Trends in FDI Before and After the Tax Cuts and Jobs Act July 6, 2022 Overall, the data shows outbound FDI shifted from low-tax to other jurisdictions, while inbound FDI remained largely unchanged.
How FDI Adds Value to Supply Chains June 29, 2022 Although the dispersion of our supply chains throughout the world has been scrutinized in recent years, both inbound and outbound foreign direct investment are critical to sustaining supply chain resiliency and reducing economic risks for both firms and investors.
An International Tax Agenda for Congress on the Anniversary of the Global Tax Deal June 30, 2022 Congress should prioritize evaluation of recent international tax trends and the model rules and adjust U.S. rules in a way that supports investment and innovation and moves towards simplicity.
4 Things to Know About the Global Tax Debate June 16, 2022 The Biden administration has been supportive of the negotiations, but the changes should be reviewed in the context of recent policy changes in the U.S. and elsewhere, the general landscape of business taxation in the U.S., and potential challenges and risks arising from the global tax deal.
Why FDI Matters for U.S. Employment, Wages, and Productivity June 15, 2022 Contrary to the Biden administration’s claims, raising taxes on cross-border investment would hurt U.S. economic growth and jobs. Research shows that FDI creates jobs in the U.S. and raises workers’ wages and productivity.
Time for an Updated Impact Assessment of the Global Tax Deal May 19, 2022 Treasury Secretary Janet Yellen offered estimates from the EU Tax Observatory as evidence that the Polish government would benefit from supporting the global tax deal. Unfortunately, evidence was, at best, out of date.
A Regulatory Tax Hike on U.S. Multinationals March 3, 2022 While much of the policy focus has been on proposals embedded in the Build Back Better agenda, a meaningful tax hike for multinational companies has already been adopted.
The Global Minimum Tax Changes the Game for Build Back Better Revenue March 1, 2022 One goal for the Build Back Better Act has been to increase the amount of revenue the U.S. raises from U.S. companies at home or abroad. With the global minimum tax rules in play, it is likely that the expected gains to the U.S. Treasury from foreign profits of U.S. companies will diminish.
Rushing Headlong into Formulary Apportionment February 28, 2022 Complex tax policies that work well “in theory” can often have a hard time when the rubber meets the road. One instance of this is the challenge that the OECD has created for itself with the global tax deal, also fondly known as Pillar 1 and Pillar 2.
Case Study: Global Tax Deal February 15, 2022 The Global Tax Deal is a significant shift in international tax rules. The OECD’s plan aims to reduce incentives for tax planning and avoidance by U.S. and foreign multinational companies by limiting tax competition and changing where companies pay taxes.
U.S. Tax Incentives Could be Caught in the Global Minimum Tax Crossfire January 28, 2022 The current prospect for the global minimum tax requires the attention of U.S. lawmakers. Otherwise, a tax benefit at home will just mean a tax increase abroad.
Gift or Lump of Coal: U.S. Cross-border Tax Changes Won’t Be Home for Christmas December 20, 2021 As 2021 comes to a close, countries are moving toward harmonizing tax rules for multinationals, but stalled talks on the Build Back Better Act in the United States means new uncertainties for a global agreement and for taxpayers.
What Do Global Minimum Tax Rules Mean for Corporate Tax Policies? December 20, 2021 The new OECD global minimum tax rules are complex, and some countries may opt to put them in place on top of preexisting rules for taxing multinational companies. However, countries should also consider ways to reform their existing rules in response to the minimum tax.
What’s Next for Tax Competition? November 8, 2022 The rules of tax competition are changing with the recent agreement on a global minimum tax and other changes to tax rules around the world, but that does not mean the contest is over.
How Would the Ways and Means Proposal Affect Profit Shifting? October 7, 2021 If Congress wants to reduce profit shifting, the proposal from the Ways and Means Committee is not an effective tool for this.
Which Industries Would the Tax Hikes Target? October 5, 2021 Using Tax Foundation’s Multinational Tax Model, we estimate the effective tax rates on controlled foreign corporation (CFC) profits under current law and under each of the proposed plans for business tax hikes.
How Heavily Taxed Are U.S. Multinationals? September 29, 2021 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.
U.S. Corporate Income Faces Third-Highest Integrated Tax Rate in OECD Under Ways and Means Plan September 27, 2021 Under the House Ways and Means tax plan, the United States would tax corporate income at the third-highest integrated tax rate among rich nations, averaging 56.6 percent.
Choose Your Own Adventure: Global Minimum Tax Edition September 27, 2021 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.
How Would House Dems’ Tax Plan Change Competitiveness of U.S. Tax Code? October 26, 2021 The legislation put forward by Democratic members of the House of Representatives would reverse many of the 2017 reforms while increasing burdens on businesses and workers.
Treasury Minimum Tax Argument Relies on Narrow Interpretation of Current/Proposed Rules September 8, 2021 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 September 8, 2021 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.
Tax Foundation Comments on the Wyden, Warner, Brown Discussion Draft September 7, 2021 The proposed restructuring of the GILTI and FDII regimes makes several changes to the tax base that are largely offsetting, leaving virtually all the revenue potential to be determined by the tax rates on GILTI and FDII and the haircuts on foreign tax credits. Lawmakers should carefully weigh the trade-offs between higher tax revenues and competitiveness.
GILTI of Neglecting Losses September 1, 2021 As lawmakers are reviewing international tax rules and determining what to change and update, they should pay attention to the way GILTI interacts with profitable and loss-making companies.
Expense Allocation: A Hidden Tax on Domestic Activities and Foreign Profits August 26, 2021 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.
International Tax Proposals and Profit Shifting August 24, 2021 There are many ways the U.S.’s international tax rules could be changed, reformed, improved, or worsened. Reflexively jacking up taxes on U.S. multinationals does not necessarily accomplish the goal of reducing or eliminating profit shifting, and it would in fact worsen it.
Adoption of Global Minimum Tax Could Raise U.S. Revenue…or Not August 19, 2021 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.
Four Revenue Scores on Options to Change U.S. International Tax Rules August 17, 2021 Changes to international tax rules are likely on the way, and it is therefore important for lawmakers to understand how various reform options would impact U.S. tax burdens on multinational companies. Moreover, policymakers should also recognize the need for prudent policies that do not put U.S.-based multinationals at a competitive disadvantage or severely curtail investment and hiring.
Will FDII Stay or Will it Go? August 10, 2021 While the Biden administration has certainly proposed to remove FDII, it is not clear that Congress is on board with that approach.
Options for Reforming the Taxation of U.S. Multinationals August 12, 2021 The Biden administration’s international tax proposals would impose a 7.7 percent surtax on the foreign profits of U.S. multinationals, resulting in a net increase in profit shifting out of the U.S.
Survey Shows Growing Tax Complexity for Multinationals July 26, 2021 New data clearly points to an increase in tax complexity for multinationals in the OECD as well as globally. The OECD’s ongoing efforts to reform the international tax system will likely further add complexity to the international tax environment.
Intellectual Property Came Back to U.S. after Tax Reform, but Proposals Could Change That July 21, 2021 Intellectual property is a key driver in the current economy. Among other things, intellectual property includes patents for life-saving drugs and vaccines and software that runs applications on phones and computers.
Piling on the GILTI Verdicts July 15, 2021 The Biden administration has proposed to significantly increase the tax burden on foreign income through a policy known as Global Intangible Low-Tax Income (GILTI). While the administration’s rhetoric focuses on doubling the tax rate on GILTI from 10.5 percent to 21 percent, this is less than half the story.
Insights from the UN World Investment Report for Global Tax Reform July 8, 2021 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.
Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries July 7, 2021 From a policy perspective it is appropriate to combat base erosion and profit shifting, but policymakers need to keep in mind the need for simplicity to avoid increasing the compliance burden on taxpayers and administrative burdens on tax authorities.
The Latest on the Global Tax Agreement: The EU Adopts Pillar Two December 15, 2022 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.
Which Global Minimum Tax Will We Get? April 8, 2022 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 been debated in recent months, there are clear divides between U.S. proposals and the global minimum tax rules.
What We Know: Reviewing the Academic Literature on Profit Shifting June 22, 2021 Lawmakers around the world are considering substantial changes to international tax rules to address tax avoidance. Many changes have already been made in recent years, with early economic evidence indicating that they may not only address tax avoidance but also impact business hiring and investment decisions.
Net Operating Loss Policies in the OECD June 23, 2021 During the COVID-19 pandemic, several OECD countries temporarily expanded their NOL carrybacks and carryforwards to provide relief to illiquid but otherwise solvent businesses. These policies should be made permanent and, where necessary, expanded.
New Research Shows Major Changes for U.S. Companies Earning Profits from Ireland June 16, 2021 New data show that the recent policy changes that have been implemented by the U.S., Ireland, and dozens of other countries are having an impact. The question for policymakers is whether they will take the time to understand these impacts before jumping to the next project to change international tax rules yet again.
Carve-ins and Carve-outs: Open Questions for Global Tax Reform June 11, 2021 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.
