Title II — Deterring the use of tax havens for tax evasion

H.R. 3666 · 113th Congress · Dec 5, 2013 · Lineage

II Deterring the use of tax havens for tax evasion

Sec. 201 Authorizing special measures against foreign jurisdictions, financial institutions, and others that significantly impede United States tax enforcement

Section 5318A of title 31, United States Code, is amended—

(1)

by striking the section heading and inserting the following:

“5318A. Special measures for jurisdictions, financial institutions, or international transactions that are of primary money laundering concern or significantly impede United States tax enforcement”

(2)

in subsection (a), by striking the subsection heading and inserting the following:

“(a) Special measures To counter money laundering and efforts to significantly impede United States tax enforcement”

(3)

in subsection (c)—

(A)

by striking the subsection heading and inserting the following:

“(c) Consultations and information To be considered in finding jurisdictions, institutions, types of accounts, or transactions To be of primary money laundering concern or To be significantly impeding United States tax enforcement”

(B)

by inserting at the end of paragraph (2) thereof the following new subparagraph:

“(C) Other considerations—The fact that a jurisdiction or financial institution is cooperating with the United States on implementing the requirements specified in chapter 4 of the Internal Revenue Code of 1986 may be favorably considered in evaluating whether such jurisdiction or financial institution is significantly impeding United States tax enforcement.”

(4)

in subsection (a)(1), by inserting “or is significantly impeding United States tax enforcement” after “primary money laundering concern”;

(5)

in subsection (a)(4)—

(A)

in subparagraph (A)—

(i)

by inserting “in matters involving money laundering,” before “shall consult”; and

(ii)

by striking “and” at the end;

(B)

by redesignating subparagraph (B) as subparagraph (C); and

(C)

by inserting after subparagraph (A) the following:

“(B) in matters involving United States tax enforcement, shall consult with the Commissioner of the Internal Revenue, the Secretary of State, the Attorney General of the United States, and in the sole discretion of the Secretary, such other agencies and interested parties as the Secretary may find to be appropriate; and”

(6)

in each of paragraphs (1)(A), (2), (3), and (4) of subsection (b), by inserting “or to be significantly impeding United States tax enforcement” after “primary money laundering concern” each place that term appears;

(7)

in subsection (b), by striking paragraph (5) and inserting the following:

“(5) Prohibitions or conditions on opening or maintaining certain correspondent or payable-through accounts or authorizing certain payment cards—If the Secretary finds a jurisdiction outside of the United States, 1 or more financial institutions operating outside of the United States, or 1 or more classes of transactions within or involving a jurisdiction outside of the United States to be of primary money laundering concern or to be significantly impeding United States tax enforcement, the Secretary, in consultation with the Secretary of State, the Attorney General of the United States, and the Chairman of the Board of Governors of the Federal Reserve System, may prohibit, or impose conditions upon—

“(A) the opening or maintaining in the United States of a correspondent account or payable-through account; or

“(B) the authorization, approval, or use in the United States of a credit card, charge card, debit card, or similar credit or debit financial instrument by any domestic financial institution, financial agency, or credit card company or association, for or on behalf of a foreign banking institution, if such correspondent account, payable-through account, credit card, charge card, debit card, or similar credit or debit financial instrument, involves any such jurisdiction or institution, or if any such transaction may be conducted through such correspondent account, payable-through account, credit card, charge card, debit card, or similar credit or debit financial instrument.”

(8)

in subsection (c)(1), by inserting “or is significantly impeding United States tax enforcement” after “primary money laundering concern”;

(9)

in subsection (c)(2)(A)—

(A)

in clause (ii), by striking “bank secrecy or special regulatory advantages” and inserting “bank, tax, corporate, trust, or financial secrecy or regulatory advantages”;

(B)

in clause (iii), by striking “supervisory and counter-money” and inserting “supervisory, international tax enforcement, and counter-money”;

(C)

in clause (v), by striking “banking or secrecy” and inserting “banking, tax, or secrecy”; and

(D)

in clause (vi), by inserting “, tax treaty, or tax information exchange agreement” after “treaty”;

(10)

in subsection (c)(2)(B)—

(A)

in clause (i), by inserting “or tax evasion” after “money laundering”; and

(B)

in clause (iii), by inserting “, tax evasion,” after “money laundering”; and

(11)

in subsection (d), by inserting “involving money laundering, and shall notify, in writing, the Committee on Finance of the Senate and the Committee on Ways and Means of the House of Representatives of any such action involving United States tax enforcement” after “such action”.

