United States

District of Columbia: Recently Signed Budget Support Act Adopts List of Tax Haven Jurisdictions

Aug 31, 2015
From KPMG TaxWatch

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The District of Columbia Fiscal Year 2016 Budget Support Act of 2015 was signed by the Mayor Bowser on August 11, 2015. The Act will now be transmitted to Congress for a mandatory 30-day review period before becoming law. Only days when Congress is in session are counted in determining the 30-day period; thus the exact date on which the Act will become law is difficult to predict. One provision of the Act, the Combined Reporting Clarification Amendment Act of 2015, makes changes to the District’s combined reporting provisions, which became effective for tax years after December 31, 2010. Under District of Columbia law, the water’s-edge combined group includes the entire income and apportionment factors of any member doing business in a “tax haven.” Originally, the District defined “tax haven” as a jurisdiction that, for the tax year in question, had no effective tax, or a nominal tax on the relevant income and; had laws and practices that prevented the exchange of tax information with other governments; lacked transparency; facilitated establishment of foreign entities without a local presence or impact on local economy; excluded local residents from taking advantage of the tax regime’s benefits; or that had created a tax regime which is favorable for tax avoidance.  However, there were no specific tax haven jurisdictions identified by statute.

Under the new 2016 Budget Support Act, the definition of tax haven is expanded to also include a specific list of 39 countries that are considered tax havens—at least by the District of Columbia for purposes of determining the combined group. These jurisdictions include: Andorra, Anguilla, Antigua and Barbuda, Aruba, The Bahamas, Bahrain, Barbados, Belize, Bermuda, The British Virgin Islands, The Cayman Islands, The Cook Islands, Cyprus, Dominica, Gibraltar, Grenada, Guernsey-Sark-Alderney, The Isle of Man, Jersey, Liberia, Liechtenstein, Luxembourg, Malta, The Marshall Islands, Mauritius, Monaco, Montserrat, Nauru, the Islands formerly constituting the Netherlands Antilles , Niue, Samoa, San Marino, Seychelles, St Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, The Turks and Caicos Islands, the U.S. Virgin Islands and Vanuatu. As such, all the income and apportionment factors of entities operating in these jurisdictions are to be included in the D.C. water’s edge combined group. The D.C. Council is to review the tax haven list biennially or as needed, and the District Chief Financial Officer is to submit revisions to the Council for consideration as the CFO considers necessary. The Act does not specifically address when the changes are effective and labels the law change as a “clarification.” Please contact Leighanne Scott at 703-286- 8251 with questions on the District’s new tax haven list.

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.