A Global Minimum Tax and Cross-Border Investment: Risks & Solutions June 17, 2021 Leaders around the world are quickly moving to finalize an agreement on a global minimum tax in 2021, based on the so-called “Pillar Two” proposal from the OECD.
Two Important Issues that Must Be Resolved in “Global Tax Reform” May 25, 2021 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.
Biden Administration Changes to GILTI and FDII Will Yield Automatic State Tax Increases May 25, 2021 State taxation of GILTI is unconventional and economically uncompetitive and will become even more so if the federal government adopts a more aggressive approach to taxing GILTI, as outlined in the American Jobs Plan Act.
GILTI by Country Is Not as Simple as it Seems May 18, 2021 If policymakers want a recipe to dramatically expand the complexity of U.S. international tax rules and the burden on U.S. multinational businesses, then a tax on foreign earnings calculated at the country level would be the way to do it. Alternatively, policymakers could focus on mitigating the unintended consequences of GILTI and other recent international tax rules.
Recent Analysis Explores Pillar 1 Risks and the Potential for Disputes May 10, 2021 As countries move closer to agreement on how the OECD Pillar 1 Amount A will work and which companies will be impacted by it, it is incredibly important for policymakers to continue to evaluate not just the intended effects but also the potential unintended consequences.
Tax Policy in the First 100 Days of the Biden Administration April 30, 2021 In his first 100 days as president, Joe Biden has proposed more than a dozen significant changes to the U.S. tax code that would raise upwards of $3 trillion in revenue and reduce incentives to invest, save, and work in the United States.
Effects of Proposed International Tax Changes on U.S. Multinationals April 28, 2021 The international corporate tax changes in President Biden’s tax plan would increase tax rates on domestic income more than on foreign income, resulting in a net increase in profit shifting out of the US, according to our Multinational Tax Model.
Treasury’s Latest Pillar 1 Proposal: A Strategy to Split the Riches or Give Away the Store? April 14, 2021 New international tax rules on super-profits would disproportionately impact U.S. companies however they are designed. The question that Treasury should answer is why limit the policy in such a way that magnifies that disproportionate application and the risk to the U.S. tax base.
Biden’s Tax Plan Would Restore U.S. Exceptionalism—But Not in a Good Way April 9, 2021 No other country has tried to enforce some of the policies that the Biden administration is proposing. Embarking on such uncharted course would set the U.S. apart from global tax policy norms and best practices and could harm American competitiveness.
The Balancing Act of GILTI and FDII April 7, 2021 The tax treatment of intangible assets has come into the spotlight recently with the Biden administration proposing to undo a policy adopted in 2017 to encourage intellectual property (IP) to be located in the U.S.
TCJA Is Not GILTI of Offshoring March 18, 2021 Many members of Congress have taken issue with the 2017 tax reform. However, the reasoning that has led some to believe that GILTI provides a path to offshoring investment and jobs is flawed.
How GILTI Are U.S. Industries? March 16, 2021 Both the Biden campaign and some Democratic members of Congress have recommended changes to GILTI, but before doing that, policymakers should consider how GILTI’s design can have ramifications for many U.S. companies and their tax burdens.
Can GILTI and the GloBE be Harmonized in a Biden Administration? March 4, 2021 While there are several parts of the policy that are subject to further discussion and agreement, GloBE is expected to be different from GILTI in several ways.
Evaluating Proposals to Increase the Corporate Tax Rate and Levy a Minimum Tax on Corporate Book Income February 24, 2021 President Biden and congressional policymakers have proposed several changes to the corporate income tax, including raising the rate from 21 percent to 28 percent and imposing a 15 percent minimum tax on the book income of large corporations, to raise revenue for new spending programs. Our new modeling analyzes the economic, revenue, and distributional impact of these proposals.
U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI February 17, 2021 The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.
Personnel Is Policy: Biden International Tax Team Edition February 4, 2021 This week, the Treasury Department added several new appointees as staffing continues following President Biden’s inauguration. Among them were three scholars of international tax policy: economist Kimberly Clausing and law professors Rebecca Kysar and Itai Grinberg. These three will be influential in developing the administration’s approach to changing U.S. tax rules for multinational corporations and negotiating international tax policy changes at the Organisation for Economic Co-operation and Development (OECD).
The European Commission and the Taxation of the Digital Economy February 4, 2021 The consultation on the EU’s digital levy provides an opportunity for policymakers and taxpayers to reflect on the underlying issues of digital taxation and potential consequences from a digital levy. Unless the EU digital levy is designed with an OECD agreement in mind, it is likely to cause more uncertainty in cross-border tax policy.
Day 2 of OECD Consultation on International Tax Reform Blueprints January 15, 2021 The OECD consultation is in the context of the Inclusive Framework on Base Erosion and Profit Shifting which is made up of delegates from more than 135 countries and is focused on policies that reduce opportunities for tax avoidance by multinational companies. The current proposals being considered would change both where and how much companies pay in corporate taxes.
Day 1 of OECD Consultation on International Tax Reform Blueprints January 14, 2021 The first session was focused on Pillar 1 of the OECD proposal. The pieces in Pillar 1 would change tax rules so that companies would be paying more taxes in countries based on the location of customers. This approach would move more tax revenues into so-called “market countries.”
Tax Foundation Response to OECD Public Consultation Document: Reports on the Pillar One and Pillar Two Blueprints December 14, 2020 The Tax Foundation response to the OECD public consultation document on the reports on the OECD Pillar 1 and OECD Pillar 2 blueprints.
Corporate Tax Rates around the World, 2020 December 9, 2020 Corporate tax rates have been declining in every region around the world over the past four decades as countries have recognized their negative impact on business investment. Our new report explores the latest corporate tax trends and compares corporate tax rates by country.
Potential Regulatory Changes in Tax Policy Under the Biden Administration November 24, 2020 President Biden may make greater use of regulatory changes to modify how tax law is interpreted and administered. There are several areas where a Biden Treasury Department, likely led by former Federal Reserve Chair Janet Yellen, may focus.
The UN Approach on Digital Taxation October 22, 2020 The UN tax committee will be considering a change to the UN’s model tax treaty that, if adopted and implemented, could result in digital companies paying more taxes in countries where their customers are located even if those companies do not have physical locations there.
Two Roads Diverge in the OECD’s Impact Assessment October 20, 2020 The difference that the OECD presents between the potential impact in the context of agreement compared to a harmful tax and trade war should show policymakers the value of continuing multilateral discussions.
Pillars, Blueprints, an Impact Assessment, and Construction Delays October 13, 2020 The OECD released blueprints for proposals on changing international tax rules alongside an impact assessment based on the overall design of the proposals. While the blueprints cover proposals both for changing where large multinationals owe corporate tax and designing a global minimum tax, there are still many unanswered questions. In the meantime, other digital tax proposals are moving forward and have the potential to result in a harmful tax and trade war.
Designing a Global Minimum Tax with Full Expensing September 23, 2020 The design and implementation of a global minimum tax is not simple and straightforward. There are dozens of challenging issues that policymakers will need to consider. So, when it comes to the way the minimum tax treats new investment, it seems clear that incorporating full expensing into the design would have significant benefits.
CFC Rules in Europe August 20, 2020 To prevent businesses from minimizing their tax liability by taking advantage of cross-country differences in taxation, countries have implemented various anti-tax avoidance measures, one known as Controlled Foreign Corporation (CFC) rules.
Where Should the Money Come From? August 12, 2020 The fiscal response to the COVID-19 pandemic will require policymakers to consider what revenue resources should be used to fill budget gaps. Tax policy experts have proposed wealth taxes, (global) corporate minimum taxes, excess profits taxes, and digital taxes as opportunities for governments to raise new revenues.
Tax Foundation Comments on the Initiation of Section 301 Investigations of Digital Services Taxes July 9, 2020 Digital services taxes effectively ring-fence the digital economy by limiting the tax to certain revenue streams of digital businesses, discriminating in favor of more traditional sectors of the economy.
Decades in Corporate Taxation July 8, 2020 Corporate taxation has evolved significantly, with rates coming down significantly over the last several decades. Countries have redesigned their tax bases by changing the treatment of losses, interest, and capital costs. A recent OECD report highlights the general stabilization of corporate tax revenues and statutory rates alongside major changes to address profit-shifting opportunities.
Digital Tax Deadlock: Where Do We Go from Here? July 1, 2020 We recently hosted an exclusive webinar discussion to get up to speed on recent digital tax developments and gain insight from leading international tax experts on the OECD's BEPS project.
Watch: Taxing the Digital Economy June 3, 2020 What changed in the global economy that disrupted traditional means of taxation? Is it worth finding a way to include tax digital goods and services in the tax base? Why are digital services taxes so problematic? Are there better options—ways to adapt our current system without introducing complex and economically harmful policies?
Digital Taxation Around the World May 27, 2020 The digitalization of the economy has been a key focus of tax debates in recent years. Our new report reviews digital tax policies around the world with a focus on OECD countries, explores the various flaws and benefits associated with the wide set of proposals, and provides recommendations for lawmakers to consider.
