|American companies reported earning 43% of overseas profits in Bermuda, Ireland, Luxembourg, the Netherlands, and Switzerland in 2008, while hiring 4% of their foreign workforce and making 7% of their foreign investments in those economies. In comparison, the traditional economies of Australia, Canada, Germany, Mexico and the United Kingdom accounted for 14% of American MNCs overseas’ profits, but 40% of foreign hired labor and 34% of foreign investment. The discrepancy between where profits are reported and where hiring and investment occurs, as examples of business activity, has increased over time. Source: Congressional Research Service (see report links below)|
Corporate Tax 2014: In the coming two weeks, the White House and Congress are
expected to publish reform proposals to address pervasive US corporate tax
avoidance, that likely also includes evasion.
The Wall Street Journal
citing administration officials, that new proposals to tackle corporate tax
avoidance will be included as part of the White House budget package for the
fiscal year 2015, to be released March 4.
Meanwhile in Congress, Dave Camp, chairman of the tax-writing House Ways and
Means Committee, told Republican colleagues in an e-mail this week that he
will release a draft of his tax reform plan next week, saying that “the American people are fed up” with lawmakers’ inaction
and “Washington needs to wake up…and start debating real policies and offering
concrete solutions to strengthen the economy and help hardworking taxpayers.”
The Journal says that the new White House proposals would, among other
things, tighten rules for digital transactions that some companies design to
limit the taxes they pay on certain income. It would also address a move by some
companies that load up on debt in their US operation—generating large
deductions—and then use that capital to shift profits overseas.
The changes would also make it more difficult for companies to arbitrage
different tax rules in certain countries, where one country might treat a hybrid
instrument as debt while another country treats the same instrument as equity.
Also on Thursday, the administration announced a number of technical adjustments
to the 2010 law aimed at combating offshore tax dodging by US citizens. The law,
known as the Foreign Account Tax Compliance Act (FATCA), requires information
reporting to the US by foreign financial institutions and foreign governments.
emerged as a global standard as
countries seek information on their own citizens’ offshore money and the US has
signed agreements with 22 countries while discussions are ongoing with many
Representative Dave Camp
has said in the past that his goal was to cut top individual and corporate
federal tax rates to 25%, but to meet that goal, while aiming to have reforms that are revenue neutral, popular tax allowances/
preferences would have to be targeted.
The Michigan Republican favours a territorial
corporate tax system where overseas profits would not be subject to US tax but
as a territorial tax could increase the scope for profit shifting, anti-abuse
rules would have to be tightened to prevent the greater use of low-tax or no-tax
“We … know that many in Washington are scared by
the prospects of tax reform; they don’t want to look special interests in the
eye and say the game is up. Well, it is. We simply cannot afford the
business-as-usual mentality that keeps Washington comfortable, but complacent,”
Camp wrote in
an email sent on Wednesday.
Meanwhile in Paris, work on the OECD/G20 Base
Erosion and Profit Shifting (BEPS) Project continues, with the first outputs
expected for September 2014 and the completion of the project by the end of
This is an election year in the US and little
progress is expected on tax reform. So 2015 is the year that the biggest
overhaul of the tax system since 1986, could happen.
On Thursday we reported on a proposal from
Robert Pozen, a businessman turned academic, for "a
global competitiveness tax of roughly 17% on all foreign profits of US
corporations. The tax could not be deferred."
Pozen argues that most foreign profits currently
escape US tax and the proposed foreign profits tax would help to lower the
federal rate to 30% while avoiding the likely fruitless effort to abolish
popular tax allowances/ preferences.
Havens: International Tax Avoidance and Evasion [pdf]
Analysis of Where American Companies Report Profits: Indications of Profit
Selection of Finfacts tax reports 2013/14:
Irish Corporate Tax 2014: How official spin and distortion works - in short-term
Corporate Tax 2014: US proposal of 17% rate for
Corporate Tax 2014: Obama running with the hare and hunting with the hounds
US company profits per Irish
employee at $970,000; Tax paid in Ireland at $25,000
Corporate Tax 2014: Yahoo! joins “Double Irish Dutch Sandwich” club; IDA Ireland
wants more members
Corporate Tax: Kenny reassures Facebook but
Ireland's rate is too high
Foreign government requests Bermuda to investigate Microsoft's Irish-linked
G-20 Australian presidency focuses on tax
"leaking bucket"; Ireland still in denial?
Corporate tax reform and the
biggest tech tax havens
Ireland's new International
Tax Charter: More political kabuki
Ireland's tax man for Silicon
Corporate Tax 2014: UK's revenues plunge; France considers reform
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