On March 2, Senators Levin, Whitehouse, McCaskill and Nelson introduced the Stop Tax Haven Abuse Act bill, an earlier version of which was introduced by Senator Levin, then Senator Obama and others in February 2007. If enacted in the form proposed, the bill would treat offshore corporations with $50 million of gross assets that are primarily managed within the United States, including hedge funds and private equity funds, as domestic corporations for income tax purposes.  

Other provisions in the bill that would directly affect certain hedge funds and private equity funds include (i) a proposal to treat “dividend equivalents” and “substitute dividends” as dividends for purposes of the 30% tax imposed on U.S.-sourced dividends received by non-U.S. persons; (ii) a proposal to require each person that is a shareholder of, forms, transfers assets to, has a beneficial interest in, or receives property from, a passive foreign investment company to file a report with the Internal Revenue Service; and (iii) a proposal (substantially similar to the proposal contained in the Hedge Fund Transparency Act bill introduced by Senators Levin and Grassley on January 29) to make certain anti-money laundering requirements applicable to hedge funds and private equity funds relying on the exemptions provided by sections 3(c)(1) and 3(c)(7) of the Investment Company Act of 1940.