps Monday aimed at overhauling U.S. tax policies that he says reward companies for shifting American jobs overseas and allow wealthy people to avoid paying taxes by using offshore accounts.
The president expressed his wishes to raise taxes on the overseas profits of U.S. companies and to go after evaders who abuse offshore tax shelters.
Mr. Obama said the existing laws make it possible to “pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, N.Y. ”
The White House estimated the plan would inject $21 billion a year into U.S. coffers over the next decade, but that would amount to only about 2 percent of next year’s projected deficit of $1.2 trillion, however.
Under existing laws, companies with operations overseas pay U.S. taxes only if they bring the profits back to the United States. As long as those earnings are plowed back into the foreign subsidiaries, they can defer paying taxes indefinitely. The president’s plan, which would take effect in 2011, would change that.
The White House said that in 2004, multinational corporations enjoyed an effective tax rate of 2.3 percent in the United States because of such allowances. Aides said that was the most recent year available for analysis, according to media reports.
Critics say those rules encourage businesses to bolster foreign operations instead of creating jobs in the U.S. During his campaign last year, Mr. Obama promised to change those provisions.
Drew Lyon, a tax expert at PriceWaterhouse Coopers, told Reuters the changes to the “deferral” provision would be sweeping, since half of multinationals firms’ income is earned abroad.
“It’s really hitting most Fortune 100 companies that depend to a great deal on growth of foreign markets for growing their total earnings,” Lyon said.
The president also said he would close loopholes and bolster enforcement to prevent tax avoidance by companies and individuals.
“The steps I am announcing today will help us deal with some of the more egregious examples of what is wrong with our tax code,” he said at a joint announcement with Treasury Secretary Timothy Geithner.
Democratic Montana Sen. Max Baucus, chair of the Senate Finance Committee that writes tax legislation, offered a tepid response to the president’s proposals, signaling that they could be a hard sell in Congress.
“Further study is needed to assess the impact of this plan on U.S. businesses,” he said Baucus. “I want to make certain that our tax policies are fair and support the global competitiveness of U.S. businesses.”
But several lawmakers, including House Ways and Means Chairman Charles Rangel, signaled support for Mr. Obama’s proposals.
In March, 200 companies and trade groups like the U.S. Chamber of Commerce sent congressional leaders a letter opposing changes to the “deferral” provision. The letter said the firms would not be on a level playing field with international rivals, many of which are not required to pay taxes at home on overseas entities. Pfizer, Oracle, Microsoft Corp, Johnson & Johnson and General Electric were among the firms that signed the letter.
Under President Obama’s plan, companies would not be able to write off domestic expenses for generating profits abroad. The goal is to reduce the incentive for U.S. companies to base all or part of their operations in other countries.
The president said the government also is hiring nearly 800 new IRS agents to enforce the U.S. tax code.
In addition to the changes to the deferral provisions, separate proposals in Mr. Obama’s plan would raise $95 billion by cracking down on overseas tax havens. Such tax havens became a major topic at the April meeting in London of leaders of the Group of 20 major economies.
In one of the proposals to crack down on tax evasion, the administration would require financial institutions to share information with the IRS about customers in the U.S. Foreign institutions and sign up with the IRS to become “a qualified intermediary” or else face a presumption that they are helping individuals evade taxes.
Some consumer advocates said the changes were long overdue fixes for tax abuses.
Swiss banking giant UBS AG acknowledged in February that it helped U.S. clients conceal assets from their government. It agreed to pay a $780 million fine and has since identified about 320 of its American clients.
But the administration is not seeking to repeal all overseas tax benefits. Mr. Obama called his proposal “a down payment on the larger tax reform we need to make our tax system simpler and fairer and more efficient for individuals and corporations.”
“Nobody likes paying taxes, particularly in times of economic stress,” he said. “But most Americans meet their responsibilities because they understand that it’s an obligation of citizenship, necessary to pay the costs of our common defense and our mutual well-being.”
The president said the current tax code makes it too easy for “a small number of individuals and companies to abuse overseas tax havens to avoid paying any taxes at all.”
