As I explained in this space yesterday, the federal budget process would become a bit more stable and predictable if the recently introduced Stop Tax Haven Abuse Act is enacted. This bill would raise at least $200 billion over the next 10 years by closing corporate tax loopholes that enable multinationals to shield their offshore profits from taxation. Once federal lawmakers deal with the current budget shutdown, the passage of this act would deliver a more balanced approach to addressing the federal deficit. Above all, it would prevent a second round of across-the-board cuts that will only further harm the nation’s most vulnerable citizens at a time when hardship remains high.
One of the four major reforms within the bill is to repeal the “check the box” rule that allow companies to use offshore subsidies as a front to avoid paying their fair share of taxes, saving an estimated $78 billion. Currently, businesses can make offshore subsidiaries and their passive income invisible for tax purposes. Passive income—which is income from sources that doesn’t require active management such as from interest, dividends, and royalties—is supposed to be taxed immediately whether on US soil or abroad. Yet, businesses can more or less check a box on an IRS form to make offshore subsidiaries and their taxable income vanish from their tax bill. The bill would end such practice by closing this loophole.
Check back later this afternoon to learn how Apple is checking the box and skimping on the taxes they owe. Meanwhile, check out my colleague’s profile of the Wyly brothers who are notorious for using offshore schemes to dodge their fair share of taxes.