Law Office of Charles W. Cope, PLLC | Senator Levin Reacts to BEPS
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  • Senator Levin Reacts to BEPS
    September 2013
    In erlier posts we have discussed the activities of the Permanent Subcommittee on Investigations (the “Subcommittee”) of the U.S. Senate Homeland Security and Government Affairs Committee, which is chaired by Senator Carl Levin (Democrat, Michigan ), including the Subcommittee's hearings on tax planning carry out by various U.S. multinationals. We have also noted the ongoing work of the OECD and the G-20 countries in combating BEPS -- base erosion and profit shifting -- and mentioned the muted U.S. response to that effort so far.
    Although the U.S. Constitution requires tax legislation to arise in the House of Representatives,[2] and although the Senate Finance Committee is the committee that considers tax legislation in the Senate, any representative or senator may introduce tax legislation. Thus, notwithstanding the fact that neither the House Ways and Means Committee nor the Senate Finance Committee has introduced tax legislation addressing BEPS, Sen. Levin and some of his colleagues did so on September 19, 2013. Their bill is known as the "Stop Tax Haven Abuse Act.[3]"
    Although this bill may appear to be a somewhat quixotic gesture (it unlikely to ever be considered by the full Senate) elements of the bill are worth noting because they may ultimately make their way into tax legislation that the Congress might one day enact to address BEPS. Notable provisions include:
    • Treating certain foreign corporations (i.e. those that are publicly traded or that have more than $50 million of assets) as U.S. corporations if they are directly or indirectly primarily managed in the United States; 
    • Amending the Securities Exchange Act of 1934 to require companies subject to the Act to report results on a country- by- country basis, including earnings and taxes paid; 
    • Taxing currently the “foreign base company excess intangible income” of a controlled foreign corporation; and 
    • Prohibiting foreign business entities from electing to be disregarded as separate from their owner for U.S. federal income tax purposes (i.e., eliminating “check the box” elections for foreign business entities).
    These provisions, if enacted, would significantly increase the U.S. income tax liability of many major U.S. multinationals.  In the current environment, unless paired with a reduction in corporate income tax rates, such provisions are unlikely to garner much support in Congress.
    [2] Tax legislation falls within the jurisdiction of the House Ways and Means Committee.
    [3] Available at: