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30 | Jurisdiction review
© Marek Slusarczyk
represents that person’s income, and is thereby or transactions related to, offshore secrecy juris- violations to Department of Justice actions,
taxable. The Bill effectively creates a blacklist, dictions, may have failed to comply with internal the consequences of failing to adhere to US
inclusion on which would undoubtedly impact revenue laws. The penalty for every breach of US legislation can be extremely costly.
upon the ability of a listed jurisdiction to operate Security law is increased to $1 million. Senator Levin has identified the need for legis-
in the global financial market, especially where Sections three and four are entitled ‘preventing lation to combat tax evasion. Few would dis-
US dollars are involved. abusive tax shelter transactions’ and ‘requiring agree, in light of some of his findings, that the
Amongst the array of penal measures, the Bill economic substance’. As their titles suggest, these existing law needs to be strengthened. This Bill
also combines extensions to time limits for inves- stipulations are aimed at restricting the use of may well help to reduce the incidence of tax eva-
tigations where offshore secrecy jurisdictions are creative tax structures through increased penal- sion. Unfortunately, it goes too far. It is anti-
involved. The Bill also proposes heavy evidential ties and information sharing, whilst codifying competitive and will prevent legitimate
burdens of rebutting a presumption, which will and strengthening the requirement to demon- individuals utilising the services of legitimate
act as a powerful disincentive. strate meaningful economic substance to trans- financial services.
Such burdens include measures such as actions which will otherwise be invalidated. The main problem is that it combines the
not permitting evidence from non-US Treasury estimates are that this will raise creation of an incredibly draconian regime
persons, unless the person appears to testify US$17.7bn over 10 years. whilst blacklisting countries to which that
in proceedings and limiting legal opinion regime applies on little more than a whim.
protection. Unregistered investment companies Conclusions and comment The automatic listing of 34 countries, made
in the form of hedge funds are also not immune In July 2007, Guernsey sent a delegation to the with no clear justification or reasoning, only
from the attentions of the Treasury, requiring US in protest at its proposed inclusion on the serves to highlight the potential arbitrariness.
AML procedures to be introduced and the blacklist. The jurisdiction pointed out that it had, There are dangers in this approach. Many rep-
same level of record production to be in fact, entered into a tax information sharing utable centres including Jersey, Guernsey and Isle
expected. agreement with the US. of Man have made big strides over the past
Whereas the usual rule is that any foreign Barbados has pointed out that it has a 24 year decade to meet international standards and dis-
account holding $10,000 or more has to be old taxation treaty with the US. Guernsey and pel toxic business. They have been recognised for
reported to the IRS, the Bill creates a presump- Barbados are not alone in feeling that their inclu- doing so by numerous international standard
tion that an account in an offshore secrecy juris- sion is without merit. setting bodies.
diction does contain sufficient funds to trigger The Coalition for Tax Competition, admitted- There is nothing in this Bill that recognises
the reporting requirement. ly not an impartial observer, has pointed out that or rewards them. Quite the opposite. Neither
In a further move by the Treasury to extend the Bill, if enacted, would actually harm the US. the Bill nor the Senate Subcommittee report
the reach of US law, the Bill also provides that This is because it would place its citizens at a that preceded it makes any mention of the
the Treasury would be able to extend sanctions competitive disadvantage with foreign nationals - criminal abuse of Delaware LLC’s. These are
currently available to it under the Patriot Act in including those operating within the US - and in governed by rules on disclosure of beneficial
respect of money laundering, to entities which any event is anti-competitive and in breach of ownership that were outlawed in the Crown
are ‘impeding US tax enforcement’. Anyone who the US’s trade obligations pursuant to the WTO. Dependencies ten years ago. This inevitably will
is familiar with the Patriot Act will understand From a UK perspective, the Bill should ring deepen suspicion that the Bill is not in fact
the impact this will have. alarm bells for all those that represent entities or motivated by a desire to stamp out the abuse of
The second section is titled ‘other measures to individuals who have dealings with the US and offshore financial services, but by a need for the
combat tax haven and tax shelter abuses’. It the blacklisted countries, either directly or US to begin to exercise control over large pools
includes provision to strengthen summonses in through subsidiaries. of development capital. Then again it could be
cases involving offshore secrecy jurisdictions. It There is no doubt that the personal and a mere coincidence that the Bill has gathered
creates a presumption that there is a reasonable corporate civil and criminal risk exposure will momentum as the US economy has bombed
basis for believing that any person or group or rise if the Bill is passed into law. For anyone who and Main Street holds more sway than Wall
class of persons who have financial accounts in, has dealt with the US authorities, from FCPA Street.
January 2009 Investment International
www.investmentinternational.com
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