Many U.S.–based multinational corporations are holding profits abroad for tax avoidance purposes. A recent study found that 57 of Fortune 500 companies would have paid $184.4 billion in U.S. taxes collectively if their profits were not filed offshore.1 For example, Apple has booked $181.1 billion offshore and would have owed $59.2 billion if they were not held offshore.2 Other companies like GE has $110 billion overseas, and Microsoft holds $82.1 billion overseas.3
As a response to such trend, the Obama administration proposed one time transition toll charge of 14 percent on more than $2 trillion in corporate earnings held overseas.4 This one-time tax was proposed to address the loophole that is taken advantage of domestic businesses to offshore their profits. The U.S. Treasury estimated $280 billion increase in tax revenue from the taxation of overseas profits, and has earmarked the future tax revenue for highways and infrastructure.5 The Obama administration also proposed 19 percent tax rate on future overseas earnings.6 If these tax plans are successfully implemented, many companies will have to pay millions of dollars of tax. However, liberal and conservative experts predict that the tax proposal is unlikely to be passed in Congress.7
Even in the international setting, tax aversion has been a concern among the G20 countries, which prompted OECD to propose new recommendations, called “Base Erosion and Profit Shifting” (BEPS), as a new framework for multinational taxation and to end double non-taxation.8
U.S. Republicans and business lobbyists are concerned that BEPS plan encourages a way for other countries take advantage of the plan at the expense of American companies.9 Some hold the view that international corporate tax system should be replaced with one that allocates profits according to real factors like location of employees or sales, but BEPS is based on a system relying on paper transactions between different subsidiaries of the same company.10 Businesses are also concerned that BEPS requires companies to provide detailed reports on business operations, which would be accessible by tax administration around the world.11 This would put high burden on companies to disclose sensitive information. It is unlikely for the U.S. Congress to enact BEPS recommendations and to fully revamp the tax code.12 Although the Treasury Department has the discretion to implement BEPS recommendations, it is not clear whether such changes will be implemented as legislation in the near future.
The Center for Tax Justice and U.S. Public Interest Research Group Education Fund, Offshore Shell Games 2015: The Use of Offshore Tax Havens by Fortune 500 Companies. (2015), http://ctj.org/pdf/offshoreshell2015.pdf. ↩
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Alanna Petroff, Offshore corporate cash piles at risk from Obama tax plan, CNN Money (Feb. 2, 2015), http://money.cnn.com/2015/02/02/news/companies/obama-tax-offshore-profits-apple. ↩
U.S. Treasury Fact Sheet: Administration’s FY2016 Budget Tax Proposals (2015), http://www.treasury.gov/press-center/press-releases/Pages/jl9754.aspx. ↩
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Alanna Petroff, Offshore corporate cash piles at risk from Obama tax plan, CNN Money (Feb. 2, 2015), http://money.cnn.com/2015/02/02/news/companies/obama-tax-offshore-profits-apple. ↩
New rules, same old paradigm: A plan to curb multinationals’ tax avoidance is an opportunity missed (Oct. 10, 2015), http://www.economist.com/news/business/21672207-plan-curb-multinationals-tax-avoidance-opportunity-missed-new-rules-same-old. ↩
Bernie Becker, U.S. firms pan international tax proposal (Oct. 16, 2015), http://thehill.com/policy/finance/domestic-taxes/256006-us-firms-pan-international-tax-proposal. ↩
Google to Apple Could See Tax Loopholes Curbed in OECD Proposal (Oct. 5, 2015), http://www.newsmax.com/Finance/Companies/tax-loopholes-oecd-evasion/2015/10/05/id/694728/. ↩
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