US bill targets Tax Haven CFCs

US Bill Introduced to Tax Tax-Haven CFCs by W William Woods on May 3, 2005 10:17AM (EDT) Senator Dorgan (D-N.D.) has introduced a bill (S. 779) to amend the Internal Revenue Code to treat controlled foreign corporations established in tax havens, or "tax-haven CFCs," as domestic corporations, and thus subject to U.S. income taxes. The tax havens listed in the bill include Bermuda, the British Virgin Islands, and the Cayman Islands.

The corporation must be a controlled foreign corporation for an uninterrupted period of 30 days or more during the taxable year in order to be treated as a tax-haven CFC. Generally, a foreign corporation is treated as a controlled foreign corporation if more than 50 percent of its vote or value is owned by US persons owning 10 percent or more of its voting stock.

Please click here to see the draft bill.

Many thanks to Deloitte & Touche for the "heads up".

http://bizoffshore.com/

109th CONGRESS lst Session

s.779

To amend the Internal Revenue Code of 1986 to treat controlled foreign corporations established in tax havens as domestic corporations

IN THE SENATE OF THE UNITED STATES

April 13,2005

Mr. DORGAN (for himself and Mr. LEVIN) introduced the following bill; which was read twice and referred to the Committee on Finance

A BILL

To amend the Internal Revenue Code of 1986 to treat controlled foreign corporations established in tax havens as domestic corporations.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION I. TAX TREATMENT OF CONTROLLED FOREIGN CORPORATIONS ESTABLISHED IN TAX HAVENS.

(a) In General. -- Subchapter C of chapter 80 of the Internal Revenue Code of 1986 (relating to provisions affecting more than one subtitle) is amended by adding at the end the following new section:

''SEC. 7875.CONTROLLED FOREIGN CORPORATIONS IN TAX HAVENS TREATED AS DOMESTIC CORPORATIONS.

"(a) General Rule. -- If a controlledforeign corporation is a tax-haven CFC, then, notwithstanding section 7701(a) @), such corporation shall be treated for purposesof this title as a domestic corporation.

"(b) Tax-Haven CFC. -- For purposesof this section --

"(1) IN GENERAL. --The term "tax-haven CFC" means, with respect to any taxable year, a foreign corporation which

"(A) was created or organized under the laws of a tax-haven country, and

"(B) is a controlled foreign corporation (determined without regard to this section) for an uninterrupted period of 30 days or more during the taxable year.

"(2) EXCEPTION. --The term "tax-haven CFC" does not include a foreign corporation for any taxable year if substantially all of its income for the taxable year is derived from the active conduct of trades or businesses within the country under the laws of which the corporation was created or organized.

"(c) Tax-HavenCountry. For purposesof this section --

"(1) IN GENERAL. --The term "tax-haven country" means any of the following:

Andorra Anguilla Antigua and Barbuda Aruba Commonwealth of the Bahamas Bahrain Barbados Belize Bermuda British Virgin Islands Cayman Islands Cook Islands Cyprus Commonwealth of the Dominica Gibraltar Grenada Guernsey Isle of Man Jersey Liberia Principality of Liechtenstein Republic of the Maldives Malta Republic of the Marshall Islands Mauritius Principality of Monaco Montserrat Republic of Nauru Netherlands Antilles Niue Panama Samoa San Marino Federation of Saint Christopher and Nevis Saint Lucia Saint Vincent and the Grenadines Republic of the Seychelles Tonga Turks and Caicos Republic of Vanuatu

"(2) SECRETARIAL AUTHORITY. --The Secretary may remove or add a foreign jurisdiction from the list of tax-havencountries under paragraph (l) if the Secretary determines suchremoval or addition is consistent with the purposesof this section."

(b) Conforming Amendment. --The table of sections for subchapter C of chapter 80 of the Internal Revenue Code of 1986 is amended by adding at the end the following new item:

"Sec. 7875. Controlled foreign corporations in tax havens treated as domestic corporations."

(c) Effective Date. --The amendments made by this section shall apply to taxable yearsbeginning after December 31,2007.