Presentation on theme: "Progressive Revenue Options: International Tax Reforms September 13, 2011."— Presentation transcript:
Progressive Revenue Options: International Tax Reforms September 13, 2011
Contents Losing Revenue Due to Tax Haven Abuse –Quick primer: Where we are today, What is Tax Haven Abuse –Key ways corporations and individuals avoid and evade tax –What is at stake – by the numbers Solutions Key Supporters and Key Opposition Legislative Progress Report Resources
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Where we are today A hybrid of worldwide and territorial principles. In part the system is based on a residence principle, applying U.S. taxes on a worldwide basis to U.S. firms while granting foreign tax credits, to alleviate double taxation. It also permits U.S. firms to defer the tax on profits earned by foreign subsidiaries until dividends are paid to the U.S. parent. BloombergBloomberg : "The current U.S. international tax system is the best of all worlds for U.S. multinationals," said David S. Miller, a partner at Cadwalader, Wickersham & Taft LLP in New York. That's because the companies can defer federal income taxes by shifting profits into low-tax jurisdictions abroad, and then use foreign tax credits to shelter those earnings from U.S. tax when they repatriate them, he said.
How does it work? It’s legal. Doesn’t mean it’s right – but it’s legal. Indefinitely deferring profits offshore – and getting deductions for offshore business expenses Transfer mis-pricing: when two related companies trade with each other, they may wish to artificially distort the price at which the trade is recorded, to minimize the overall tax bill. This might, for example, help it record as much of its profit as possible in a tax haven with low or zero taxes. Incorporating in a no- or low-tax jurisdiction. Example: Transocean
Phony arguments about the high corporate tax rate Source: Washington Post 30%: Corporate share of the nation’s tax receipts in the mid 1950s 6.6%: Corporate share of the nation’s tax receipts in 2009 CRS Reports: Estimates for a rate cut from 35% to 25% suggest a modest positive effect on wages and output: an eventual one-time increase of less than two-tenths of 1% of output.
More by the Numbers $100 billion: The amount that the Senate Permanent Subcommittee on Investigations estimated in 2008 that the U.S. lost in tax revenue due to offshore tax abuse every year $1 trillion: the amount of unrepatriated foreign profits sitting offshore $810 billion: The average outflow of illicit money from developing countries per year between as estimated by Global Financial Integrity 18,857: The number of registered businesses at one address in the Cayman Islands 217,000: The number of companies housed at 1209 Orange Street in Wilmington, Delaware 759: Number of offshore subsidiaries in tax havens for Citigroup, Bank of America, and Morgan Stanley combined 83: number of the 100 largest U.S. companies that use offshore tax havens - including the big banks taxpayers bailed out in 2008
Using and Abusing the Tax Code What is a tax haven? The Government Accountability Office (GAO) describes tax havens as places with no or nominal taxes and little if any reporting requirements. Why are tax havens harmful? –Bleeding massive amounts of revenue due to secrecy in the system and the inability of government’s to collect taxes from the corporations and individuals that benefit from calling the U.S. home. –Anonymous corporations and bank secrecy both here in the U.S. and abroad make it easy for criminals, terrorists and world leaders to hide their money and hard for law enforcement to do their jobs. –Affects interests across the political spectrum – from fiscal responsibility to human rights; from job security to national security. The resource drain leads to unnecessary cuts to programs and priorities.
Not just the Cayman Islands… 64%: Publicly traded U.S. parent companies incorporated in Delaware 51%: Publicly traded U.S. subsidiaries incorporated in Delaware %: Next highest percentage of subsidiaries incorporated in any other state 2009 – U.S. ranked 1 st on Financial Secrecy Index – likely near top again this year… Result: States are robbing one another of much needed revenue; corporate secrecy enabling crime in their communities
Requiring ownership information of all business entities, trusts, foundations and charities – information that indicates who actually controls these entities – be made available to law enforcement and the public; Requiring country-by-country reporting by multi-national corporations of the sales made, profits earned and taxes paid in every jurisdiction where an entity operates; Strengthening, standardizing and enforcing anti-money laundering laws; and Eliminating loopholes in our tax system to make sure that the corporations that benefit from all of the resources, protections and markets in the United States pay their fair share of taxes. How can we fix it?