Digital Services Taxes: Do They Comply with International Tax, Trade, and EU Law? May 26, 2020 A digital services tax like the one implemented by France likely violates both the General Agreement on Trade in Services and a model U.S. free trade agreement. However, it is uncertain whether meaningful relief could be obtained under either regime.
Chaos to the Left of Me. Chaos to the Right of me. May 5, 2020 The OECD recently announced that the negotiation timeline for new digital tax proposals has now been pushed back to October due to the COVID-19 pandemic, although the end-of-year deadline for the overall project is still in place.
Details and Analysis of President Joe Biden’s Campaign Tax Plan October 22, 2020 What has President Joe Biden proposed in terms of tax policy changes? Our experts provide the details and analyze the potential economic, revenue, and distributional impacts.
Tax Policy After Coronavirus: Clearing a Path to Economic Recovery April 22, 2020 Governments at all levels must work to remove the tax policy barriers that stand in the way of economic recovery and long-term prosperity following the COVID-19 crisis. Our new guide outlines several comprehensive options that policymakers can take at the federal and state levels.
Comparison of Cross-Border Effective Average Tax Rates in Europe and G7 Countries March 12, 2020 As policymakers consider ways to facilitate investment, effective average tax rates provide a valuable perspective on where burdens on those activities are high and where they are low.
Kansas, Nebraska, and Utah Lawmakers Pursue “Not GILTI” Verdicts February 14, 2020 Taxing GILTI puts states at a competitive disadvantage compared to their peers—all for a tax that makes very little sense at the state level, and which legislators never sought in the first place.
Summary of the OECD’s Impact Assessment on Pillar 1 and Pillar 2 March 17, 2020 The OECD presented its preliminary impact assessment on the Pillar 1 and Pillar 2 proposals. The impact assessment includes estimated revenue and investment effects presented at a country group level (low-, middle- and high-income countries and investment hubs). The OECD estimates global corporate income tax revenues to increase by 4 percent if both pillars get implemented, equaling $100 billion annually.
Bracing for Impact February 11, 2020 Though they are limited by both data and assumptions, the OECD will face similar limitations. As policymakers work to fine-tune the proposals under both Pillar 1 and 2 the impact assessment should be a critical part of that discussion.
Profit Shifting: Evaluating the Evidence and Policies to Address It January 31, 2020 The OECD has been working to assess the impact of their program of work, and it will be critical for this assessment to take into account impacts not only on revenues, but also on growth and investment.
FAQ on Digital Services Taxes and the OECD’s BEPS Project January 30, 2020 What is a digital services tax (DST)? What countries have announced, proposed, or implemented a DST? What are some of the criticisms of a DST? What are alternatives to a DST? What is the OECD BEPS project and what is its main objective? What is the main objective of OECD Pillar 1? What is the main objective of OECD Pillar 2?
What European OECD Countries Are Doing about Digital Services Taxes November 22, 2021 Despite ongoing multilateral negotiations in the OECD, about half of all European OECD countries have either announced, proposed, or implemented their own unilateral digital services tax.
How Controlled Foreign Corporation Rules Look Around the World: Colombia and a Perspective of Latin America February 25, 2020 For Colombia, as well as for other countries in the world that are not capital exporters, one important question is whether CFC rules are necessary or are indirectly a requirement to be part of world organizations like the OECD (which Colombia is not a member) in order to be on the radar of larger economies.
How Controlled Foreign Corporation Rules Look Around the World: Germany February 18, 2020 Germany has had a Controlled Foreign Corporation (CFC) regime since 1972, when the German Foreign Transactions Tax Act was enacted. Under the German regime, a CFC is a foreign company where its capital or voting rights are either directly or indirectly majority-owned by German residents at the end of its fiscal year.
How Controlled Foreign Corporation Rules Look Around the World: Spain February 4, 2020 The CFC legislation in Spain is not as complicated as it is in some other countries, and it is aligned with the standards recommended by the OECD. The Spanish rules have evolved in a way that the rules are designed to comply with the EU principles not to interrupt the functioning of the Union and its single market.
How Controlled Foreign Corporation Rules Look Around the World: France January 21, 2020 In France, Controlled Foreign Corporation (CFC) rules were first enacted in 1980. The French tax regime operates on a strict territorial basis, where only profits generated in the country are subject to tax in France.
How Controlled Foreign Corporation Rules Look Around the World: China January 14, 2020 The Chinese approach to base erosion and profit shifting is more focused on the application of transfer pricing rules and not on the application of CFC rules. Even with the rules in place, the Chinese tax authorities have not enforced the rules as much as other countries have.
GILTI and Other Conformity Issues Still Loom for States in 2020 December 19, 2019 Even two years after enactment of the federal Tax Cuts and Jobs Act (TCJA), many states have yet to issue guidance explaining how they conform to key provisions of the law, particularly those pertaining to international income.
Two Years After Passage, Treasury Regulations for the Tax Cuts and Jobs Act Surpass 1,000 Pages December 12, 2019 Treasury released final regulations on the base erosion and anti-abuse tax (BEAT), which is meant to dissuade firms from engaging in profit shifting abroad. Other high-profile releases from 2019 include final regulations guiding enforcement of Section 199A, commonly known as the pass-through deduction; final regulations on enforcing the new tax on global intangible low-tax income (GILTI); and final regulations on state-level workarounds to the $10,000 limit on the state and local tax deduction (SALT).
Tax Foundation Response to OECD Public Consultation Document: Global Anti-Base Erosion Proposal (“GloBE”) (Pillar Two) December 2, 2019 The tax base for the income-inclusion rule will be just as important as determining the rate, and both the base and the rate will likely impact business decisions. Additionally, policymakers need to determine how the choice for blending fits with the overarching goal of the policy. And as the example of GILTI shows, it is essential to assess how current international tax regulations would interact with a global minimum tax.
The OECD’s Pillar 2 Proposal Raises Serious Questions November 8, 2019 Addressing tax avoidance is a key political issue for many countries, but these policies should not be discussed without accounting for the size of the current problem, how recent policy changes have addressed it, and what potential impacts might come from this new approach.
Response to OECD Public Consultation Document: Secretariat Proposal for a “Unified Approach” under Pillar One November 11, 2019 Unifying the proposal under sound principles in the context of clear economic analysis should allow the Inclusive Framework to minimize both the administrative and economic burdens that the Secretariat’s proposal could create.
The ABCs of the OECD Secretariat’s Unified Approach on Pillar 1 October 24, 2019 If there is double taxation due to digital services taxes or because a country is unwilling to conform to the structure of the Secretariat’s proposal, the impact would be a net negative for many businesses.
Next Steps from the OECD on BEPS 2.0 October 9, 2019 The continuation of this work is important, but the OECD and policymakers around the world should carefully consider whether these proposals will lead to more certainty, or if they will undermine that goal by simply be a step toward more unilateralism. The impact on cross-border investment will also be a critical issue to consider, and the ongoing impact assessment by the OECD is an important part of the work.
OECD Tackling Harmful Tax Practices September 18, 2019 Countries around the world often design their tax policies to become attractive targets for foreign investment. These policies can be anything from a system with special preferences for certain industries to a well-designed tax system based on principles of sound tax policy. Systems that are rife with special preferences and complexities can create distortions in local jurisdictions and across the global economy.
How Controlled Foreign Corporation Rules Look Around the World: United Kingdom July 15, 2019 The UK rules are designed to arrive at the most accurate definition of foreign income that should be taxed in the home country. These rules apply one of the most detailed approaches to solving the issue of taxing the right type and amount of foreign income. The method can be considered more effective, but the compliance implications and derived costs may be higher compared to those that are derived from the application of other methods.
The Impacts of Tightening up on Transfer Pricing July 11, 2019 As with other anti-base erosion policies, transfer pricing regulations reveal the challenges of designing rules that address problems associated with various strategies businesses use to minimize their tax burdens. While countries may want to target specific abuses, the way the rules are designed can have real economic impacts on cross-border investment.
How Controlled Foreign Corporation Rules Look Around the World: Netherlands July 8, 2019 The Dutch tax system is characterized by its simplicity and the attractiveness to investors. With the incorporation of CFC rules, the Dutch government protected its tax base from erosion and profit shifting. The Netherlands is facing a whole series of adjustments that would create a more complex system adapted to the international standards recommended by the OECD and adopted by the European Union Council. When revising the rules authorities must be mindful about not making the system more complex and to avoid increasing the compliance burden in the country.
How Controlled Foreign Corporation Rules Look Around the World: Japan July 3, 2019 Japan is a country with a complex multilayer system to calculate the corporate income tax. As a consequence, the CFC income determination has evolved as a complex set of rules to complement the corporate income tax. It would be a great idea for the Japanese authorities to address a simplification of the rules to facilitate the entry of new capital investments into their economy.
