Neal Introduces Bill to Close Dividends Tax Loophole

Mar 23, 2007
Press Release

WASHINGTON, D.C. – Ways and Means Select Revenue Subcommittee Chairman Richard Neal filed legislation today to amend the Internal Revenue Code to ensure that dividends from certain foreign corporations are not eligible for the lower rate of tax on dividends.

In introducing the bill today, Neal said:

“The changes in the bill I am filing today will carry out the original intent of Congress and the President in attempting to limit double taxation.  It has come to my attention that in certain circumstances, double taxation does not exist because there is no tax on the foreign company.  It only makes sense, then, that these dividends should not enjoy the lower preferential rate.”

Chairman Neal’s bill amends title 1 of the Internal Revenue Code to disallow the preferential dividend rate for payments from foreign entities not subject to tax in the foreign country, for payments that are deductible in the foreign country, or for payments with respect to an instrument not treated as stock in the foreign country.  The Neal bill fixes the current limitation on the preferential dividend rate for payments from passive foreign investment companies.  And the Neal bill provides that dividends from companies based in tax havens will also not enjoy the preferential lower dividend rate.

“Some banks have advertised this hybrid instrument loophole to clients, bragging that it is tax deductible in the foreign country and tax-preferenced in the U.S., thereby creating a competitive advantage in raising capital over U.S. companies.  We should not allow such games to be played at the expense of our treasury and American businesses,”