Additional Proposals likely to be discussed during Super Committee - the good, the bad and the worst GOOD: Adopt a worldwide system of taxation Corporations are taxed regardless of where they earn profits, but still receive credits for taxes paid to other countries so as not to be double taxed End deferral: The current hybrid system (the “deferral” system) gives American corporations an incentive to move operations and jobs offshore. BAD: Move to a territorial system: Territorial Tax System is a tax system in which only the income earned in the country where the individual is living is taxed. In other words, if a person is living in France, only the income earned by him / her within France will be taxed under the Territorial Tax System. If this person has a great deal of business in say Belgium, the income he / she earns from the business ventures in Belgium will not be taxed. A territorial tax system “encourages investment to flow to any countries that have lower tax rates rather than creating an even playing field. Reduced investment in the U.S. would result in fewer jobs and lower wages (Congressional Research Service). Some proposals would try to tighten transfer pricing or profit shifting – but no one has been able to truly enforce the rules that already exist.business ventures WORST: A temporary or “one-time” tax holiday. See next slide!
Repatriation: Don’t be fooled again Corporate leaders to anticipate that Congress will provide such measures again in the future. This encourages corporations to shift even more profits and operations to other countries with the expectation that they will be able to bring those profits back to the U.S. at a super-low tax rate the next time Congress provides such an amnesty. Corporations have already figured out how to bring back money and pay trivial tax rates. –Merck, Pfizer, Qualcomm – all made acquisitions with foreign earnings here in the U.S. Did not create jobs as promised. Latest aggregate data shows that MNCs added 2.4 million overseas between 2000 and 2009, while pushing lawmakers to cut their tax bills in the name of job creation in the United States. Money went to shareholders and stock buy-backs: National Bureau of Economic Research, found that for every dollar of repatriated cash, companies bumped up shareholder payouts between 60 and 92 cents. Just 15 firms got more than 50 percent of the benefits. To pay for giving this large tax cut once again to a small group of U.S. companies without increasing the deficit, we would have to raise taxes on other U.S. businesses. Bloomberg: COMPANIES RATIONALLY CONCLUDED THAT IF THEY WERE GRANTED ONE SPECIAL ONE-TIME TAX BREAK, THEY MIGHT VERY WELL BE GRANTED ANOTHER. THAT GAVE THEM THE INCENTIVE TO ATTRIBUTE EVEN MORE OF THEIR PROFITS TO FOREIGN OPERATIONS, LIKE A SHOPPER WAITING FOR AN END-OF-SEASON SALE. BY THE END OF 2006 THE TOTAL “PERMANENTLY” REINVESTED ABROAD HAD EXCEEDED THE 2004 PEAK. IT HAS CONTINUED TO GROW SINCE.
Legislative Progress Report Law or LegislationStatusKey Provisions Foreign Account Tax Compliance Act (FATCA) Signed into law as part of the HIRE Act, effective 2013 Added new reporting requirements for foreign financial institutions and penalties to discourage individuals, companies and banks from hiding money in offshore tax havens. The law imposes a 30 percent tax on foreign financial institutions that fail to meet disclosure requirements on their American clients’ accounts Economic Substance Doctrine Signed into law as part of healthcare reform bill The purpose of the Economic Substance Doctrine is to ensure that transactions are not executed purely to manipulate tax exposure but have some other economic purpose. The law places the burden of proof on tax lawyers and not regulators to demonstrate that a tax strategy is legal. It is projected to produce revenues of $4.5 billion over a decade. Repatriation Holiday Bill introducedThe bill would cut the tax rate for companies bringing foreign subsidiary earnings back to the U.S. from the current rate of 35% to 5%. Could be attached to anything – including super committee findings. Administration did not include it in American Jobs Act. Stop Tax Haven Abuse Act Introduced by Sen. Carl Levin Comprehensive legislation to address individual and corporate tax haven abuse. Click here for more information on previous bill details. This bill will address what was left out of the FATCA law.Click here Incorporation Transparency Introduced by Sens. Carl Levin and Charles Grassley Legislation that would require corporations to identify the individual who benefits from the corporation’s existence, which will assist the U.S. in addressing its role as a tax haven.
