Dave Camp, the Republican chairman, said: "Whether a country has a hybrid system similar to the current US worldwide system or a dividend exemption system like that of our major trading partners, it is important to develop strong base erosion rules that protect against aggressive transfer pricing, anti-migration of intangible property overseas and foreign earnings stripping.
And let me just say that it is important to remember that the most effective anti-base erosion rule is a lower corporate tax rate. But unfortunately, while a lower rate is necessary, the rate alone is not sufficient."
Pascal Saint-Amans, director, Centre for Tax Policy and Administration, Organisation for Economic Co-operation and Development (OECD), who is currently responsible for preparing proposals on corporate tax avoidance for a July meeting of the G-20 leading developed and emerging economies, told the hearing that a "key element is to better align taxation and the substance of taxpayers’ value creating activities."
He also highlighted the importance of transparency: "This includes the provision of better information by taxpayers to tax administrations and more effective cooperation among tax administrations. For example, many countries, including the United States, have rules that require disclosure of certain types of aggressive transactions, and work is expected to develop recommendations regarding the design of such rules."
One proposal before the Committee is for income from intangible assets such as patents and trademarks earned by US companies overseas, would be subject to an immediate 15% tax rate compared with the standard 35% rate, which can be deferred by keeping profits abroad.
Companies would also get an immediate deduction for taxes paid. "Companies would feel less pressure to shift income to low-tax jurisdictions because that income would be taxed at the same rate - whether it is earned in the United States or Bermuda," Camp also said on Thursday.
Edward Kleinbard, a professor of law at the University of Southern California's Gould School of Law and former chief of staff of the US Congress’s nonpartisan Joint Committee on Taxation, however said it would be extremely difficult to estimate the profits from intangible assets. He referred to the Senate’s Permanent Subcommittee on Investigations (PSI) May case study of Apple’s stateless income generation strategies.
He proposed a 25% tax on worldwide income and mandating that companies reveal where their income is earned and the tax rates they paid around the world. That would help solve the problem of 'stateless' income, which came up at the PSI hearing last month on Apple Inc.'s tax planning.
More Finfacts articles on corporate taxes
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