US pushback on BEPS

Here is an interesting, though perhaps unsurprising, statement from US Congressman Dave Camp (R) and US Senator Orrin Hatch (R) on the OECD’s BEPS project.

In addition to the aggressive actions by some foreign countries to levy more taxes on U.S. taxpayers before a consensus has been reached, the process established by the OECD raises serious questions about the ability of the United States to fully participate in the negotiations.

Ultimately, we believe that the best way for the United States to address the potential problem of BEPS is to enact comprehensive tax reforms that lower the corporate rate to a more internationally competitive level and modernize the badly outdated and uncompetitive U.S. international tax structure.

Last week, Feargal O’Rourke of pwc had a piece in The Irish Times on Ireland’s reputation and possible opportunities in the post-BEPS environment.

The ideal scenario for Ireland post the OECD BEPS process and US tax reform is that tax havens would be out of business, countries would not be able to give preferential rulings to taxpayers and there would be a focus on aligning profits with substance. In such circumstances, Ireland, with a low rate, a transparent tax system and comprehensive double-tax treaty network will provide a very competitive tax environment for companies who are willing to put activities in Ireland.

Comments

comments

14 thoughts on “US pushback on BEPS”

  1. Those 2 bucks are GOP and what they said is pure GOP. The US is still running
    a big deficit.

  2. “Such reforms would put American companies on a more level playing field with their foreign competitors and reduce the pressure on American companies to engage in elaborate tax planning that, while legal, is also needlessly complex and economically inefficient, to deal with the tax advantages their competitors have over them”

    I think that is quite illuminating. As usual a Congressman has the most balanced and rounded view – Apple’s tax arrangement, the double Dutch, non-tax-resident Irish companies simply serve to match the tax rates paid by its foreign competitors…

  3. Dave Camp isn’t standing for reelection next November but it would hardly be a shock that the statement from him and Senator Hatch is designed to raise funds from tech and big pharma firms (with foreign revenues half or more of annual revenues).

    As tech firms in liberal California have been traditionally donors to the Democrats, why not siphon off some funds from there?

    The fear of raiding the US Treasury is a joke when US firms can indefinitely postpone payment of taxes on foreign profits.

    Feargal O’Rourke of PwC doesn’t need a weather vane to determine the direction of the prevailing winds and after eighteen months of floundering, the Irish Government has done a U-turn and has signalled that it is ready to prepare for the reality of reform.

    Ireland in U-turn on corporate tax avoidance; Accepts reality of reform

    The doubters are of course surprised by the progress both in tackling international personal tax evasion and corporate tax avoidance/ evasion.

    About 77,000 foreign and US banks and financial institutions, including some in Russia, have registered with the United States to comply with a new law meant to fight tax dodging by Americans, the US Treasury Department said on Monday.

    The Foreign Account Tax Compliance Act (FATCA), which will take effect on July 1, will require foreign banks, investment funds and other institutions to tell the US government about Americans’ accounts that are worth more than $50,000.

    This month it was announced that 47 countries had agreed to an Organisation for Economic Co-operation and Development (OECD) framework that commits them to “swiftly” pass new domestic laws that will allow them to collect information on all bank accounts and automatically exchange it with other participating countries.

    The signatories include the significant financial centres of Singapore and Switzerland (and besides Switzerland, the other 33 members of the OECD) – – for Switzerland, this is the biggest change since breaking banking secrecy was made a criminal offence in 1934 after a police raid on the Paris branch of  Basler Handelsbank, which was caught ‘in flagrante’ facilitating tax evasion by members of French high (or maybe low) society, among them two bishops, several generals, and the owners of Le Figaro and Le Matin newspapers.

    Camp and Hatch want lower rates but they will not get a revenue neutral situation without closing loopholes but the various ‘tax expenditures’ as they are called, have constituencies with different interests.

    The 18 other member countries of the G20 and in particular the governments of the big European countries are not going to be rolled over by these two politicians.

    In the EU from next January a new Vat regime will come into effect for intra-trade with the relevant rate being the one at destination – hitting companies such as Amazon and Skype, which ‘operate’ from Luxembourg where the VAT rate is 15%.

  4. @ unfeasiblycharming

    I think that is quite illuminating. As usual a Congressman has the most balanced and rounded view – Apple’s tax arrangement, the double Dutch, non-tax-resident Irish companies simply serve to match the tax rates paid by its foreign competitors…

    Any examples?

    The FT said in 2013 that Apple would have paid a tax rate of about 15% in respect of fiscal year ending Sept 2002, far below the 25.2% it reported, had it not used a form of reserve accounting that sets it apart from other big US technology companies. Samsung’s effective rates in March 2013 was 20.5%.

    Thanks to its Irish companies, Apple’s foreign tax rate was 2% and about 60% of its revenues were ex-US – in its biggest markets in Europe for example, headline rates are at least 20%.

    GE has had an effective rate of 2.3% average in the 10 years to 2011. Siemens, its global rival has had a rate of in the low 20s and early 30s in recent years.

    http://thinkprogress.org/economy/2012/02/27/433250/general-electric-tax-rate-decade/

    Citizens for Tax Justice looked at 288 profitable Fortune 500 companies and said that 26 of them – including Boeing Co, General Electric and Verizon Communications Inc – paid no ‘federal income tax’ in the five-year period 2008-2012.

    The group also said that 111 of the 288 companies paid no federal income tax in at least one of the five years measured.