He said he was willing to make permanent a research tax credit that was to expire at the end of the year and is popular with businesses. Officials estimate that making the tax credits permanent would cost taxpayers $74.5 billion over the next decade. But administration aides said 75 percent of those tax credits cover the cost of workers’ wages.
Geithner said the proposals would end “indefensible tax breaks and loopholes which allow some companies and some well-off citizens to evade the rules that the rest of America lives by.”
He called them “common-sense changes designed to restore balance to our tax code.”
UBS, Extending its Shake-Up, Ousts Kurer
By CARRICK MOLLENKAMP, The Wall St Journal
In its second top-management change in a week, UBS AG replaced Chairman Peter Kurer, a move that came as the Swiss bank’s board worried that Mr. Kurer had lost credibility in steering the bank through a series of crises, according to people familiar with the situation.
Mr. Kurer will be succeeded by former Swiss Finance Minister Kaspar Villiger, who will run the bank alongside new Chief Executive Oswald Grübel, who took over for Marcel Rohner on Feb. 26.
The moves come on the heels of a long stretch of bad news at UBS, including a U.S. tax-evasion investigation; the largest annual loss ever reported by a Swiss company; the elimination of 11,000 jobs; and the need for a Swiss government bailout.
Under the new management team, Mr. Villiger is expected to handle governmental issues that could include dealing with the U.S. government investigation. Mr. Grübel will run day-to-day operations, a role that may include driving further cost-cutting and possibly more executive changes.
The shake-up came as a senior UBS banker apologized at a U.S. Senate hearing in Washington for the bank’s role in aiding tax evasion by its wealthy American clients.
Click link above for complete article.
United States of America v. UBS AG (Declaration of Daniel Reeves)
Filed under: IRS, UBS, int tax compliance, offshore trusts, tax evasion, tax haven, unreported income
The following 305 page IRS affidavit is the Declaration of Daniel Reeves, a duly commissioned Internal Revenue Agent and Offshore Compliance Technical Advisor employed in the Small Business/Self Employed Division of the Internal Revenue Service. He is assigned to the Internal Revenue Service’s Offshore Compliance Initiative. The Offshore Compliance Initiative develops projects, methodologies, and techniques for identifying US taxpayers who are involved in abusive offshore transactions and financial arrangements for tax avoidance purposes.
U.S. Sues UBS Seeking Swiss Account Customer Names
Filed under: IRS, UBS, tax evasion, tax haven, unreported income
By David Voreacos and Carlyn Kolker, Bloomberg.com
The U.S. government sued UBS AG, Switzerland’s largest bank, to try to force disclosure of the identities of as many as 52,000 U.S. customers with secret Swiss accounts.
The lawsuit, filed today in federal court in Miami, alleges that 32,000 secret accounts contained cash and 20,000 held securities, according to the statement. U.S. customers failed to report and pay U.S. income taxes on income earned in those accounts, which held about $14.8 billion in assets in the mid- 2000s, according to a statement from the Justice Department.
The case is U.S. v. UBS AG, 09-20423, U.S. District Court, Southern District of Florida (Miami).
Click link above for complete article.
GAO: Big U.S. Companies Love Tax Havens
Filed under: int tax compliance, tax haven, unreported income
by John Cummings, BusinessFinanceMag.com
In a 60-page report released Friday, the U.S. Government Accountability Office offers some eye-opening details on U.S. companies’ use of tax havens and “financial privacy jurisdictions,” which the agency defines as “jurisdictions that have strict banking secrecy laws that persons can use to shield their wealth from taxation in their home country.” As many as 83 of the 100 largest publicly traded U.S. corporations by revenue have subsidiaries in one or more such haven or jurisdiction, according to the report.
Indeed, four of the firms in that group of 83 own more than 100 subsidiaries in tax havens or financial privacy jurisdictions. And one organization — Citigroup — has no fewer than 427, including 91 in Luxembourg, 90 in the Cayman Islands, and 35 in the British Virgin Islands.
The report’s investigation of the 100 largest publicly traded U.S. Federal contractors tells a similar story; 63 firms in this group reported having subsidiaries in tax havens or financial privacy jurisdictions. The Procter & Gamble Co., which had nearly $313 million in federal contracts in fiscal 2007, reports having 83 subsidiaries in these locations, including 24 in Switzerland and 11 in Singapore.
