Treasury moves to close offshore loophole

The Treasury Department circulated new proposed regulations on Wednesday that seeks to end a tax loophole on dividends that helps offshore hedge funds.

Currently, foreign hedge funds and other non-U.S. investors can enter into contracts where they trade a dividend for what’s called a dividend equivalent.

Those agreements allow them to avoid U.S. taxation – generally 30 percent – on the dividend itself. Under Treasury’s new regulations, which would implement a 2010 law, the dividend equivalent would be taxed as if it were an actual dividend.

A Treasury spokesman said the regulations would “eliminate the incentive for non-U.S. persons to use financial products like swap transactions, forwards and futures to escape U.S. tax obligations.”