Hong Kong and Singapore may soon come under increased scrutiny from the US, if incoming President Barack Obama follows through with his pledge to crack down on abusive “tax havens” which “peddle secrecy” and “cloak tax evasion and other misconduct,” according to Withers, the world's leading law firm for high net worth individuals.
In February 2007, then-Senator Obama co-sponsored the Stop Tax Haven Abuse Act (STHAA), which was introduced in both the Senate and the House. Although no action has been taken on either version since then, Obama’s aides have indicated that similar legislation will be considered in the early stages of the new administration.
With both Hong Kong and Singapore featuring on the initial list of 34 “Offshore Secrecy Jurisdictions,” Obama’s inauguration could mark the beginning of increased restrictions for US persons utilising these offshore financial centres, according to Kurt Rademacher, Partner at Withers, Hong Kong.
“If Obama, as President, pushes similar legislation through, the next step would be to determine whether Hong Kong and Singapore should be considered official ‘tax havens’,” said Mr. Rademacher.
“If designated as “tax havens,” a number of restrictions would be imposed on US persons using these jurisdictions as offshore financial centres.”
The centrepiece of the STHAA is a provision that would force taxpayers to prove that they do not have control over any offshore entities with which they contract, including trusts, corporations, limited liability companies and partnerships. The STHAA would also increase reporting and withholding requirements on financial institutions and fiduciaries dealing with Hong Kong and Singapore, provided they are designated as “tax havens,” as well as increase penalties for tax avoidance in these offshore jurisdictions.
“The penalties and deterrents that come with the STHAA are very real,” added Mr. Rademacher. “US banks could be prohibited from operating accounts for non-compliant foreign financial institutions and US financial institutions could be prohibited from accepting credit card transactions involving non-compliant foreign banks.”
Other jurisdictions that featured on the “Offshore Secrecy Jurisdictions” list include Jersey, Guernsey, the Isle of Man, Switzerland, the Cayman Islands, the British Virgin Islands, Bermuda, the Bahamas, Costa Rica and Belize.
It has been estimated that the STHAA would generate up to US$50 billion of additional tax revenue for the US annually, which could be used to offset an array of new spending programmes Obama has promised.
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