What exactly constitutes a tax haven? The GAO’s research failed to turn up any agreed-upon definition, and the agency made no attempt to establish one of its own. However, the report describes a group of relevant characteristics, including “no or nominal taxes; lack of effective exchange of tax information with foreign tax authorities; lack of transparency in the operation of legislative, legal or administrative provisions; no requirement for a substantive local presence; and self-promotion as an offshore financial center.” Rather than develop its own list of tax havens, the GAO amalgamated three such lists, from the Organization for Economic Cooperation and Development (OECD), the National Bureau of Economic Research (NBER), and a 2006 U.S. District Court order.
Of course, the fact that a business chooses to establish a subsidiary in a listed location doesn’t necessarily mean that it’s seeking to reduce its tax burden; as the report points out, “subsidiaries may be established in a listed jurisdiction for a variety of nontax business reasons.” But the GAO also notes the U.S. Treasury’s concern that some companies aggressively set transfer prices to shift income to offshore locations in a bid to avoid tax.
Click here for a summary or here for the full GAO report.
Haven sent
by Jessie Hewitson, thenational.ae
Last Updated: October 20. 2008 8:39PM UAE / GMT
Around the world, a quiet but fierce battle is raging. In a bid to lure high net-worth individuals to their shores, the world’s tax havens are trying to outrival each other with tax breaks. And the list of combatants is not a short one – according to the US National Bureau of Economic Research, roughly 15 per cent of countries are tax havens. While the UAE and Switzerland may be the first places that spring to mind, there are some unlikely new contenders such as Macedonia and Liechtenstein, among them.
“The definition of a haven is a place that is offering low to zero tax, I’d say,” says Paul Panayi, the managing director at Optimus Wealth, a wealth management company. “The name implies safety – in a storm you would want to find a haven. With increased competition from so many countries looking for high net-worth individuals, the tax perks on offer are getting better. The old money seems to stick with the places they know: Monte Carlo or Switzerland, for example – places where you pay an enormous amount of money for a property. There is a growing group emerging, however. People who have done well in business in the last five to 10 years but might not be super-wealthy and who are looking at some of the newer tax-friendly places – like Dubai, Mauritius and the Caribbean. Typically, people only reside at the tax haven for three to four years if they’re about to sell a business, or they know they are going to have a period of high earnings.”
“Monaco used to accept anyone, but not any more,” continues Panayi. “These days you have to guarantee you will be there for a year, as well as deposit a sizeable amount into a bank account – at least £500,000 (Dh3.2 million). They also do credit checks. In Switzerland, it varies from canton to canton; generally you turn up to the local tax office, strike a deal on the amount of tax you pay and pay that amount.”
The Caribbean is an enduringly popular location for the rich; somewhere they can live in idyllic, tropical surroundings, and save money while doing so. Bermuda, Barbados, the Bahamas, the Cayman Islands, Anguilla, Grenada, Nevis and the Turks and Caicos are all offering low tax to anyone who resides there. Typically, these islands offer no income tax, value added tax, capital gains or inheritance tax – and in some cases, no property taxes – but regional variations do occur.
Prices in Barbados, for example, are high: the cheapest one-bed property on Cluttons estate agency’s books starts at Dh3.7m and goes up to Dh7m. Barbados’s West Coast is seen as the most desirable – and priciest – area to live in, home to Sandy Lane, the celebrities’ hotel of choice, and to the Four Seasons resort, where Simon Cowell recently spent a rumoured Dh94m buying his holiday home.
There are cheaper alternatives, however. In Grand Bahama, which is tax-free and where you can qualify to apply for residency if you purchase a property, you can buy a one-bed in the Suffolk Court development – a 10-minute drive from Freeport International Airport – for Dh1.7m.
Another increasingly popular destination is Mauritius. It is only since 2002 that foreigners were allowed to buy on the tropical island in the Indian Ocean off the coast Africa, with astonishing beaches and rainforest – and only after the government had introduced a system called the Integrated Resort Scheme (IRS). IRS was designed to keep property relatively high-end: by law, non-Mauritians have to pay a minimum of Dh1.8million when buying on the island, as well as fork out a land registration tax of Dh257,000. The good news is that with your Mauritian property you automatically get residency – as do any dependents – and corporation tax is capped at 15 per cent.