Fighting the Fight – Solidarity: The Financial Accountability and Corporate Transparency Campaign Americans for Democratic Action AFL-CIO American Federation of State, County and Municipal Employees (AFSCME) American Sustainable Business Council Business and Investors Against Tax Haven Abuse Business for Shared Prosperity California/Venezuela Region - Religious Sisters of Charity Campaign for America’s Future Citizens for Tax Justice EarthRights International Firedoglake Global Financial Integrity Global Witness Government Accountability Project Institute for Policy Studies –Program on Inequality and the Common Good JPIC Ministry - Missionary Oblates Jubilee USA Network Leadership Conference of Women Religious The Main Street Alliance New Rules for Global Finance OMB Watch OpenTheGovernment.org Pacific Environment Project On Government Oversight (POGO) Public Citizen The South Carolina Small Business Chamber of Commerce U.S. Public Interest Research Group U.S. Uncut SEIU Wealth for the Common Good
Key Opposition Chamber of Commerce (National) Business Roundtable National Association of Manufacturers Banks, Pharma, Tech – name it Over 80% of top 100 publicly traded companies “PACE” Coalition – front for both onshore and offshore tax haven abusers CATO institute, American Enterprise Institute
Conduct outreach to targeted constituencies including Attorneys General, state and local chapters of the Fraternal Orders of Police, small businesses, prominent economists, and civil rights and religious organizations Conduct and apply strategic targeting by legislative team –Meet with lawmakers, provide issue briefs, analysis, reports and pressure: Begin with Senate Finance Chair, House Financial Services Chair, Homeland Security, Banking, Appropriations - Committee members; International Tax Counsel for U.S. Treasury; Administration’s Common Purpose meeting –Continue with focus on bipartisan support – targeting Republicans –During August, while policy makers are back in their districts, hold in-district briefings in targeted states to share information and educate members –Focus on Super Committee Develop tactics, engage and support grassroots across the country: U.S. PIRG, Jubilee USA, U.S. Action, U.S. UNCUT –Rallies, press conferences, post-carding, report releases –Provide information and educational materials to these groups Roll-out of tactics through continuous communication –Editorial board outreach, national blogs, Facebook events, Twitter, Op-Eds, Letter to the Editor, Congressional testimony, press statements on events/court cases/legislation, policy briefings, online campaign/ outreach Campaign Planning and Execution
Other Proposals to Raise Revenue and/or close loopholes Taxing capital gains as income Financial Transaction Tax Eliminate Oil and Gas Subsidies Eliminate Some Agriculture Subsidies Stop appropriating through the tax code – revisit tax expenditures and put them through a process Stop subsidizing corporations to do what they’d do anyway
Bottom line: This is just about reforming a system that is broken, archaic and completely in favor of businesses and individuals who don’t need it, some are not asking for it, and all could benefit from it. Should be supported across spectrum. The system can be more simple. It can be more fair. It can raise much-needed revenue. It can benefit the markets, businesses, banks and most importantly taxpayers. Shouldn’t be considered as a left or right leaning prospect. Just the right thing.
Resources Tax Justice NetworkTax Justice Network – International Secretariat CASHBACK Treasure Islands Citizens for Tax Justice Global Financial Integrity Task Force on Financial Integrity & Economic Development