How Controlled Foreign Corporation Rules Look Around the World: United States of America June 24, 2019 The United States was the first country to enact CFC rules, and it is probably the country with the most complex set of rules that will be presented in this blog series. The rules determine control using a combined ownership test: one for the corporation and the other at the shareholder level. The assessable income under the rules is generally passive income but the amount of foreign income subject to U.S. tax has expanded with the adoption of GILTI.
How Patent Boxes Impact Business Decisions June 20, 2019 As with every change in tax policy, there are trade-offs. The Modified Nexus Approach adds an additional layer of complexity to the already complex issue of taxing IP income. Linking tax breaks for IP income to its associated R&D activity has changed the game and will likely result in some businesses restructuring and relocating their IP assets and R&D activity. Effective tax rates on IP income will likely play an important role in determining optimal locations, giving measures such as R&D credits more importance. Whether this new approach to IP taxation will impact profit shifting and which countries will be the winners and losers is yet to be seen.
CFC Rules Around the World June 17, 2019 Our paper undertakes a review of controlled foreign corporation (CFC) rules around the world as a contribution to the global discussion over the possible expansion of existing anti-base erosion CFC regimes or the potential adoption of a minimum tax.
Summary and Analysis of the OECD’s Work Program for BEPS 2.0 June 18, 2019 From a broad standpoint, agreement at the OECD will require countries to give up some measure of their own tax sovereignty on policies they have designed to minimize the distortionary effects of the corporate income tax. Over the years tax competition has led to some countries adopting policies that are attractive to businesses because they have a more neutral rather than distortionary approach to taxing corporate income. This project could directly undermine that progress by introducing new levels of complexity and distortion that would ultimately have a negative impact on global trade and growth.
Ripple Effects from Controlled Foreign Corporation Rules June 13, 2019 Governments should recognize these trade-offs as they implement controlled foreign corporation (CFC) rules or change their tax policies in ways that increase taxes on foreign subsidiaries.
Putting the Pieces Together on BEPS June 6, 2019 Taxes matter for decisions to be made by businesses, individuals, and families, and it is important for policymakers to understand that rules can be designed to be neutral rather than distortionary.
Initial Thoughts on the OECD’s Inclusive Framework “Work Plan” to Resolve the Taxation of the Digital Economy May 31, 2019 The members of the OECD’s Inclusive Framework have set out an ambitious work plan to come to a consensus by 2020 on revising the way the digital economy is taxed. While the details of the policy changes under consideration are certainly important, equally important is the inclusion of a set of guidelines for performing comprehensive economic analysis of these policies and producing impact assessments that can inform member decision-making.
Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries May 2, 2019 The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.
What’s up with Being GILTI? March 14, 2019 The Tax Cuts and Jobs Act made significant changes to the way U.S. multinationals’ foreign profits are taxed. GILTI, or “Global Intangible Low Tax Income,” was introduced as an outbound anti-base erosion provision.
Tax Foundation Response to OECD Public Consultation Document: Addressing the Tax Challenges of the Digitalization of the Economy March 4, 2019 Though the challenges to international tax policy are many, the OECD has a chance to work toward a system that creates fewer distortions and negative economic effects than the current one. However, given the policies on the table, it will certainly take quite an effort to avoid further complexity of international tax rules that creates challenges to global trade and economic prosperity.
What Happens When Everyone is GILTI? March 1, 2019 Secretary Mnuchin, Finance Minister Le Maire, and other tax policy leaders should encourage the OECD and their own research staff to perform serious economic analysis on the alternatives for changing international tax rules before moving forward. It would be quite unfortunate for the world to learn the wrong lessons from U.S. tax reform.
GILTI Minds: Why Some States Want to Tax International Income—And Why They Shouldn’t January 28, 2019 The new federal tax on Global Intangible Low-Taxed Income (GILTI) is something of a misnomer: it’s certainly global and it’s definitely income, but the rest of it is, at best, an approximation. It’s not exclusively levied on low-taxed income, nor just on the economic returns from intangible property. So what is GILTI, why might states tax it, and what’s the problem with that?
Toward a State of Conformity: State Tax Codes a Year After Federal Tax Reform January 28, 2019 States incorporate provisions of the federal tax code into their own codes in varying degrees, meaning that federal tax reform has implications for state revenue beyond any broader economic effects of tax reform.
A Hybrid Approach: The Treatment of Foreign Profits under the Tax Cuts and Jobs Act May 3, 2018 The Tax Cuts and Jobs Act moved the U.S. toward more of a territorial corporate tax system used by most other OECD countries. However, the U.S. law contains key differences in the treatment of foreign profits.
Trends in FDI Before and After the Tax Cuts and Jobs Act July 6, 2022 Overall, the data shows outbound FDI shifted from low-tax to other jurisdictions, while inbound FDI remained largely unchanged.
How FDI Adds Value to Supply Chains June 29, 2022 Although the dispersion of our supply chains throughout the world has been scrutinized in recent years, both inbound and outbound foreign direct investment are critical to sustaining supply chain resiliency and reducing economic risks for both firms and investors.
An International Tax Agenda for Congress on the Anniversary of the Global Tax Deal June 30, 2022 Congress should prioritize evaluation of recent international tax trends and the model rules and adjust U.S. rules in a way that supports investment and innovation and moves towards simplicity.
4 Things to Know About the Global Tax Debate June 16, 2022 The Biden administration has been supportive of the negotiations, but the changes should be reviewed in the context of recent policy changes in the U.S. and elsewhere, the general landscape of business taxation in the U.S., and potential challenges and risks arising from the global tax deal.
Why FDI Matters for U.S. Employment, Wages, and Productivity June 15, 2022 Contrary to the Biden administration’s claims, raising taxes on cross-border investment would hurt U.S. economic growth and jobs. Research shows that FDI creates jobs in the U.S. and raises workers’ wages and productivity.
Time for an Updated Impact Assessment of the Global Tax Deal May 19, 2022 Treasury Secretary Janet Yellen offered estimates from the EU Tax Observatory as evidence that the Polish government would benefit from supporting the global tax deal. Unfortunately, evidence was, at best, out of date.
The Global Minimum Tax Changes the Game for Build Back Better Revenue March 1, 2022 One goal for the Build Back Better Act has been to increase the amount of revenue the U.S. raises from U.S. companies at home or abroad. With the global minimum tax rules in play, it is likely that the expected gains to the U.S. Treasury from foreign profits of U.S. companies will diminish.
U.S. Tax Incentives Could be Caught in the Global Minimum Tax Crossfire January 28, 2022 The current prospect for the global minimum tax requires the attention of U.S. lawmakers. Otherwise, a tax benefit at home will just mean a tax increase abroad.
Gift or Lump of Coal: U.S. Cross-border Tax Changes Won’t Be Home for Christmas December 20, 2021 As 2021 comes to a close, countries are moving toward harmonizing tax rules for multinationals, but stalled talks on the Build Back Better Act in the United States means new uncertainties for a global agreement and for taxpayers.
How Would the Ways and Means Proposal Affect Profit Shifting? October 7, 2021 If Congress wants to reduce profit shifting, the proposal from the Ways and Means Committee is not an effective tool for this.
Which Industries Would the Tax Hikes Target? October 5, 2021 Using Tax Foundation’s Multinational Tax Model, we estimate the effective tax rates on controlled foreign corporation (CFC) profits under current law and under each of the proposed plans for business tax hikes.
How Heavily Taxed Are U.S. Multinationals? September 29, 2021 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.
Choose Your Own Adventure: Global Minimum Tax Edition September 27, 2021 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.
How Would House Dems’ Tax Plan Change Competitiveness of U.S. Tax Code? October 26, 2021 The legislation put forward by Democratic members of the House of Representatives would reverse many of the 2017 reforms while increasing burdens on businesses and workers.
Treasury Minimum Tax Argument Relies on Narrow Interpretation of Current/Proposed Rules September 8, 2021 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 Comments on the Wyden, Warner, Brown Discussion Draft September 7, 2021 The proposed restructuring of the GILTI and FDII regimes makes several changes to the tax base that are largely offsetting, leaving virtually all the revenue potential to be determined by the tax rates on GILTI and FDII and the haircuts on foreign tax credits. Lawmakers should carefully weigh the trade-offs between higher tax revenues and competitiveness.
GILTI of Neglecting Losses September 1, 2021 As lawmakers are reviewing international tax rules and determining what to change and update, they should pay attention to the way GILTI interacts with profitable and loss-making companies.
Expense Allocation: A Hidden Tax on Domestic Activities and Foreign Profits August 26, 2021 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.
International Tax Proposals and Profit Shifting August 24, 2021 There are many ways the U.S.’s international tax rules could be changed, reformed, improved, or worsened. Reflexively jacking up taxes on U.S. multinationals does not necessarily accomplish the goal of reducing or eliminating profit shifting, and it would in fact worsen it.
Adoption of Global Minimum Tax Could Raise U.S. Revenue…or Not August 19, 2021 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.