The upside is that Mauritius has no capital gains or inheritance tax and its economy is strong – rising at around six per cent annually. On the downside, as a foreigner, you can only buy a newbuild property in a designated IRS resort, so if your dream is lovingly to renovate an old plantation house, this isn’t the island for you.
Average prices paid by foreigners on the island are around Dh2,571 to Dh3,122 per square metre. Cluttons is selling Villas Valriche, a development offering luxury villas with infinity pools and easy access to an 18-hole golf course. Prices in the hilltop development, with panoramic sea views in front and the Black River Gorge National Park to the rear, start at Dh3.11m for a detached villa with pool and gardens.
Switzerland is where the old money goes, and it is famously picky about who lives within its borders – Swiss property laws are designed to make sure the foreigners don’t nab all the best properties. The federal government has set an annual quota of permits for non-resident foreigners seeking to acquire property in Switzerland. In addition, cantonal authorisation is needed before gaining a title, and each canton has different rules on the issue. Average property prices in the country are Dh27,279 per square metre, according to the Global Property Guide.
“We have a huge variety of clients from all sorts of walks of life buying in Switzerland,” says Annabelle Waite of the Swiss branch of property investment agency Pure International. “Investors taking advantage of low interest rates, grandparents buying family chalets as heirlooms – and avoiding inheritance tax – young professionals starting a family wanting social and economical security. EU nationals can relocate here easily – they simply have to apply for a permit. They also have to prove they have sufficient financial means and adequate health insurance. Non-EU citizens can obtain residency permits if it is justified on a financial basis.”
For somewhere a bit less conventional you may want to consider Belize, the English-speaking Central American nation – at least according to James Hickman of Caxton FX, a specialist currency exchange company. “It is one of the best tax havens in the world, having no capital gains tax or estate tax, and under certain provisions, non-residents and offshore companies are able to repatriate their earnings tax-free.”
Most people are buying land and flats within resorts. One of the more high-end areas in Belize is Placencia, a 16-mile-long peninsula in the south of Belize, home of Francis Ford Coppola’s resort, Turtle Inn. Prices at another development, Bella Maya, a luxury beachfront four-star resort with swimming pool, restaurant, bar, shops and private beach, start at Dh1.38m, and most properties come with balcony or terrace.
Attorney Gets 10-Year Sentence for $20M Tax Fraud
Filed under: tax evasion, tax haven, tax preparer, unreported income
Salt Lake City (Aug. 19, 2008)
By WebCPA staff , WebCPA.com
A Utah attorney was sentenced to 120 months in prison and 36 months of supervised release after he was convicted of participating in a $20 million offshore tax fraud conspiracy.
In addition to jail time, Dennis B. Evanson of Sandy, Utah, was ordered by U.S. District Judge Tena Campbell of Salt Lake City to forfeit four pieces of real property, a Hummer and a Toyota Tundra, and to pay a money judgment of $2.77 million.
A federal jury convicted Evanson in February of conspiracy to commit mail and wire fraud, tax evasion, and assisting in the filing of false tax returns. According to prosecutors, Evanson and his co-defendants conspired between 1996 and April 2005 to conceal portions of his clients’ income from the IRS and to create false tax deductions for them. Evanson and another defendant received a fee for their services typically equal to 30 percent of the tax evaded by clients.
The scheme included offshore companies and bank accounts in the Cayman Islands and Nevis, offshore nominees and opinion letters that purported to give legal authority to the fraudulent transactions.
Four co-defendants have also pleaded guilty. Accountant Brent Metcalf of Cottonwood, Utah, pleaded guilty to conspiracy and aiding in the filing of a false tax return on Jan. 25, 2008. Attorney Graham R. Taylor of Tiburon, Calif., pleaded guilty on Jan. 24, 2008. CPAs Stephen F. Petersen of Coalville, Utah, and Reed H. Barker of Littleton, Colo., pleaded guilty to tax fraud on Jan. 18, 2008. Petersen also pled guilty to aiding in the preparation of a false tax return on behalf of a client. All four co-defendants are awaiting sentencing.
Tax Haven Bank Secrecy Tricks
Senator Carl Levin (D-MI) revealed a list of “secrecy tricks” he said the UBS
bankers used to carry out their tax haven schemes. They include:
• Code Names for Clients
• Pay Phones, not Business Phones
• Undeclared Accounts
• Shred Files
Prepared by the
Cayman Islands, Business and Tax Advantages Attract U.S. Persons and Enforcement Challenges Exist
The U.S. Government Accountability Office (GAO) has recently published, “Cayman Islands, Business and Tax Advantages Attract U.S. Persons and Enforcement Challenges Exist.”
The 57 page pdf can be found here.
Permanent Subcommittee on Investigations Issues Report On Tax Haven Banks Hiding Billions from the IRS
Filed under: IRS, UBS, tax evasion, tax haven, unreported income
7/17/08 Press Release from Michigan Senator Carl Levin’s office-
WASHINGTON – At a Thursday hearing entitled, Tax Haven Banks and U.S. Tax Compliance, the latest in a series of hearings with insider information about the workings of the offshore industry, the Senate Permanent Subcommittee on Investigations will examine how tax haven banks facilitate tax evasion by U.S. clients, hide client and bank misconduct behind the cloak of bank secrecy laws, and add to the offshore abuses that cost U.S. taxpayers an estimated $100 billion dollars each year.
- Marsh. The Marshes of Ft. Lauderdale, Florida, hid $49 million in four
- Wu. LGT helped William Wu hide ownership of assets, including his house in
- Lowy. LGT used transfer companies and a foundation with a
- Gonzalez. LGT helped a Gonzalez car dealership inflate invoices, move funds offshore and, after getting sued for their pricing practices, hide assets in case of a court judgment.
- Chong. LGT helped Richard Chong use hidden accounts to move millions of dollars related to his business ventures, routing them through an offshore corporation to avoid scrutiny.
- Miskin. LGT helped Michael Miskin hide assets from courts, tax authorities, and his wife.
- Olenicoff. Bradley Birkenfeld, a private banker employed by UBS AG, pleaded guilty last month to conspiring with a
In reviewing these case histories, the investigation found: (1) bank secrecy laws and practices are serving as a cloak, not only for client misconduct, but also for misconduct by banks colluding with clients to evade taxes, dodge creditors, and defy court orders; (2) from at least 2000 to 2007, LGT and UBS employed banking practices that could facilitate, and have resulted in, tax evasion by their U.S. clients, including assisting clients to open accounts in the names of offshore entities; advising clients on complex offshore structures to hide ownership of assets; using client code names; and disguising asset transfers into and from accounts; (3) since 2001, LGT and UBS have collectively maintained thousands of U.S. client accounts with billions of dollars in assets that have not been disclosed to the IRS; UBS alone has an estimated 19,000 accounts in Switzerland for U.S. clients with assets valued at $18 billion, and the IRS has identified at least 100 U.S. taxpayers with accounts at LGT; and (4) LGT and UBS have assisted their U.S. clients in structuring their foreign accounts to avoid QI reporting to the IRS, including by allowing U.S. clients who sold their U.S. securities to continue to hold undisclosed accounts, and by opening accounts in the name of non-U.S. entities beneficially owned by U.S. clients; while these banking practices did not technically violate the banks’ Qualified Intermediaryagreements with the IRS, the result is that the banks helped keep accounts secret from the IRS and thereby facilitated tax evasion by their U.S. clients.
- Strengthen QI Reporting of Foreign Accounts Held by
- Strengthen 1099 Reporting. Congress should strengthen the statutory 1099 reporting requirements by requiring any domestic or foreign financial institution that obtains information that the beneficial owner of a foreign-owned financial account is a
- Strengthen QI Audits. The IRS should broaden QI audits to require bank auditors to report evidence of fraudulent or illegal activity.
- Penalize Tax Haven Banks that Impede
This hearing and report follow other investigations into offshore abuses by the Subcommittee. Hearings held by the Subcommittee in 2001 examined the historic and ongoing lack of cooperation by some offshore tax havens with international tax enforcement efforts and their resistance to divulging information needed to detect, stop and prosecute
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