|US corporate tax in recent years has fallen to just 2% of GDP.
The chairman of the US Senate Finance Committee on Tuesday unveiled an
international tax reform "staff discussion draft," which provides for a foreign
minimum tax that could be 20% or more. Low or no tax jurisdictions such as
Ireland would be hit by such a measure.
The proposal from Senator Max Baucus - - the first in a series of discussion
drafts to overhaul America’s tax code - - details ideas on how to reform
international tax rules to spark economic growth, create jobs, and make US
businesses more competitive. Additional tax reform discussion drafts will be
released later this week.
Senator Baucus said he believes tax reform should motivate businesses to bring jobs and
money back to the U.S. The discussion draft outlines proposals to:
Make the US more attractive and competitive for multinationals to invest
and create jobs;
Reduce incentives for US companies to move jobs or the entire company
End the trapped cash problem, allowing foreign profits to be invested in
Make it harder for multinationals to shift profits to tax havens, which
reduce our ability to invest in U.S. infrastructure, education, and other
The US headline corporate rate of 35% is the highest in the developed world
but firms with significant international business such as tech and
pharmaceutical companies, generally pay a much lower rate.
Apple's tax rate on foreign profits is about 2% while in 2012, Google's was just
US firms' overseas profits are generally not liable for payment of US tax until
they are repatriated and companies currently have retained about $2tn offshore. However,
some of the overseas cash may in reality be in the US or invested in for example
The Baucus plan would levy a temporary corporate tax on offshore money at
a rate of up to 20% payable over 8 years, which would raise more than $200bn in tax revenues.
The draft is also designed to improve competitiveness by moving the US closer to
a "territorial" system where foreign profits are only taxed once.
The senator did not specify a new headline rate but
he said it should be under 30%.
says that if the rate was set at 28%, for example, the minimum tax would be set
"That rate would apply to a company’s earnings in
each jurisdiction, so that companies operating in high-tax areas would owe no
incremental US tax on their foreign earnings. A company operating in Ireland, by
contrast, would effectively have to pay the US the difference between the Irish
tax rate of 12.5% and 22.4%."
A second option would set a lower minimum tax
rate, 60% of the US rate, while narrowing the definition of income eligible to
only income from active business operations. Other income would be taxed at the
full US rate immediately.
The recent rise in US companies moving head
offices to Ireland and the Netherlands would also be targeted.
Documents issued by Senator Baucus
US company profits per Irish employee at $970,000; Tax paid in
Ireland at $25,000
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