Tax Implications of Proposed “Stop Tax Haven Abuse Act"

The word “change” dominated much of the discussion during the 2008 Presidential election, and 2009 is likely to bring proposals for fundamental changes to the regulation of financial markets and for tax reform.  One early indicator of possible tax reform to come is the “Stop Tax Haven Abuse Act” (the “Tax Haven Bill”), introduced on March 2, 2009 by Senator Levin, along with Senators Whitehouse, McCaskill, and Nelson.  The Tax Haven Bill, if enacted in its current form, would, among other things, change the taxation of certain offshore corporations managed and controlled in the U.S. and would expand the application of U.S. dividend withholding taxes to certain dividend equivalent and substitute dividend payments under notional principal contracts, securities lending transactions, and stock sale-repurchase transactions.

This Stroock Special Bulletin discusses significant tax provisions of the Tax Haven Bill, including the implications of those provisions for investment funds and investors in those funds.