Bills by Baucus and Levin Could Mean Tighter Leash for Hedge Funds

New York (HedgeCo.Net) – Senate Finance Committee Chairman Max Baucus has introduced a new bill aimed at halting offshore tax evasion by U.S. companies.    

The new bill is in response to Senator Levin’s “Stop Tax Haven Abuse Act,” which also seeks to crack down on offshore jurisdictions and impose tighter restrictions for hedge funds.

The bill will entail several facets, mainly the requirement to report transfers of capital to offshore locations.  Any financial institution that directly or indirectly transfers a minimum of $10,000 to an offshore institution must give a detailed report to the U.S. Treasury with the customer’s name, both the onshore and offshore bank associated with the transaction, the amount, along with the account number and type of account.  Right now, this information is required to be filed with the Internal Revenue Service, in something known as an FBAR filing.

Any institution who fails to report these transfers or any person who does not include this information with their tax returns would face fines and penalties.
The draft bill may have more burdensome reporting requirements and compliance issues for hedge fund managers that do business offshore, but it differs greatly from the “Stop Tax Haven Abuse Act” introduced on March 2 by Senator Levin (D-MI), which would have harsher consequences and stricter requirements for hedge funds.

Stating that offshore tax havens “are engaged in economic warfare against the United States, and honest, hardworking Americans,” the bill essentially seeks to increase the disclosure of offshore accounts, holdings, transactions and entities while increasing the strength and jurisdiction of the U.S. Treasury.  Penalties of up to $1 million per violation are expected to be enforced for failure to report to the SEC.  

Foreign corporations that are managed and controlled in the United States will be treated as a domestic corporation and will therefore be responsible for paying U.S. taxes.  It is estimated that 80 percent of the country’s largest companies have subsidiaries in tax havens.  Levin also seeks to close the tax loophole associated with offshore dividends.  

Hedge funds will be required to establish anti-money laundering programs as well as use due diligence to evaluate investors supplying offshore funds.  The bill also creates a tighter cohesion between the Treasury and the U.S. Securities and Exchange Commission.

The Levin Bill seeks to end the estimated $100 billion in lost tax revenue each year from offshore tax abuse.  

Julie Scuderi
Senior Editor for HedgeCo.Net

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