International Tax Reform Highlighted at Bloomberg BNA Tax Reform Outlook 2015

February 3, 2015

One key takeaway from today’s Bloomberg BNA Tax Reform Outlook 2015 conference is that odds for reform of the U.S. tax code may be less favorable after President Obama released his 2016 budget. While comprehensive tax reform—including both individuals and businesses—might not be feasible in the near future, the president’s proposal for international tax reform will not help drive the political process forward with respect to overall business tax reform.

Among major themes that emerged during the conference, the president’s international tax reform proposal, for which details were released on February 2, was perhaps the most intensely discussed item. Panelists almost unequivocally agreed upon that the proposed 14 percent repatriation tax is too high and hurts the competitiveness of U.S multinational companies (MNCs). Because foreign earnings of U.S. MNCs often are reinvested abroad, one panelist noted that such a tax would de facto create a liquidity problem for businesses with foreign operations as, “[U.S. MNC’s] can’t take a factory and bring it back on a boat [as a tax payment].” This may be retroactive tax policy at its worst, reducing predictability and stability and the tax code’s conduciveness to economic growth.

Moreover, some panelists commented on the 19 percent minimum tax on future earnings of U.S. MNCs as being high. However, one expert set forth that, from the viewpoint that this debate might not reach its crescendo until in a few years, this could be seen as a way to frame future discussions and provide a starting point for negotiations.

International tax reform discussions also centered on transitioning to a territorial system. A lion’s share of panelists at the event agreed that a territorial system is critical to promote global competitiveness of the U.S. economy. Though, a panelist pointed out that businesses have already used a large degree of “self-help” to “organically” create their own territorial system, citing corporate inversions and other techniques as vehicles to achieve this objective.

In addition to the tax treatment of foreign income of U.S. MNCs, there were a handful other major themes at the Tax Reform Outlook 2015 conference. The negative implications of tax-arbitrage and increasingly tax-induced behavior—should business but not individual tax reform be enacted—was an important element of the discourse; the pre-requisite of detail and transparency in the proposal and decision-making process of tax reform, for an agreement to transpire, was another; and, despite skeptics, a majority of panel participants advocated for the usefulness of dynamic scoring as an informative tool for policymakers. Additionally, panelists unanimously agreed upon the notion that setting a deadline to reach a tax reform decision would be helpful, if not necessary, for the legislative process to move forward.


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