Four Revenue Scores on Options to Change U.S. International Tax Rules August 17, 2021 Changes to international tax rules are likely on the way, and it is therefore important for lawmakers to understand how various reform options would impact U.S. tax burdens on multinational companies. Moreover, policymakers should also recognize the need for prudent policies that do not put U.S.-based multinationals at a competitive disadvantage or severely curtail investment and hiring.
Options for Reforming the Taxation of U.S. Multinationals August 12, 2021 The Biden administration’s international tax proposals would impose a 7.7 percent surtax on the foreign profits of U.S. multinationals, resulting in a net increase in profit shifting out of the U.S.
Intellectual Property Came Back to U.S. after Tax Reform, but Proposals Could Change That July 21, 2021 Intellectual property is a key driver in the current economy. Among other things, intellectual property includes patents for life-saving drugs and vaccines and software that runs applications on phones and computers.
Piling on the GILTI Verdicts July 15, 2021 The Biden administration has proposed to significantly increase the tax burden on foreign income through a policy known as Global Intangible Low-Tax Income (GILTI). While the administration’s rhetoric focuses on doubling the tax rate on GILTI from 10.5 percent to 21 percent, this is less than half the story.
Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries July 7, 2021 From a policy perspective it is appropriate to combat base erosion and profit shifting, but policymakers need to keep in mind the need for simplicity to avoid increasing the compliance burden on taxpayers and administrative burdens on tax authorities.
Which Global Minimum Tax Will We Get? April 8, 2022 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 been debated in recent months, there are clear divides between U.S. proposals and the global minimum tax rules.
A Global Minimum Tax and Cross-Border Investment: Risks & Solutions June 17, 2021 Leaders around the world are quickly moving to finalize an agreement on a global minimum tax in 2021, based on the so-called “Pillar Two” proposal from the OECD.
Two Important Issues that Must Be Resolved in “Global Tax Reform” May 25, 2021 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.
Biden Administration Changes to GILTI and FDII Will Yield Automatic State Tax Increases May 25, 2021 State taxation of GILTI is unconventional and economically uncompetitive and will become even more so if the federal government adopts a more aggressive approach to taxing GILTI, as outlined in the American Jobs Plan Act.
GILTI by Country Is Not as Simple as it Seems May 18, 2021 If policymakers want a recipe to dramatically expand the complexity of U.S. international tax rules and the burden on U.S. multinational businesses, then a tax on foreign earnings calculated at the country level would be the way to do it. Alternatively, policymakers could focus on mitigating the unintended consequences of GILTI and other recent international tax rules.
Tax Policy in the First 100 Days of the Biden Administration April 30, 2021 In his first 100 days as president, Joe Biden has proposed more than a dozen significant changes to the U.S. tax code that would raise upwards of $3 trillion in revenue and reduce incentives to invest, save, and work in the United States.
Effects of Proposed International Tax Changes on U.S. Multinationals April 28, 2021 The international corporate tax changes in President Biden’s tax plan would increase tax rates on domestic income more than on foreign income, resulting in a net increase in profit shifting out of the US, according to our Multinational Tax Model.
Biden’s Tax Plan Would Restore U.S. Exceptionalism—But Not in a Good Way April 9, 2021 No other country has tried to enforce some of the policies that the Biden administration is proposing. Embarking on such uncharted course would set the U.S. apart from global tax policy norms and best practices and could harm American competitiveness.
The Balancing Act of GILTI and FDII April 7, 2021 The tax treatment of intangible assets has come into the spotlight recently with the Biden administration proposing to undo a policy adopted in 2017 to encourage intellectual property (IP) to be located in the U.S.
TCJA Is Not GILTI of Offshoring March 18, 2021 Many members of Congress have taken issue with the 2017 tax reform. However, the reasoning that has led some to believe that GILTI provides a path to offshoring investment and jobs is flawed.
How GILTI Are U.S. Industries? March 16, 2021 Both the Biden campaign and some Democratic members of Congress have recommended changes to GILTI, but before doing that, policymakers should consider how GILTI’s design can have ramifications for many U.S. companies and their tax burdens.
Can GILTI and the GloBE be Harmonized in a Biden Administration? March 4, 2021 While there are several parts of the policy that are subject to further discussion and agreement, GloBE is expected to be different from GILTI in several ways.
U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI February 17, 2021 The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.
Personnel Is Policy: Biden International Tax Team Edition February 4, 2021 This week, the Treasury Department added several new appointees as staffing continues following President Biden’s inauguration. Among them were three scholars of international tax policy: economist Kimberly Clausing and law professors Rebecca Kysar and Itai Grinberg. These three will be influential in developing the administration’s approach to changing U.S. tax rules for multinational corporations and negotiating international tax policy changes at the Organisation for Economic Co-operation and Development (OECD).
Potential Regulatory Changes in Tax Policy Under the Biden Administration November 24, 2020 President Biden may make greater use of regulatory changes to modify how tax law is interpreted and administered. There are several areas where a Biden Treasury Department, likely led by former Federal Reserve Chair Janet Yellen, may focus.
Details and Analysis of President Joe Biden’s Campaign Tax Plan October 22, 2020 What has President Joe Biden proposed in terms of tax policy changes? Our experts provide the details and analyze the potential economic, revenue, and distributional impacts.
Tax Policy After Coronavirus: Clearing a Path to Economic Recovery April 22, 2020 Governments at all levels must work to remove the tax policy barriers that stand in the way of economic recovery and long-term prosperity following the COVID-19 crisis. Our new guide outlines several comprehensive options that policymakers can take at the federal and state levels.
Kansas, Nebraska, and Utah Lawmakers Pursue “Not GILTI” Verdicts February 14, 2020 Taxing GILTI puts states at a competitive disadvantage compared to their peers—all for a tax that makes very little sense at the state level, and which legislators never sought in the first place.
GILTI and Other Conformity Issues Still Loom for States in 2020 December 19, 2019 Even two years after enactment of the federal Tax Cuts and Jobs Act (TCJA), many states have yet to issue guidance explaining how they conform to key provisions of the law, particularly those pertaining to international income.
CFC Rules Around the World June 17, 2019 Our paper undertakes a review of controlled foreign corporation (CFC) rules around the world as a contribution to the global discussion over the possible expansion of existing anti-base erosion CFC regimes or the potential adoption of a minimum tax.
Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries May 2, 2019 The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.
What’s up with Being GILTI? March 14, 2019 The Tax Cuts and Jobs Act made significant changes to the way U.S. multinationals’ foreign profits are taxed. GILTI, or “Global Intangible Low Tax Income,” was introduced as an outbound anti-base erosion provision.
What Happens When Everyone is GILTI? March 1, 2019 Secretary Mnuchin, Finance Minister Le Maire, and other tax policy leaders should encourage the OECD and their own research staff to perform serious economic analysis on the alternatives for changing international tax rules before moving forward. It would be quite unfortunate for the world to learn the wrong lessons from U.S. tax reform.
GILTI Minds: Why Some States Want to Tax International Income—And Why They Shouldn’t January 28, 2019 The new federal tax on Global Intangible Low-Taxed Income (GILTI) is something of a misnomer: it’s certainly global and it’s definitely income, but the rest of it is, at best, an approximation. It’s not exclusively levied on low-taxed income, nor just on the economic returns from intangible property. So what is GILTI, why might states tax it, and what’s the problem with that?
Toward a State of Conformity: State Tax Codes a Year After Federal Tax Reform January 28, 2019 States incorporate provisions of the federal tax code into their own codes in varying degrees, meaning that federal tax reform has implications for state revenue beyond any broader economic effects of tax reform.
A Hybrid Approach: The Treatment of Foreign Profits under the Tax Cuts and Jobs Act May 3, 2018 The Tax Cuts and Jobs Act moved the U.S. toward more of a territorial corporate tax system used by most other OECD countries. However, the U.S. law contains key differences in the treatment of foreign profits.
Trends in FDI Before and After the Tax Cuts and Jobs Act July 6, 2022 Overall, the data shows outbound FDI shifted from low-tax to other jurisdictions, while inbound FDI remained largely unchanged.
How FDI Adds Value to Supply Chains June 29, 2022 Although the dispersion of our supply chains throughout the world has been scrutinized in recent years, both inbound and outbound foreign direct investment are critical to sustaining supply chain resiliency and reducing economic risks for both firms and investors.
An International Tax Agenda for Congress on the Anniversary of the Global Tax Deal June 30, 2022 Congress should prioritize evaluation of recent international tax trends and the model rules and adjust U.S. rules in a way that supports investment and innovation and moves towards simplicity.
Why FDI Matters for U.S. Employment, Wages, and Productivity June 15, 2022 Contrary to the Biden administration’s claims, raising taxes on cross-border investment would hurt U.S. economic growth and jobs. Research shows that FDI creates jobs in the U.S. and raises workers’ wages and productivity.
Tax Foundation Comments on the Wyden, Warner, Brown Discussion Draft September 7, 2021 The proposed restructuring of the GILTI and FDII regimes makes several changes to the tax base that are largely offsetting, leaving virtually all the revenue potential to be determined by the tax rates on GILTI and FDII and the haircuts on foreign tax credits. Lawmakers should carefully weigh the trade-offs between higher tax revenues and competitiveness.
Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries July 7, 2021 From a policy perspective it is appropriate to combat base erosion and profit shifting, but policymakers need to keep in mind the need for simplicity to avoid increasing the compliance burden on taxpayers and administrative burdens on tax authorities.
Tax Policy in the First 100 Days of the Biden Administration April 30, 2021 In his first 100 days as president, Joe Biden has proposed more than a dozen significant changes to the U.S. tax code that would raise upwards of $3 trillion in revenue and reduce incentives to invest, save, and work in the United States.
U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI February 17, 2021 The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.
Personnel Is Policy: Biden International Tax Team Edition February 4, 2021 This week, the Treasury Department added several new appointees as staffing continues following President Biden’s inauguration. Among them were three scholars of international tax policy: economist Kimberly Clausing and law professors Rebecca Kysar and Itai Grinberg. These three will be influential in developing the administration’s approach to changing U.S. tax rules for multinational corporations and negotiating international tax policy changes at the Organisation for Economic Co-operation and Development (OECD).
Tax Policy After Coronavirus: Clearing a Path to Economic Recovery April 22, 2020 Governments at all levels must work to remove the tax policy barriers that stand in the way of economic recovery and long-term prosperity following the COVID-19 crisis. Our new guide outlines several comprehensive options that policymakers can take at the federal and state levels.
Two Years After Passage, Treasury Regulations for the Tax Cuts and Jobs Act Surpass 1,000 Pages December 12, 2019 Treasury released final regulations on the base erosion and anti-abuse tax (BEAT), which is meant to dissuade firms from engaging in profit shifting abroad. Other high-profile releases from 2019 include final regulations guiding enforcement of Section 199A, commonly known as the pass-through deduction; final regulations on enforcing the new tax on global intangible low-tax income (GILTI); and final regulations on state-level workarounds to the $10,000 limit on the state and local tax deduction (SALT).
The OECD’s Pillar 2 Proposal Raises Serious Questions November 8, 2019 Addressing tax avoidance is a key political issue for many countries, but these policies should not be discussed without accounting for the size of the current problem, how recent policy changes have addressed it, and what potential impacts might come from this new approach.
Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries May 2, 2019 The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.
A Hybrid Approach: The Treatment of Foreign Profits under the Tax Cuts and Jobs Act May 3, 2018 The Tax Cuts and Jobs Act moved the U.S. toward more of a territorial corporate tax system used by most other OECD countries. However, the U.S. law contains key differences in the treatment of foreign profits.
Trends in FDI Before and After the Tax Cuts and Jobs Act July 6, 2022 Overall, the data shows outbound FDI shifted from low-tax to other jurisdictions, while inbound FDI remained largely unchanged.
How FDI Adds Value to Supply Chains June 29, 2022 Although the dispersion of our supply chains throughout the world has been scrutinized in recent years, both inbound and outbound foreign direct investment are critical to sustaining supply chain resiliency and reducing economic risks for both firms and investors.
An International Tax Agenda for Congress on the Anniversary of the Global Tax Deal June 30, 2022 Congress should prioritize evaluation of recent international tax trends and the model rules and adjust U.S. rules in a way that supports investment and innovation and moves towards simplicity.
Why FDI Matters for U.S. Employment, Wages, and Productivity June 15, 2022 Contrary to the Biden administration’s claims, raising taxes on cross-border investment would hurt U.S. economic growth and jobs. Research shows that FDI creates jobs in the U.S. and raises workers’ wages and productivity.
How Would the Ways and Means Proposal Affect Profit Shifting? October 7, 2021 If Congress wants to reduce profit shifting, the proposal from the Ways and Means Committee is not an effective tool for this.
How Would House Dems’ Tax Plan Change Competitiveness of U.S. Tax Code? October 26, 2021 The legislation put forward by Democratic members of the House of Representatives would reverse many of the 2017 reforms while increasing burdens on businesses and workers.
Tax Foundation Comments on the Wyden, Warner, Brown Discussion Draft September 7, 2021 The proposed restructuring of the GILTI and FDII regimes makes several changes to the tax base that are largely offsetting, leaving virtually all the revenue potential to be determined by the tax rates on GILTI and FDII and the haircuts on foreign tax credits. Lawmakers should carefully weigh the trade-offs between higher tax revenues and competitiveness.
International Tax Proposals and Profit Shifting August 24, 2021 There are many ways the U.S.’s international tax rules could be changed, reformed, improved, or worsened. Reflexively jacking up taxes on U.S. multinationals does not necessarily accomplish the goal of reducing or eliminating profit shifting, and it would in fact worsen it.
Four Revenue Scores on Options to Change U.S. International Tax Rules August 17, 2021 Changes to international tax rules are likely on the way, and it is therefore important for lawmakers to understand how various reform options would impact U.S. tax burdens on multinational companies. Moreover, policymakers should also recognize the need for prudent policies that do not put U.S.-based multinationals at a competitive disadvantage or severely curtail investment and hiring.
Will FDII Stay or Will it Go? August 10, 2021 While the Biden administration has certainly proposed to remove FDII, it is not clear that Congress is on board with that approach.
Options for Reforming the Taxation of U.S. Multinationals August 12, 2021 The Biden administration’s international tax proposals would impose a 7.7 percent surtax on the foreign profits of U.S. multinationals, resulting in a net increase in profit shifting out of the U.S.
Intellectual Property Came Back to U.S. after Tax Reform, but Proposals Could Change That July 21, 2021 Intellectual property is a key driver in the current economy. Among other things, intellectual property includes patents for life-saving drugs and vaccines and software that runs applications on phones and computers.
Biden Administration Changes to GILTI and FDII Will Yield Automatic State Tax Increases May 25, 2021 State taxation of GILTI is unconventional and economically uncompetitive and will become even more so if the federal government adopts a more aggressive approach to taxing GILTI, as outlined in the American Jobs Plan Act.
Tax Policy in the First 100 Days of the Biden Administration April 30, 2021 In his first 100 days as president, Joe Biden has proposed more than a dozen significant changes to the U.S. tax code that would raise upwards of $3 trillion in revenue and reduce incentives to invest, save, and work in the United States.
Effects of Proposed International Tax Changes on U.S. Multinationals April 28, 2021 The international corporate tax changes in President Biden’s tax plan would increase tax rates on domestic income more than on foreign income, resulting in a net increase in profit shifting out of the US, according to our Multinational Tax Model.
The Balancing Act of GILTI and FDII April 7, 2021 The tax treatment of intangible assets has come into the spotlight recently with the Biden administration proposing to undo a policy adopted in 2017 to encourage intellectual property (IP) to be located in the U.S.
Evaluating Proposals to Increase the Corporate Tax Rate and Levy a Minimum Tax on Corporate Book Income February 24, 2021 President Biden and congressional policymakers have proposed several changes to the corporate income tax, including raising the rate from 21 percent to 28 percent and imposing a 15 percent minimum tax on the book income of large corporations, to raise revenue for new spending programs. Our new modeling analyzes the economic, revenue, and distributional impact of these proposals.
U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI February 17, 2021 The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.
Comparison of Cross-Border Effective Average Tax Rates in Europe and G7 Countries March 12, 2020 As policymakers consider ways to facilitate investment, effective average tax rates provide a valuable perspective on where burdens on those activities are high and where they are low.
GILTI and Other Conformity Issues Still Loom for States in 2020 December 19, 2019 Even two years after enactment of the federal Tax Cuts and Jobs Act (TCJA), many states have yet to issue guidance explaining how they conform to key provisions of the law, particularly those pertaining to international income.
The Impacts of Tightening up on Transfer Pricing July 11, 2019 As with other anti-base erosion policies, transfer pricing regulations reveal the challenges of designing rules that address problems associated with various strategies businesses use to minimize their tax burdens. While countries may want to target specific abuses, the way the rules are designed can have real economic impacts on cross-border investment.
Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries May 2, 2019 The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.
A Hybrid Approach: The Treatment of Foreign Profits under the Tax Cuts and Jobs Act May 3, 2018 The Tax Cuts and Jobs Act moved the U.S. toward more of a territorial corporate tax system used by most other OECD countries. However, the U.S. law contains key differences in the treatment of foreign profits.
An International Tax Agenda for Congress on the Anniversary of the Global Tax Deal June 30, 2022 Congress should prioritize evaluation of recent international tax trends and the model rules and adjust U.S. rules in a way that supports investment and innovation and moves towards simplicity.
4 Things to Know About the Global Tax Debate June 16, 2022 The Biden administration has been supportive of the negotiations, but the changes should be reviewed in the context of recent policy changes in the U.S. and elsewhere, the general landscape of business taxation in the U.S., and potential challenges and risks arising from the global tax deal.
Time for an Updated Impact Assessment of the Global Tax Deal May 19, 2022 Treasury Secretary Janet Yellen offered estimates from the EU Tax Observatory as evidence that the Polish government would benefit from supporting the global tax deal. Unfortunately, evidence was, at best, out of date.
