The Obama administration is unveiling a new set of measures aimed at ending the use of tax havens and offshore banking centers by US corporations for tax avoidance purposes. It is expected that not only multinationals but also a large number of wealthy families and individuals that use corporate structures will be affected.
The administration is looking to change a tax-saving technique known as “deferral”, which allows large multinational corporations to defer paying tax on overseas earnings until the funds are repatriated. The proposed legislation would seek to limit tax deductions that companies could earn from this and is expected to raise $60.1bn over the next 10 years.
In addition they are seeking to overhaul “check-the-box” rules which allow US companies to choose where their subsidiaries are taxed – often low-tax offshore havens with strict bank secrecy that gladly welcome the capital. The administration hopes to raised $86.5bn through this measure.
Personal account holders are also being targeted. New rules would make it harder for Americans to open offshore bank accounts for tax purposes. They would increase reporting requirements and penalties, and make it harder for offshore account holders to win their cases in court. Authorities expect to claw back just $9bn from this measure over the same period.
While many welcome the administration’s moves against tax haven use by “big business”, especially considering ruthless IRS rhetoric against personal tax avoidance, others are wondering if there will ever be a limit to government tax collection. As “tax haven loopholes” are closed down one by one, individuals and corporations are forced to take part in the economy of the government’s choosing. And with the burden of proof shifted away from the accuser to the accused, we may find ourselves once again sliding backwards into a medieval system of taxation.