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Seeking Sunlight: The End Tax Haven Abuse Act

By Tom Cardamone
11 August 2011

Almost 100 years ago a Harvard-trained attorney by the name of Louis Brandeis wrote a series of articles in ‘Harper’s Weekly’ magazine which focused on the problems related to what was then referred to as the “money trust.” 

The money trust was several large corporations, and the men who ran them, that controlled much of the country’s economic and political power. Given the inherent unfairness, that situation engendered Brandeis, who was well known as an advocate of progressive causes, to suggest ways to curb that power.  

In what is perhaps his most oft-quoted comment, Brandeis wrote that “sunlight is said to be the best of disinfectants,” by which he meant that information is power. Information on who runs companies, how they are run and how they are financed is crucial, he believed, in an efficient and fair capitalist system. Not being one to pull punches he also noted that “publicity is justly commended as a remedy for social and industrial diseases.”  Today ‘publicity’ would be translated to ‘transparency,’ but, in the end, it means the same thing. 

Despite Brandeis’ warnings, we still seek the answers to many of the same questions: where are companies based?; where do corporations pay taxes? and what activities do corporations have offshore?

The answers to these queries are important. Each year an estimated $100 billion in taxes is not collected by the U.S. Treasury due to companies and wealthy individuals using offshore havens to hide their profits and wealth. Fortunately, a bill recently introduced in Congress would require companies to provide information that would answer those questions. The Stop Tax Haven Abuse Act of 2011, sponsored by Senator Carl Leven and five other senators would “restrict the use of offshore tax havens and abusive tax shelters to inappropriately avoid Federal taxation,” according to the legislation. 

Among the many requirements of the bill, corporations that are listed with the U.S. Securities and Exchange Commission would be required to report their sales, profits, taxes and number of employees for each jurisdiction where the firm operates. Known as country-by-country reporting, this provision would provide far better information on the activities of a company than does an annual consolidated financial statement. 

Additionally, the bill would require financial institutions to report to the Internal Revenue Service (IRS) bank accounts opened by offshore entities controlled by U.S. corporations and would require reporting to Congress of information related to tax exempt status provided by the IRS. In all, the bill would provide far more transparency than is currently required on the offshore activities of corporations. 

Back in 1913, Brandeis understood that reporting by corporations was fundamental to securing a level playing field for all those who participated in an economy whether they were other, smaller, companies or investors. He knew that power in the hands of a few could only be wrested away by requiring constant monitoring. 

In the ‘Harper’s’ article, Brandeis wrote that publicity was a “potent force [that] must, in the impending struggle, be utilized in many ways as a continuous remedial measure.” 

No doubt the Levin bill faces an impending struggle to pass through the rigors of the legislative process. No doubt, too, that those in Congress who benefit from the political donations of today’s “money trust” will work to defeat the legislation. But what must be kept in mind is that the Stop Tax Haven Abuse Act does not seek to limit business activity. It simply seeks sunlight.

Tom Cardamone is the managing director for Global Financial Integrity.

Copyright, TrustLaw, 2011. Original article available here.

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