US taxman eyes offshore vehicles
The US Internal Revenue Service is launching a crackdown on special purpose vehicles used to avoid tax in a move that could have major ramifications for financial institutions around the world
The body, headed by Mark Everson, is planning to stop US financial
institutions from setting up structures outside the country that avoid tax
through a partnership with a foreign bank. The set-ups see the institution and
its foreign partner pool assets and pay tax on the assets in the country where
they are held.
The US company then claims a tax credit on the foreign tax paid to avoid
double taxation, while the foreign partner also claims a tax credit. This
structure allows the foreign partner to lend cash to the special purpose vehicle
at lower interest rates.
The IRS has put forward proposals to block the use of special purpose
vehicles which will be debated at a public hearing in Washington at the end of
July.
The move comes as US politicians launch a new wave of attacks on the tax
avoidance industry both at home and worldwide.
Presidential candidate Barack Obama has backed a bill to crack down on tax
havens in particular.