Sec. 202 Strengthening the Foreign Account Tax Compliance Act (FATCA)

(a)

Reporting activities with respect to passive foreign investment companies— Section 1298(f) is amended by inserting “, or who directly or indirectly forms, transfers assets to, is a beneficiary of, has a beneficial interest in, or receives money or property or the use thereof from,” after “shareholder of”.

(b)

Withholdable payments to foreign financial institutions— Section 1471(d) is amended—

(1)

by inserting “or transaction” after “any depository” in paragraph (2)(A), and

(2)

by striking “or any interest” and all that follows in paragraph (5)(C) and inserting “derivatives, or any interest (including a futures or forward contract, swap, or option) in such securities, partnership interests, commodities, or derivatives.”.

(c)

Withholdable payments to other foreign financial institutions— Section 1472 is amended—

(1)

by inserting “as a result of any customer identification, anti-money laundering, anti-corruption, or similar obligation to identify account holders,” after “reason to know,” in subsection (b)(2), and

(2)

by inserting “as posing a low risk of tax evasion” after “this subsection” in subsection (c)(1)(G).

(d)

Definitions— Clauses (i) and (ii) of section 1473(2)(A) are each amended by inserting “or as a beneficial owner” after “indirectly”.

(e)

Special rules— Section 1474(c) is amended—

(1)

by inserting “, except that information provided under sections 1471(c) or 1472(b) may be disclosed to any Federal law enforcement agency, upon request or upon the initiation of the Secretary, to investigate or address a possible violation of United States law” after “shall apply” in paragraph (1), and

(2)

by inserting “, or has had an agreement terminated under such section,” after “section 1471(b)” in paragraph (2).

(f)

Information with respect to foreign financial assets— Section 6038D(a) is amended by inserting “ownership or beneficial ownership” after “holds any”.

(g)

Establishing presumptions for entities and transactions involving non-FATCA institutions—

(1)

Presumptions for tax purposes—

(A)

In general— Chapter 76 is amended by inserting after section 7491 the following new subchapter:

“F Presumptions for certain legal proceedings

“7492. Presumptions pertaining to entities and transactions involving non-FATCA institutions

“(a) Control—For purposes of any United States civil judicial or administrative proceeding to determine or collect tax, there shall be a rebuttable presumption that a United States person who, directly or indirectly, formed, transferred assets to, was a beneficiary of, had a beneficial interest in, or received money or property or the use thereof from an entity, including a trust, corporation, limited liability company, partnership, or foundation, that holds an account, or in any other manner has assets, in a non-FATCA institution, exercised control over such entity. The presumption of control created by this subsection shall not be applied to prevent the Secretary from determining or arguing the absence of control.

“(b) Transfers of income—For purposes of any United States civil judicial or administrative proceeding to determine or collect tax, there shall be a rebuttable presumption that any amount or thing of value received by a United States person directly or indirectly from an account or from an entity that holds an account, or in any other manner has assets, in a non-FATCA institution, constitutes income of such person taxable in the year of receipt; and any amount or thing of value paid or transferred by or on behalf of a United States person directly or indirectly to an account, or entity that holds an account, or in any other manner has assets, in a non-FATCA institution, represents previously unreported income of such person taxable in the year of the transfer.

