The House Ways and Means Committee plans to hold a hearing next Thursday on the use of tax havens by multinational corporations to shift their profits.
The hearing will examine U.S. and foreign multinational corporations’ use of tax havens in low- and no-tax jurisdictions to avoid tax and shift profits outside the U.S. and erode the U.S. tax base, as part of the committee’s continued work on comprehensive tax reform.
“The use of tax havens as part of corporate tax avoidance strategies narrows the U.S. tax base and requires other taxpayers to pay higher rates on both domestic and overseas income,” said Ways and Means Committee chairman Dave Camp, R-Mich., in a statement. “There is widespread agreement amongst academics, economists and lawmakers that these practices are both unfair to taxpayers who aren’t able to engage in these strategies and harmful to the U.S. economy. The committee’s discussion draft on international tax reform included options to combat base erosion as part of a larger effort to broaden the tax base, lower tax rates and move towards a more modernized and competitive system of international taxation. As the committee works to design tax reform policies that make our broken Tax Code simpler, fairer and more conducive to creating jobs and increasing wages, understanding the impact of these practices will result in more informed policymaking.”
The committee noted that recent press attention has focused on a number of sophisticated tax planning strategies used by worldwide corporate groups to shift taxable income out of the U.S. and other relatively high-tax jurisdictions, and into low- or no-tax jurisdictions. The strategies include transactions such as migrating highly mobile assets (such as intangible property) to tax havens, financing exempt foreign income with deductible U.S. costs, and reincorporating in a low- or no-tax jurisdiction. In many cases, these transactions shift profits outside of the United States, thus eroding the U.S. tax base and costing the Treasury large sums of tax revenue. In other cases, these strategies merely shift profits from a high-tax foreign jurisdiction to a low-tax foreign jurisdiction, thus having little or no net impact on U.S. tax revenues.
The Organization for Economic Cooperation and Development, an international organization of 34 developed countries, recently has undertaken a project on Base Erosion and Profit Shifting out of a concern that current transfer pricing rules used by member states allow for the allocation of taxable income to locations different from those where the actual business activity takes place (see OECD Calls for Curbs on Tax Avoidance by Multinationals).
On May 29, 2013, at the meeting of the OECD Council at Ministerial Level, the ministers and representatives of national governments in attendance issued a “Declaration on Base Erosion and Profit Shifting.” The signatories declared that BEPS “constitutes a serious risk to tax revenues, tax sovereignty and the trust in the integrity of tax systems of all countries that may have a negative impact on investment, services and competition, and thus on growth and employment globally.”
They also welcomed the recently released OECD BEPS report and the OECD’s intent to provide a Comprehensive Action Plan to combat BEPS to the G20 finance ministers in July 2013.
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