There is a report in the FT this morning that President Obama is to impose a levy on the estimated $2 trillion offshore cash pile of US corporations. He aims to raise £$200 billion to finance investment in failing US infrastructure.
I do of course welcome attacks on offshore tax abuse.
But I worry about this move as much as I do about the UK's supposed Diverted Profits Tax. I am wholly in favour of taxing profits once somewhere at least in the world, and to allow a combination of both source and residence based tax systems that allow a state with claim on a source of income to tax it at whatever rate it feels appropriate, having allowed for taxes already paid elsewhere. But I am worried about double taxation. I do not think that approximates to tax justice any more than non-taxation does.
A proliferation of one off and arbitrary tax charges imposed to beat multinational corporation tax abuse could well result in double taxation and that helps no one at the end of the day.
If these moves by Osborne and Obama are negotiating chips put on the table to force reluctant multinational corporations to come to the table at the OECD in Paris and agree to the BEPS process, then all well and good, if that works.
If the move is instead the beginning of a drift towards the breakdown in the international consensus on tax then I worry: that is potentially seriously harmful.
I think it is time for multinational corporations to smell the coffee. They have to pay tax now at least once , or face the consequences.
But I would also suggest it is time for governments to appreciate that they too face risk right now. It is their duty to cooperate on tax or they risk creating harm.
There is a way to cooperate: it is through the creation of unitary taxation. Despite all its rhetoric it is clear that the OECD is creeping in this direction now because it has to: it is the only logical way to solve the problems of offshore taxation and the conflict that inevitably arises when states dispute taxation.
I seriously suggest some espresso is served to a lot of tax attorneys this morning and they come to terms with the fact that the days of abuse are numbered, and that they will now pay a very heavy price for holding out against tax reforms.
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Whilst not knowing much about US tax, I wonder how many of the structures adopted by US groups would still be in place if the check-the-box rules were abolished. It may not solve all of the problems but may be easier to enact than a one-off tax whose opponents stop listening at “new tax”. I agree that credit ought to be given for tax paid in the other country although ideally real tax paid not something that the other country refunds or some odd “tax contribution” in a tax group with a third party.
I tend to agree
Mmmm Unitary Taxation!
And just how do you expect, for example, the G20/OECD countries to simply smell the coffee and quickly decide on the formula to be adopted to make this a reality? We are not even sure they will agree on BEPS outcomes.
Then we could complicate this even further by inviting all countries to contribute to the debate and how exactly profits will be apportioned globally – as has been suggested. When do you think that will result in consensus? 2020?
2020 would be good
As long as big business controls politicians through disproportionate lobbying and campaign donations all we will see is token reform. Just enough to appease the masses while not enough to upset the financial masters of our bought and sold politicians. Until lobbying reform is passed so that the electorate regain their voice and political funding is reformed so that politicians are no longer in the pocket of big business we will see now real fundamental change, particularly while the press and media are owned by the same business interests. It’s a nice pipe dream but it’ll never happen.
I don’t believe there is any double tax from the proposal. All of those foreign earnings would have been subject to US tax at the full 35 percent corporate rate when they were repatriated as a dividend to US shareholders, minus a credit for foreign taxes paid. The proposal forces a repatriation at a lower tax rate and also allows a pro-rated foreign tax credit for any foreign tax paid — so no double tax, just payment of US tax lots sooner than the companies would have wanted but at a lower tax rate (and most would never have repatriated).