“(c) Rebutting the presumptions—The presumptions established in this section may be rebutted only by clear and convincing evidence, including detailed documentary, testimonial, and transactional evidence, establishing that—

“(1) in subsection (a), such taxpayer exercised no control, directly or indirectly, over account or entity at the time in question, and

“(2) in subsection (b), such amounts or things of value did not represent income related to such United States person.”

(B)

The table of subchapters for chapter 76 is amended by inserting after the item relating to subchapter E the following new item:

(2)

Definition of non-fatca institution— Section 7701(a) is amended by adding at the end the following new paragraph:

“(51) Non-fatca institution—The term non-FATCA institution means any financial institution that does not meet the reporting requirements of section 1471(b).”

(3)

Presumptions for securities law purposes— Section 21 of the Securities Exchange Act of 1934 (15 U.S.C. 78u) is amended by adding at the end the following new subsection:

“(j) Presumptions pertaining to control and beneficial ownership

“(1) Control—For purposes of any civil judicial or administrative proceeding under this title, there shall be a rebuttable presumption that a United States person who, directly or indirectly, formed, transferred assets to, was a beneficiary of, had a beneficial interest in, or received money or property or the use thereof from an entity, including a trust, corporation, limited liability company, partnership, or foundation, that holds an account, or in any other manner has assets, in a non-FATCA institution (as defined in section 7701(a)(51) of the Internal Revenue Code of 1986), exercised control over such entity. The presumption of control created by this paragraph shall not be applied to prevent the Commission from determining or arguing the absence of control.

“(2) Beneficial ownership—For purposes of any civil judicial or administrative proceeding under this title, there shall be a rebuttable presumption that securities that are nominally owned by an entity, including a trust, corporation, limited liability company, partnership, or foundation, and that are held in a non-FATCA institution (as so defined), are beneficially owned by any United States person who directly or indirectly exercised control over such entity. The presumption of beneficial ownership created by this paragraph shall not be applied to prevent the Commission from determining or arguing the absence of beneficial ownership.”

(4)

Presumption for reporting purposes relating to foreign financial accounts— Section 5314 of title 31, United States Code, is amended by adding at the end the following new subsection:

“(d) Rebuttable presumption—For purposes of this section, there shall be a rebuttable presumption that any account with a non-FATCA institution (as defined in section 7701(a)(51) of the Internal Revenue Code of 1986) contains funds in an amount that is at least sufficient to require a report prescribed by regulations under this section.”

(5)

Regulatory authority— Not later than 180 days after the date of enactment of this Act, the Secretary of the Treasury and the Chairman of the Securities and Exchange Commission shall each adopt regulations or other guidance necessary to implement the amendments made by this subsection. The Secretary and the Chairman may, by regulation or guidance, provide that the presumption of control shall not extend to particular classes of transactions, such as corporate reorganizations or transactions below a specified dollar threshold, if either determines that applying such amendments to such transactions is not necessary to carry out the purposes of such amendments.

(h)

Effective date— The amendments made by this section shall take effect on the date which is 180 days after the date of enactment of this Act, whether or not regulations are issued under subsection (g)(5).

Sec. 203 Treatment of foreign corporations managed and controlled in the United States as domestic corporations

(a)

In general— Section 7701 is amended by redesignating subsection (p) as subsection (q) and by inserting after subsection (o) the following new subsection:

“(p) Certain corporations managed and controlled in the United States treated as domestic for income tax

“(1) In general—Notwithstanding subsection (a)(4), in the case of a corporation described in paragraph (2) if—

“(A) the corporation would not otherwise be treated as a domestic corporation for purposes of this title, but

“(B) the management and control of the corporation occurs, directly or indirectly, primarily within the United States,

“(2) Corporation described

“(A) In general—A corporation is described in this paragraph if—

“(i) the stock of such corporation is regularly traded on an established securities market, or

“(ii) the aggregate gross assets of such corporation (or any predecessor thereof), including assets under management for investors, whether held directly or indirectly, at any time during the taxable year or any preceding taxable year is $50,000,000 or more.