A Regulatory Tax Hike on U.S. Multinationals March 3, 2022 While much of the policy focus has been on proposals embedded in the Build Back Better agenda, a meaningful tax hike for multinational companies has already been adopted.
The Global Minimum Tax Changes the Game for Build Back Better Revenue March 1, 2022 One goal for the Build Back Better Act has been to increase the amount of revenue the U.S. raises from U.S. companies at home or abroad. With the global minimum tax rules in play, it is likely that the expected gains to the U.S. Treasury from foreign profits of U.S. companies will diminish.
Rushing Headlong into Formulary Apportionment February 28, 2022 Complex tax policies that work well “in theory” can often have a hard time when the rubber meets the road. One instance of this is the challenge that the OECD has created for itself with the global tax deal, also fondly known as Pillar 1 and Pillar 2.
Case Study: Global Tax Deal February 15, 2022 The Global Tax Deal is a significant shift in international tax rules. The OECD’s plan aims to reduce incentives for tax planning and avoidance by U.S. and foreign multinational companies by limiting tax competition and changing where companies pay taxes.
U.S. Tax Incentives Could be Caught in the Global Minimum Tax Crossfire January 28, 2022 The current prospect for the global minimum tax requires the attention of U.S. lawmakers. Otherwise, a tax benefit at home will just mean a tax increase abroad.
Gift or Lump of Coal: U.S. Cross-border Tax Changes Won’t Be Home for Christmas December 20, 2021 As 2021 comes to a close, countries are moving toward harmonizing tax rules for multinationals, but stalled talks on the Build Back Better Act in the United States means new uncertainties for a global agreement and for taxpayers.
What Do Global Minimum Tax Rules Mean for Corporate Tax Policies? December 20, 2021 The new OECD global minimum tax rules are complex, and some countries may opt to put them in place on top of preexisting rules for taxing multinational companies. However, countries should also consider ways to reform their existing rules in response to the minimum tax.
What’s Next for Tax Competition? November 8, 2022 The rules of tax competition are changing with the recent agreement on a global minimum tax and other changes to tax rules around the world, but that does not mean the contest is over.
Which Industries Would the Tax Hikes Target? October 5, 2021 Using Tax Foundation’s Multinational Tax Model, we estimate the effective tax rates on controlled foreign corporation (CFC) profits under current law and under each of the proposed plans for business tax hikes.
How Heavily Taxed Are U.S. Multinationals? September 29, 2021 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.
U.S. Corporate Income Faces Third-Highest Integrated Tax Rate in OECD Under Ways and Means Plan September 27, 2021 Under the House Ways and Means tax plan, the United States would tax corporate income at the third-highest integrated tax rate among rich nations, averaging 56.6 percent.
Choose Your Own Adventure: Global Minimum Tax Edition September 27, 2021 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.
Tax Foundation Response to Ireland Department of Finance Consultation Document: Consultation on OECD International Tax Proposals September 8, 2021 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.
Tax Foundation Comments on the Wyden, Warner, Brown Discussion Draft September 7, 2021 The proposed restructuring of the GILTI and FDII regimes makes several changes to the tax base that are largely offsetting, leaving virtually all the revenue potential to be determined by the tax rates on GILTI and FDII and the haircuts on foreign tax credits. Lawmakers should carefully weigh the trade-offs between higher tax revenues and competitiveness.
Expense Allocation: A Hidden Tax on Domestic Activities and Foreign Profits August 26, 2021 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.
International Tax Proposals and Profit Shifting August 24, 2021 There are many ways the U.S.’s international tax rules could be changed, reformed, improved, or worsened. Reflexively jacking up taxes on U.S. multinationals does not necessarily accomplish the goal of reducing or eliminating profit shifting, and it would in fact worsen it.
Adoption of Global Minimum Tax Could Raise U.S. Revenue…or Not August 19, 2021 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.
Four Revenue Scores on Options to Change U.S. International Tax Rules August 17, 2021 Changes to international tax rules are likely on the way, and it is therefore important for lawmakers to understand how various reform options would impact U.S. tax burdens on multinational companies. Moreover, policymakers should also recognize the need for prudent policies that do not put U.S.-based multinationals at a competitive disadvantage or severely curtail investment and hiring.
Options for Reforming the Taxation of U.S. Multinationals August 12, 2021 The Biden administration’s international tax proposals would impose a 7.7 percent surtax on the foreign profits of U.S. multinationals, resulting in a net increase in profit shifting out of the U.S.
Survey Shows Growing Tax Complexity for Multinationals July 26, 2021 New data clearly points to an increase in tax complexity for multinationals in the OECD as well as globally. The OECD’s ongoing efforts to reform the international tax system will likely further add complexity to the international tax environment.
Insights from the UN World Investment Report for Global Tax Reform July 8, 2021 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.
The Latest on the Global Tax Agreement: The EU Adopts Pillar Two December 15, 2022 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.
Which Global Minimum Tax Will We Get? April 8, 2022 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 been debated in recent months, there are clear divides between U.S. proposals and the global minimum tax rules.
What We Know: Reviewing the Academic Literature on Profit Shifting June 22, 2021 Lawmakers around the world are considering substantial changes to international tax rules to address tax avoidance. Many changes have already been made in recent years, with early economic evidence indicating that they may not only address tax avoidance but also impact business hiring and investment decisions.
Net Operating Loss Policies in the OECD June 23, 2021 During the COVID-19 pandemic, several OECD countries temporarily expanded their NOL carrybacks and carryforwards to provide relief to illiquid but otherwise solvent businesses. These policies should be made permanent and, where necessary, expanded.
New Research Shows Major Changes for U.S. Companies Earning Profits from Ireland June 16, 2021 New data show that the recent policy changes that have been implemented by the U.S., Ireland, and dozens of other countries are having an impact. The question for policymakers is whether they will take the time to understand these impacts before jumping to the next project to change international tax rules yet again.
Carve-ins and Carve-outs: Open Questions for Global Tax Reform June 11, 2021 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.
A Global Minimum Tax and Cross-Border Investment: Risks & Solutions June 17, 2021 Leaders around the world are quickly moving to finalize an agreement on a global minimum tax in 2021, based on the so-called “Pillar Two” proposal from the OECD.
Two Important Issues that Must Be Resolved in “Global Tax Reform” May 25, 2021 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.
Recent Analysis Explores Pillar 1 Risks and the Potential for Disputes May 10, 2021 As countries move closer to agreement on how the OECD Pillar 1 Amount A will work and which companies will be impacted by it, it is incredibly important for policymakers to continue to evaluate not just the intended effects but also the potential unintended consequences.
Tax Policy in the First 100 Days of the Biden Administration April 30, 2021 In his first 100 days as president, Joe Biden has proposed more than a dozen significant changes to the U.S. tax code that would raise upwards of $3 trillion in revenue and reduce incentives to invest, save, and work in the United States.
Effects of Proposed International Tax Changes on U.S. Multinationals April 28, 2021 The international corporate tax changes in President Biden’s tax plan would increase tax rates on domestic income more than on foreign income, resulting in a net increase in profit shifting out of the US, according to our Multinational Tax Model.
Treasury’s Latest Pillar 1 Proposal: A Strategy to Split the Riches or Give Away the Store? April 14, 2021 New international tax rules on super-profits would disproportionately impact U.S. companies however they are designed. The question that Treasury should answer is why limit the policy in such a way that magnifies that disproportionate application and the risk to the U.S. tax base.
U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI February 17, 2021 The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.
The European Commission and the Taxation of the Digital Economy February 4, 2021 The consultation on the EU’s digital levy provides an opportunity for policymakers and taxpayers to reflect on the underlying issues of digital taxation and potential consequences from a digital levy. Unless the EU digital levy is designed with an OECD agreement in mind, it is likely to cause more uncertainty in cross-border tax policy.
Day 2 of OECD Consultation on International Tax Reform Blueprints January 15, 2021 The OECD consultation is in the context of the Inclusive Framework on Base Erosion and Profit Shifting which is made up of delegates from more than 135 countries and is focused on policies that reduce opportunities for tax avoidance by multinational companies. The current proposals being considered would change both where and how much companies pay in corporate taxes.
Day 1 of OECD Consultation on International Tax Reform Blueprints January 14, 2021 The first session was focused on Pillar 1 of the OECD proposal. The pieces in Pillar 1 would change tax rules so that companies would be paying more taxes in countries based on the location of customers. This approach would move more tax revenues into so-called “market countries.”
Tax Foundation Response to OECD Public Consultation Document: Reports on the Pillar One and Pillar Two Blueprints December 14, 2020 The Tax Foundation response to the OECD public consultation document on the reports on the OECD Pillar 1 and OECD Pillar 2 blueprints.
Corporate Tax Rates around the World, 2020 December 9, 2020 Corporate tax rates have been declining in every region around the world over the past four decades as countries have recognized their negative impact on business investment. Our new report explores the latest corporate tax trends and compares corporate tax rates by country.