  5. Hello Michael, you seem to be suggesting some members of the US Congress might, very occasionally, misrepresent facts a trifle? Surely not!

  6. @ MH

    One point that needs consideration is that no valid comparisons can be drawn between the debate/negotiations on personal versus corporation tax. There is a sufficient common interest to achieve some measure of international agreement on the first – especially given the rather idiosyncratic attitude of the US to taxation of the personal income of US citizens – but not with regard to the second.

  7. Well, the US politically has moved in in support of the BIGG Corporates on their, so far, successful attempt to raid the resources of Ukraine …..

    …. The Military/Industrial complex in the US is THRILLED ….. and the propaganda war blaming Russia is in overdrive …. little wonder Jay Carney could not stomach much more of it …. the NYT and NYRB are publishing drivel these days ….

    As for corporate tax ‘reform’ in the US – the corporates basically OWN Congress ….. hence, Congress acts in the interests of the corporates ….

    … O’Rourke, as O’Rourkes do, acts in his own, and PWCs, interests …. ‘The Mammy’, of course, is the past master of the O’Rourkes

    Michael Hennigan gets it ….

    Wonder why the Corporates in Hibernia are not subject to USC? Or why Hibernian corporates pay one of the lowest rates of employee social insurance in the EU? Answers on the back of a postage stamp pls …

  8. & locally, the ODCE has been under-resourced for years. WHY?

    White-collar crime will flourish so long as our corporate enforcer’s hands remain tied

    This lesson seems to have been entirely forgotten in the current debate about the investigation and prosecution of white-collar and regulatory offences. Perhaps because policing of this sort is an expense not to be countenanced in the current climate.

    Public anger at the failure to investigate and prosecute such offences is well-founded. However, the assumption that things must now have changed and a different attitude prevails is not only wide of the mark, it is plain wrong. If anything it is probably easier to get away with white-collar crime right now then it ever has been in the history of the State.

    In March, the Director of Corporate Enforcement, Ian Drennan, published his annual report, in which he noted that his office had only been given the resources to employ two accountants for the purposes of the many criminal investigations that his office was mandated to undertake. Worse still, one of the accountants had recently retired and a replacement was still awaited. The fact that only one accountant is available to the Office of the Director of Corporate Enforcement (ODCE) for the purpose of such investigations is of itself a national scandal that would be an embarrassment even in a banana republic.

    He went on to say that he would need at least another five accountants to “be capable of operating credibly”. The message was loud and clear – at present the ODCE is not capable of operating credibly. It’s not even within a country mile of it. He also noted that a great deal of his office’s budget had been sucked into the “resource-intensive” Anglo prosecution. In other words, the much greater part of the hard enforcement function of the ODCE is focused on past rather than present events.

    http://www.independent.ie/opinion/analysis/whitecollar-crime-will-flourish-so-long-as-our-corporate-enforcers-hands-remain-tied-30323525.html

    @all

    Anyone got a link to that ‘Lite-Touch Regulation’ report chaired by Michael McDowell in 2003? It hasn’t gone away u know – neither has ordoliberal Mick.

  9. @ DOCM

    One point that needs consideration is that no valid comparisons can be drawn between the debate/negotiations on personal versus corporation tax.

    It’s not a fluke that there has been progress on both issues in terms of political commitment, because of the financial crisis.

    Both issues are also tied with increased concerns about inequality.

    A minister of the conservative government of Australia, current head of the G-20, said last month:

    “BEPS…raises broader concerns for the sustainability of the Australian tax system.

    If taxpayers (including individuals) think that multinational corporations can structure their affairs to take advantage of differences in countries’ tax laws it could undermine voluntary compliance by all taxpayers — upon which modern tax administration depends.”

  10. @ MH/ Seamus Coffey

    There are three almost entirely separate issues under discussion;

    (i) personal taxation (notably driven by the US internal revenue insisting on taxing the income of US citizens irrespective of where it is earned)

    (http://www.ustaxfs.com/compliance/?gclid=CjgKEAjw8MqcBRCsv5Kf8NCUwlgSJADL4ihhASzUo-IR_xfZKjQyfSe-HIqHjM6TjN0RCQfonvJ9sPD_BwE

    (ii) corporation tax (where the US adopts an entirely different policy)

    and

    (iii) the competition powers under the treaties of the European Commission (the initiative in this instance being taken by the departing commissioner; from Spain; but necessarily with the majority approval of the college of Commissioners).

    The institutional framework is the decisive element. The US domestic arrangements are driving (i), the EU treaties (iii). The OECD, which could not crack an egg institutionally, is in charge of (ii).

    As to (iii), the burden of proof lies with the Commission based on the fundamental non-discrimination rules governing competition policy. If Ireland has no rules that are discriminatory between EU firms, it is home and dried. Should the Commission find against it, the findings can be challenged before the ECJ (and there are many instances of the court finding against the Commission).

    All the above being said, there is a definite tide flowing against “tax erosion”. Who will be lift stranded remains to be seen. The Dutch are not pushovers in this context.

  11. @ MH/Seamus Coffey

    The reference to the OECD is, of course, to its role in relation to BEPS.

    This Wikipedia link on US income tax should work.

    http://en.wikipedia.org/wiki/Taxation_in_the_United_States

    “The United States is one of two countries in the world that taxes its nonresident citizens on worldwide income, in the same manner and rates as residents; the other is Eritrea.The Court upheld the constitutionality of the payment of such tax in the case of Cook v. Tait, 265 U.S. 47 (1924).”

Comments are closed.