Overseas action fuels US tax fears

The corporate community is increasingly sounding the warning to Congress: Europe is coming after us on taxes.

With tax reform talks stumbling in Washington, the fear for corporate titans is that other countries are already implementing a global set of recommendations meant to crack down on offshore tax avoidance.

{mosads}Lobbyists and corporate advocates who have been pushing to overhaul the U.S. tax code for years insist that could pave the way for the worst possible outcome: multinational companies being forced to fork over more in taxes, but the U.S. not getting the revenue.

As former House Ways and Means Committee Chairman Dave Camp (R-Mich.) put it last week, “ the bottom line is that change is coming — if not here at home, then it is certainly coming from overseas.”

Camp was referencing the Base Erosion and Profit Shifting (BEPS) project, which grew out of what’s been a concern for officials in both parties and governments around the world — multinational corporations like Google and Amazon paying relatively low tax rates through the use of sophisticated legal strategies.

Organizers of the BEPS project say those strategies — like stashing intellectual property in countries with lower tax rates, or shifting earnings between parent companies and subsidiaries located elsewhere — have only become more of an issue as the world economy becomes more digitally driven.

“The concern is that a lot of these companies have been very successful in shifting income to tax havens, to put it bluntly,” said Eric Toder of the Urban-Brookings Tax Policy Center.

The rise in the use of tax avoidance techniques comes at a time when governments across the globe are in need of revenue to fill budget shortfalls, and as the world economy is struggling to recover from the fiscal crisis.

Corporate lobbyists have described the BEPS project as perhaps the most fundamental change in international taxation in a couple of generations. And business advocates say that foreign governments’ interest in U.S. companies’ incomes, and the spate of offshore tax deals known as inversions, should give Washington all the incentive it needs to redouble its efforts on tax reform.

“We’re talking about real money here for a lot of these multinational corporations,” said Mayer Brown’s Warren Payne, a former senior aide to Camp at Ways and Means.

The BEPS project, run by the Paris-based Organization for Economic Cooperation and Development, has largely flown under the radar on Capitol Hill. Camp and Sen. Orrin Hatch (R-Utah), now chairman of the Senate Finance Committee, were raising concerns about the initiative as early as last year, but even some tax writers have had only the most basic understanding of the initiative.

Corporate advocates are hoping to change that.

The OECD, a group of almost three-dozen mostly European economies, is expected to finish a 15-point action plan by the end of the year. The U.S. is a member of both the Group of 20 countries, which helped launch the project, and the OECD.

Tax analysts believe the U.S. is unlikely to implement the BEPS recommendations, and that it could take years for other countries to accept them. But given that the OECD has already rolled out details of how it wants to combat tax avoidance, the business community fears that European competitors and other countries could implement some of those initiatives and raise taxes on U.S. multinationals.

Sen. Rob Portman (R-Ohio) said there were good reasons for those fears, pointing to Great Britain’s battle with Starbucks over taxes as he made the case that plenty of foreign governments want to wring more taxes out of U.S. companies.

“It’s an incentive for us to go ahead and reform,” Portman told The Hill.

The Ohio Republican added that he sympathizes with the business community’s concerns that BEPS has morphed away from its original intent to crack down on tax avoidance. 

“It’s increasingly become, ‘Gosh, there’s all this revenue. How do we access it?’ ” Portman said of foreign governments’ current thinking.

Portman has led a Senate Finance Committee working group on international tax issues with Sen. Charles Schumer (D-N.Y.), and said that the BEPS project helped shape the panel’s discussion over issues like patent boxes — a proposal that would lower the tax rate on income that stems from intellectual property.

Still, corporate heavyweights like the Business Roundtable question how much tax reform could combat foreign governments’ interest in U.S. multinationals.

The Treasury Department has said that it’s interested in writing rules that target multinationals that have funneled income toward tax havens. But in a statement, the department also suggested that it is willing to battle other governments to get its fair share of taxes on those profits.

“It is perhaps understandable that other countries may wish to tax more of this income than they currently do,” a Treasury spokeswoman said in a statement. “We have been clear that income should be taxed in the jurisdiction where a taxpayer has assets and risks and performs valuable functions, which is often the U.S.”

Tags Charles Schumer Orrin Hatch Rob Portman
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