Corporate Close-Up: Oregon Expands List of Tax Haven Jurisdictions

Corporations moving income and resources to connected entities in jurisdictions with lighter tax burdens has been a hot button issue recently. With recent publicity regarding corporate inversions, states are looking to keep income from larger connected entities taxable.

As noted in the annual Bloomberg BNA Survey of State Tax Departments, some states have taken approaches that force corporate entities doing business in state defined tax havens to be included in combined returns. These rules generally apply in cases of mandatory combined reporting in states that use water’s edge reporting.

While Oregon does not provide for combined reporting for corporate income tax, the state provides for consolidated tax returns. Any corporation that is part of a unitary group or that files a separate return and is incorporated in any of the tax havens listed in Oregon will be added to the federal consolidated taxable income of the unitary group.

Oregon has enacted Senate Bill 61, signed by the governor on July 21, which adds new jurisdictions to the list of tax havens. The list now includes Bonaire, Curacao, Guatemala, Saba, Saint Eustatius, Saint Maarten, and Trinidad and Tobago, while removing Monaco and the Netherlands Antilles. The changes are effective for tax years beginning after Dec. 31, 2015. Entities that are part of a unitary group that are incorporated in these jurisdictions will now be required to be part of the Oregon unitary group for purposes of consolidated returns.

The new law provides a list of five criteria considered by the Oregon Department of Revenue when designating a jurisdiction as a tax haven:

  1. The jurisdiction has laws or practices preventing effective exchange of information for tax purposes with other governments;
  2. The jurisdiction has a tax regime that lacks transparency;
  3. The jurisdiction facilitates the establishment of foreign-owned entities without the need for substantive presence or prohibits these entities form having any commercial impact on the local economy;
  4. The jurisdiction explicitly or implicitly excludes the jurisdiction’s resident taxpayers from taking advantage of the system’s benefits or prohibits enterprises that benefit from the regime from operating in the jurisdiction’s domestic market; or
  5. The jurisdiction has created a tax regime that is favorable for tax avoidance.

Taxable income or loss for any corporation operating in one of these tax havens must be added to the federal consolidated taxable income of the unitary group filing a consolidated Oregon return. As the offshore operations of corporate entities continues to be a topic of political discussion, Oregon has expanded its list of tax havens and will hope to derive more revenue from corporations it sees as engaging in tax avoidance.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should states expand their approach to enforcement against tax avoidance through tax havens?

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