The technical rules that were once solely the province of tax wonks in D.C. and Paris are being brought out into the public sphere.
Simplifying international tax rules will not solve all the challenges that stand in the way of healthy cross-border investment, but eliminating unnecessary provisions would be a positive pivot relative to the trajectory of recent years. It’s high time that policymakers stopped pursuing ever more complex rules and started the hard work of simplification.
The agreement represents a major change for tax competition, and many countries will be rethinking their tax policies for multinationals in light of it. However, with both the U.S. and EU hitting roadblocks in their respective legislative processes, it is unclear when or even if the agreement will be implemented. If implementation fails, a return to a world of distortive European digital services taxes and retaliatory American tariffs could be on the horizon.
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Testimony: EU Parliament Subcommittee on Tax Matters Hearing on the Impact of National Tax Reforms on the EU Economy
Tax Foundation testimony on the diversity of tax systems within the EU, three important ways to consider reforms by Member States, and several recommendations for the EU Parliament’s Subcommittee on Tax Matters to consider.
In general, the effective tax rates on the foreign profits of U.S. multinationals are not that low relative to the U.S. tax rate, contrary to popular rhetoric.
Over the course of the last year, it has become clear that Democratic lawmakers want to change U.S. international tax rules. However, as proposals have surfaced in recent weeks, there are clear divides among various proposals.
As Congress prepares to rewrite some portion of the current international tax rules, it’s hoped that they are able to achieve a more principled approach and one that is not so subject to obfuscation and misinterpretation.
Tax Foundation Response to Ireland Department of Finance Consultation Document: Consultation on OECD International Tax Proposals
The recent effort to change international tax rules has been one of significant contradictions. The proposals have been driven by arguments about the need to raise additional revenues, to stabilize corporate tax rates, or to prevent offshoring. However, upon closer examination, these three arguments fail to capture what is occurring.
While arcane, expense allocation rules are relevant to current debates because they result in a heavier tax burden for U.S. companies under current law than the recently negotiated global minimum tax proposal.
This interaction between the U.S. proposals and those that may be put into law in foreign jurisdictions should give lawmakers caution when evaluating the revenue potential of changes to GILTI.
The United Nations (UN) recently released its annual “World Investment Report,” which shows the dramatic fall in global foreign direct investment (FDI) caused by the COVID-19 crisis.
There has been some confusion about how some parts of the recent G7 agreement on new tax rules for multinational companies might work. The new policies would target the largest and most profitable multinationals and bring in a global minimum tax.
If the U.S. is suggesting a 15 percent effective rate as the minimum acceptable rate for a global agreement, then the tax bases of the various minimum taxes adopted as part of the agreement should be aligned to minimize complexities and unintended consequences.