The Obama Administration issued new rules to prevent corporate inversions earlier this month, but this action addressed just one symptom of our ailing system of international taxation.  The underlying disease, however, remains untreated.  This in turn endangers the U.S. tax base and job creation, as Europeans and others around the world target the tax revenues of some of America’s most innovative companies.
 
Policymakers – from Capitol Hill to the White House – still have a window of opportunity to act in 2016 to reform our system of international taxation through the creation of a so-called “innovation box,” but time is running short due to the truncated legislative calendar of the election year.
 

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Europe is executing a concerted public, legal, and policy campaign to target American companies and direct more tax revenue into their coffers.  

European authorities see the $2 trillion of overseas earnings locked out of the U.S., and they are going after it.  Relying on principles established over American objections, OECD members are enacting laws and regulations to grab more taxes from American businesses operating around the world.  As the OECD’s Secretary General made clear in February of this year, a number of countries have already adopted legislative changes to implement BEPS measures.
 
One of the most aggressive countries is the United Kingdom.  The UK has approved a tax hike which allows the government to charge a 25 percent tax – a five percent surcharge above the standard U.K. corporate rate – on earnings that it believes have been inadequately taxed.  Australia and other countries are considering similar measures.
 
Furthermore, as if to prove the point, the European Commission just last week called on 6,000 companies, including those based in America, to reveal confidential information about the taxes they pay to each of the European Union’s 28 member countries.
 
The net result of this campaign: an increase in taxation on American companies operating outside the United States.  The impact is significant: every dollar an American company pays in foreign taxes results in a dollar credit against its U.S. taxes.  This means that our tax base could shrink dramatically as Europe’s grows. 

Many of these same countries are also putting in place financial incentives to attract investment and job creation.  Numerous countries – including China, the UK, Belgium France, the Netherlands, and others – are seeking to encourage investment in research-and-development facilities and advanced manufacturing operations through tax incentives for intellectual property, commonly referred to as a patent or innovation box.

These actions abroad should provide new urgency for legislative action here at home.  If we fail to act, American companies that operate in Europe and around the globe will continue to be targeted, with irreparable harm to the U.S. tax base and our overall economy.  Worse, these troubling trends could force jobs that would be otherwise created in the United States to be located overseas.
 
That’s why we urge our leaders in Congress on both sides of the aisle to find meaningful and lasting solutions to our broken corporate tax system.
 
Here’s one additional irony.  If Congress doesn’t act, it actually makes passing comprehensive tax reform more difficult.  Why?  Because the tax revenues that Europe is targeting are a significant part of the tax revenues that we absolutely need to fund U.S. tax reform.
 
So what should be done?
 
To protect our tax base and to encourage job creation here at home, the United States needs to adopt an updated international tax framework, coupled with a well-designed innovation box and balanced base erosion rules as soon as possible.
 
This will provide the incentives and protections needed to make the United States an attractive place to invest, innovate, and grow jobs.  If we don’t, we will embolden countries around the world to continue to target the proceeds of innovative American companies.  This cannot be allowed to happen. 
 
Many have argued that international tax reform cannot be separated from broader reforms to revise our domestic tax regime and lower the corporate tax rate.  These important changes are also necessary, but if they cannot be achieved quickly then Washington must act to counter the potentially devastating impact on the U.S. tax base inflicted by foreign treasuries, foreign acquisitions, and inversions.
 


Moore is President and CEO of TechNet, the national, bipartisan network of technology CEOs and senior executives.