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May 25, 2016
Beneficial Ownership Is Urgent U.S. Issue, Ex-Senator Levin Says
by Alexander Lewis

Full Text Published by Tax Analysts®

The United States needs to take greater action on corporate transparency if it wants to keep pace with international standards and avoid becoming the financial home to drug traffickers and other criminals, according to former Sen. Carl Levin.

Speaking in Washington on May 23 during the Winning the Tax Wars conference co-sponsored by Tax Coop and the World Bank, Levin said the U.S. has made progress in some areas of tax reform, but lags behind the international community in the fight to ensure transparent corporate ownership.

"The U.S. has been a laggard in the fight against corporations with hidden owners," Levin said. "Although [President] Obama supported my 2008 bill, and a 2013 G-8 declaration demanding greater transparency, and even issued a U.S. action plan in 2015, no real U.S. progress has taken place. Right now, nearly 2 million corporations are formed in the U.S. each year without anyone knowing the living, breathing human beings behind them. These are the so-called beneficial owners."

Levin said a new, recently announced U.S. banking regulation (RIN 1506-AB25) requires U.S. banks to obtain the identity of the beneficial owner of any legal entity holding an account, but that it contains a weak definition of beneficial ownership that undermines the purpose of the regulation.

"While international standards define beneficial owners as the individuals who exercise ultimate control over a legal entity, the new regulation says that a beneficial owner can be someone who exercises managerial control over an entity," Levin said. "That flawed approach enables tax haven firms to claim that an employee appointed as the president of an offshore shell corporation, or as the trustee of an offshore trust, is that entity's beneficial owner.

"That's the opposite of the claim, meaning, and purpose of the phrase 'beneficial owner.' Even more important, and more disappointing, bipartisan legislation . . . to require the 50 U.S. states to obtain beneficial ownership information for the corporations that they form has stalled in Congress despite strong support from the law enforcement community."

There is also a need for overall international tax reform in the face of rising income inequality, Levin said. "U.S. multinationals are estimated to hold $2.4 trillion offshore, deferring payment of U.S. taxes totaling $700 billion," he said. "No country can keep cutting taxes and still provide infrastructure and the government services [its citizens need]."

International tax reform poses a number of difficult questions about how profits should be allocated among subsidiaries of multinational corporations that manufacture and sell goods in a number of jurisdictions, but those profits should be taxed somewhere, Levin said. He cited Apple as an example of tax planning abuse that he says he witnessed during his time in the Senate. "A 2013 investigation by my U.S. Senate Permanent Subcommittee on Investigations discovered that Apple had three subsidiaries in Ireland, each of which claimed it had no tax residency anywhere. Having no tax residency anywhere is the holy grail of tax dodging," Levin said.

He concluded that if combating tax avoidance cannot be done through international cooperation, countries such as the U.S. should take unilateral action to address the problem. Levin said he believes a good starting point for the U.S. would be a reform of the subpart F rules, which he said "the IRS and Congress have hollowed out."

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