“(B) General exception—A corporation shall not be treated as described in this paragraph if—

“(i) such corporation was treated as a corporation described in this paragraph in a preceding taxable year,

“(ii) such corporation—

“(I) is not regularly traded on an established securities market, and

“(II) has, and is reasonably expected to continue to have, aggregate gross assets (including assets under management for investors, whether held directly or indirectly) of less than $50,000,000, and

“(iii) the Secretary grants a waiver to such corporation under this subparagraph.

“(3) Management and control

“(A) In general—The Secretary shall prescribe regulations for purposes of determining cases in which the management and control of a corporation is to be treated as occurring primarily within the United States.

“(B) Executive officers and senior management—Such regulations shall provide that—

“(i) the management and control of a corporation shall be treated as occurring primarily within the United States if substantially all of the executive officers and senior management of the corporation who exercise day-to-day responsibility for making decisions involving strategic, financial, and operational policies of the corporation are located primarily within the United States, and

“(ii) individuals who are not executive officers and senior management of the corporation (including individuals who are officers or employees of other corporations in the same chain of corporations as the corporation) shall be treated as executive officers and senior management if such individuals exercise the day-to-day responsibilities of the corporation described in clause (i).

“(C) Corporations primarily holding investment assets—Such regulations shall also provide that the management and control of a corporation shall be treated as occurring primarily within the United States if—

“(i) the assets of such corporation (directly or indirectly) consist primarily of assets being managed on behalf of investors, and

“(ii) decisions about how to invest the assets are made in the United States.”

(b)

Effective date— The amendments made by this section shall apply to taxable years beginning on or after the date which is 2 years after the date of the enactment of this Act, whether or not regulations are issued under section 7701(p)(3) of the Internal Revenue Code of 1986, as added by this section.

Sec. 204 Reporting United States beneficial owners of foreign owned financial accounts

(a)

In general— Subpart B of part III of subchapter A of chapter 61 is amended by inserting after section 6045B the following new sections:

“6045C. Returns regarding United States beneficial owners of financial accounts located in the United States and held in the name of a foreign entity

“(a) Requirement of return—If—

“(1) any withholding agent under sections 1441 and 1442 has the control, receipt, custody, disposal, or payment of any amount constituting gross income from sources within the United States of any foreign entity, including a trust, corporation, limited liability company, partnership, or foundation (other than an entity with shares regularly traded on an established securities market), and

“(2) such withholding agent determines for purposes of titles 14, 18, or 31 of the United States Code that a United States person has any beneficial interest in the foreign entity or in the account in such entity's name (hereafter in this section referred to as United States beneficial owner),

“(b) Required information—For purposes of subsection (a) the information required to be included on the return shall include—

“(1) the name, address, and, if known, the taxpayer identification number of the United States beneficial owner,

“(2) the known facts pertaining to the relationship of such United States beneficial owner to the foreign entity and the account,

“(3) the gross amount of income from sources within the United States (including gross proceeds from brokerage transactions), and

“(4) such other information as the Secretary may by forms or regulations provide.

“(c) Statements To Be furnished to beneficial owners with respect to whom information is required To Be reported—A withholding agent required to make a return under subsection (a) shall furnish to each United States beneficial owner whose name is required to be set forth in such return a statement showing—

“(1) the name, address, and telephone number of the information contact of the person required to make such return, and

“(2) the information required to be shown on such return with respect to such United States beneficial owner.

“6045D. Returns by financial institutions regarding establishment of accounts in non-FATCA institutions

“(a) Requirement of return—Any financial institution directly or indirectly opening a bank, brokerage, or other financial account for or on behalf of an offshore entity, including a trust, corporation, limited liability company, partnership, or foundation (other than an entity with shares regularly traded on an established securities market), in a non-FATCA institution (as defined in section 7701(a)(51)) at the direction of, on behalf of, or for the benefit of a United States person shall make a return according to the forms or regulations prescribed by the Secretary.

