2021 Stop Tax Haven Abuse Act Targets Corporate Tax Loopholes (Part 2)

On March 11, 2021, Congressman Lloyd Doggett (D-TX) and Senator Sheldon Whitehouse (D-RI), introduced the Stop Tax Haven Abuse Act to close offshore tax “loopholes” to ensure that “corporations and the superrich” cannot shelter profits in tax haven jurisdictions and end certain benefits provided to large multinational corporations.

• The Stop Tax Haven Abuse Act proposes changes to the BEAT where the applicability threshold would be lowered from $500M to $100M, eliminate the BEAT exception for royalty payments, and repeal the 3% base erosion percentage so that all payments are included when computing a company’s BEAT liability.
• The proposed rules will modify the definition of “Corporation” in the Code to include, “any foreign business entity that has a single owner that does not have limited liability or has one or more members all of which have limited liability”. As these previously eligible entities will be categorized as corporations, they can no longer make a check-the-box election to be treated as a partnership or disregarded form its owner.
• Additionally, the Subpart F look through rule (954(c)(6)) will no longer apply to exempt dividends, interest, rents, and royalties received from a CFC after the enactment of the Act from Foreign Personal Holding Company Income.
• “Issuers” under the Securities and Exchange Act of 1934 will be required to provide a country-by-country report of profit and taxes paid in each jurisdiction as well as other financial information.
• The Act will also impose interest on any 965(h) installment payments as if they were underpayments.
• Foreign oil and gas extraction income would be treated as Subpart F income and payments made to foreign governments in exchange for specific benefits will no longer be creditable as foreign tax credits.
• The Act will amend Section 721(d) to provide that a transfer of intangibles to a partnership will be treated as a deemed sale under Section 367(d), in exchange for a continuing deemed annual royalty.
• In addition, the Act provides for new measures to combat tax evasion and money laundering by extending anti-money-laundering requirements to parties who assist taxpayers to form corporations and trusts and to extend KYC requirements to hedge funds and private equity funds registered with the SEC.

Stay tuned for more updates from our International tax as this legislation is passed it may change and provide further guidance.

Author: Calvin Yung, JD, LLM | [email protected]