“(b) Required information—For purposes of subsection (a) the information required to be included on the return shall include—

“(1) the name, address, and taxpayer identification number of such United States person,

“(2) the name and address of the financial institution at which a financial account is opened, the type of account, the account number, the name under which the account was opened, and the amount of the initial deposit,

“(3) if the account is held in the name of an entity, the name and address of such entity, the type of entity, and the name and address of any company formation agent or other professional employed to form or acquire the entity, and

“(4) such other information as the Secretary may by forms or regulations provide.

“(c) Statements To be furnished to United States persons with respect to whom information is required To be reported—A financial institution required to make a return under subsection (a) shall furnish to each United States person whose name is required to be set forth in such return a statement showing—

“(1) the name, address, and telephone number of the information contact of the person required to make such return, and

“(2) the information required to be shown on such return with respect to such United States person.

“(d) Exemption—The Secretary may by regulations exempt any class of United States persons or any class of accounts or entities from the requirements of this section if the Secretary determines that applying this section to such persons, accounts, or entities is not necessary to carry out the purposes of this section.”

(b)

Penalties—

(1)

Returns— Section 6724(d)(1)(B) is amended by striking “or” at the end of clause (xxiv), by striking “and” at the end of clause (xxv), and by adding after clause (xxv) the following new clauses:

“(xxvi) section 6045C(a) (relating to returns regarding United States beneficial owners of financial accounts located in the United States and held in the name of a foreign entity), or

“(xxvii) section 6045D(a) (relating to returns by financial institutions regarding establishment of accounts at non-FATCA institutions), and”

(2)

Payee statements— Section 6724(d)(2) is amended by striking “or” at the end of subparagraph (GG), by striking the period at the end of subparagraph (HH), and by inserting after subparagraph (HH) the following new subparagraphs:

“(II) section 6045C(c) (relating to returns regarding United States beneficial owners of financial accounts located in the United States and held in the name of a foreign entity),

“(JJ) section 6045D(c) (relating to returns by financial institutions regarding establishment of accounts at non-FATCA institutions).”

(c)

Clerical amendment— The table of sections for subpart B of part III of subchapter A of chapter 61 is amended by inserting after the item relating to section 6045B the following new items:

(d)

Additional penalties—

(1)

Additional penalties on banks— Section 5239(b)(1) of the Revised Statutes of the United States (12 U.S.C. 93(b)(1)) is amended by inserting “or any of the provisions of section 6045D of the Internal Revenue Code of 1986,” after “any regulation issued pursuant to,”.

(2)

Additional penalties on securities firms— Section 21(d)(3)(A) of the Securities Exchange Act of 1934 (15 U.S.C. 78u(d)(3)(A)) is amended by inserting “any of the provisions of section 6045D of the Internal Revenue Code of 1986,” after “the rules or regulations thereunder,”.

(e)

Regulatory authority and effective date—

(1)

Regulatory Authority— Not later than 180 days after the date of the enactment of this Act, the Secretary of the Treasury shall adopt regulations, forms, or other guidance necessary to implement this section.

(2)

Effective Date— Section 6045C of the Internal Revenue Code of 1986 (as added by this section) and the amendment made by subsection (d)(1) shall take effect with respect to amounts paid into foreign owned accounts located in the United States after December 31 of the year of the date of the enactment of this Act. Section 6045D of such Code (as so added) and the amendment made by subsection (d)(2) shall take effect with respect to accounts opened after December 31 of the year of the date of the enactment of this Act.

Sec. 205 Swap payments made from the United States to persons offshore

(a)

Tax on swap payments received by foreign persons— Section 871(a)(1) is amended—

(1)

by inserting “swap payments (as identified in section 1256(b)(2)(B)),” after “annuities,” in subparagraph (A), and

(2)

by adding at the end the following new sentence: “In the case of swap payments, the source of a swap payment is determined by reference to the location of the payor.”.

(b)

Tax on swap payments received by foreign corporations— Section 881(a) is amended—

(1)

by inserting “swap payments (as identified in section 1256(b)(2)(B)),” after “annuities,” in paragraph (1), and

(2)