The UN Approach on Digital Taxation October 22, 2020 The UN tax committee will be considering a change to the UN’s model tax treaty that, if adopted and implemented, could result in digital companies paying more taxes in countries where their customers are located even if those companies do not have physical locations there.
Two Roads Diverge in the OECD’s Impact Assessment October 20, 2020 The difference that the OECD presents between the potential impact in the context of agreement compared to a harmful tax and trade war should show policymakers the value of continuing multilateral discussions.
Pillars, Blueprints, an Impact Assessment, and Construction Delays October 13, 2020 The OECD released blueprints for proposals on changing international tax rules alongside an impact assessment based on the overall design of the proposals. While the blueprints cover proposals both for changing where large multinationals owe corporate tax and designing a global minimum tax, there are still many unanswered questions. In the meantime, other digital tax proposals are moving forward and have the potential to result in a harmful tax and trade war.
Designing a Global Minimum Tax with Full Expensing September 23, 2020 The design and implementation of a global minimum tax is not simple and straightforward. There are dozens of challenging issues that policymakers will need to consider. So, when it comes to the way the minimum tax treats new investment, it seems clear that incorporating full expensing into the design would have significant benefits.
CFC Rules in Europe August 20, 2020 To prevent businesses from minimizing their tax liability by taking advantage of cross-country differences in taxation, countries have implemented various anti-tax avoidance measures, one known as Controlled Foreign Corporation (CFC) rules.
Where Should the Money Come From? August 12, 2020 The fiscal response to the COVID-19 pandemic will require policymakers to consider what revenue resources should be used to fill budget gaps. Tax policy experts have proposed wealth taxes, (global) corporate minimum taxes, excess profits taxes, and digital taxes as opportunities for governments to raise new revenues.
Tax Foundation Comments on the Initiation of Section 301 Investigations of Digital Services Taxes July 9, 2020 Digital services taxes effectively ring-fence the digital economy by limiting the tax to certain revenue streams of digital businesses, discriminating in favor of more traditional sectors of the economy.
Decades in Corporate Taxation July 8, 2020 Corporate taxation has evolved significantly, with rates coming down significantly over the last several decades. Countries have redesigned their tax bases by changing the treatment of losses, interest, and capital costs. A recent OECD report highlights the general stabilization of corporate tax revenues and statutory rates alongside major changes to address profit-shifting opportunities.
Digital Tax Deadlock: Where Do We Go from Here? July 1, 2020 We recently hosted an exclusive webinar discussion to get up to speed on recent digital tax developments and gain insight from leading international tax experts on the OECD's BEPS project.
Watch: Taxing the Digital Economy June 3, 2020 What changed in the global economy that disrupted traditional means of taxation? Is it worth finding a way to include tax digital goods and services in the tax base? Why are digital services taxes so problematic? Are there better options—ways to adapt our current system without introducing complex and economically harmful policies?
Digital Taxation Around the World May 27, 2020 The digitalization of the economy has been a key focus of tax debates in recent years. Our new report reviews digital tax policies around the world with a focus on OECD countries, explores the various flaws and benefits associated with the wide set of proposals, and provides recommendations for lawmakers to consider.
Digital Services Taxes: Do They Comply with International Tax, Trade, and EU Law? May 26, 2020 A digital services tax like the one implemented by France likely violates both the General Agreement on Trade in Services and a model U.S. free trade agreement. However, it is uncertain whether meaningful relief could be obtained under either regime.
Chaos to the Left of Me. Chaos to the Right of me. May 5, 2020 The OECD recently announced that the negotiation timeline for new digital tax proposals has now been pushed back to October due to the COVID-19 pandemic, although the end-of-year deadline for the overall project is still in place.
Comparison of Cross-Border Effective Average Tax Rates in Europe and G7 Countries March 12, 2020 As policymakers consider ways to facilitate investment, effective average tax rates provide a valuable perspective on where burdens on those activities are high and where they are low.
Summary of the OECD’s Impact Assessment on Pillar 1 and Pillar 2 March 17, 2020 The OECD presented its preliminary impact assessment on the Pillar 1 and Pillar 2 proposals. The impact assessment includes estimated revenue and investment effects presented at a country group level (low-, middle- and high-income countries and investment hubs). The OECD estimates global corporate income tax revenues to increase by 4 percent if both pillars get implemented, equaling $100 billion annually.
Bracing for Impact February 11, 2020 Though they are limited by both data and assumptions, the OECD will face similar limitations. As policymakers work to fine-tune the proposals under both Pillar 1 and 2 the impact assessment should be a critical part of that discussion.
Profit Shifting: Evaluating the Evidence and Policies to Address It January 31, 2020 The OECD has been working to assess the impact of their program of work, and it will be critical for this assessment to take into account impacts not only on revenues, but also on growth and investment.
FAQ on Digital Services Taxes and the OECD’s BEPS Project January 30, 2020 What is a digital services tax (DST)? What countries have announced, proposed, or implemented a DST? What are some of the criticisms of a DST? What are alternatives to a DST? What is the OECD BEPS project and what is its main objective? What is the main objective of OECD Pillar 1? What is the main objective of OECD Pillar 2?
What European OECD Countries Are Doing about Digital Services Taxes November 22, 2021 Despite ongoing multilateral negotiations in the OECD, about half of all European OECD countries have either announced, proposed, or implemented their own unilateral digital services tax.
How Controlled Foreign Corporation Rules Look Around the World: Colombia and a Perspective of Latin America February 25, 2020 For Colombia, as well as for other countries in the world that are not capital exporters, one important question is whether CFC rules are necessary or are indirectly a requirement to be part of world organizations like the OECD (which Colombia is not a member) in order to be on the radar of larger economies.
How Controlled Foreign Corporation Rules Look Around the World: Germany February 18, 2020 Germany has had a Controlled Foreign Corporation (CFC) regime since 1972, when the German Foreign Transactions Tax Act was enacted. Under the German regime, a CFC is a foreign company where its capital or voting rights are either directly or indirectly majority-owned by German residents at the end of its fiscal year.
How Controlled Foreign Corporation Rules Look Around the World: Spain February 4, 2020 The CFC legislation in Spain is not as complicated as it is in some other countries, and it is aligned with the standards recommended by the OECD. The Spanish rules have evolved in a way that the rules are designed to comply with the EU principles not to interrupt the functioning of the Union and its single market.
How Controlled Foreign Corporation Rules Look Around the World: France January 21, 2020 In France, Controlled Foreign Corporation (CFC) rules were first enacted in 1980. The French tax regime operates on a strict territorial basis, where only profits generated in the country are subject to tax in France.
How Controlled Foreign Corporation Rules Look Around the World: China January 14, 2020 The Chinese approach to base erosion and profit shifting is more focused on the application of transfer pricing rules and not on the application of CFC rules. Even with the rules in place, the Chinese tax authorities have not enforced the rules as much as other countries have.
Tax Foundation Response to OECD Public Consultation Document: Global Anti-Base Erosion Proposal (“GloBE”) (Pillar Two) December 2, 2019 The tax base for the income-inclusion rule will be just as important as determining the rate, and both the base and the rate will likely impact business decisions. Additionally, policymakers need to determine how the choice for blending fits with the overarching goal of the policy. And as the example of GILTI shows, it is essential to assess how current international tax regulations would interact with a global minimum tax.
The OECD’s Pillar 2 Proposal Raises Serious Questions November 8, 2019 Addressing tax avoidance is a key political issue for many countries, but these policies should not be discussed without accounting for the size of the current problem, how recent policy changes have addressed it, and what potential impacts might come from this new approach.
Response to OECD Public Consultation Document: Secretariat Proposal for a “Unified Approach” under Pillar One November 11, 2019 Unifying the proposal under sound principles in the context of clear economic analysis should allow the Inclusive Framework to minimize both the administrative and economic burdens that the Secretariat’s proposal could create.
The ABCs of the OECD Secretariat’s Unified Approach on Pillar 1 October 24, 2019 If there is double taxation due to digital services taxes or because a country is unwilling to conform to the structure of the Secretariat’s proposal, the impact would be a net negative for many businesses.
Next Steps from the OECD on BEPS 2.0 October 9, 2019 The continuation of this work is important, but the OECD and policymakers around the world should carefully consider whether these proposals will lead to more certainty, or if they will undermine that goal by simply be a step toward more unilateralism. The impact on cross-border investment will also be a critical issue to consider, and the ongoing impact assessment by the OECD is an important part of the work.
OECD Tackling Harmful Tax Practices September 18, 2019 Countries around the world often design their tax policies to become attractive targets for foreign investment. These policies can be anything from a system with special preferences for certain industries to a well-designed tax system based on principles of sound tax policy. Systems that are rife with special preferences and complexities can create distortions in local jurisdictions and across the global economy.
How Controlled Foreign Corporation Rules Look Around the World: United Kingdom July 15, 2019 The UK rules are designed to arrive at the most accurate definition of foreign income that should be taxed in the home country. These rules apply one of the most detailed approaches to solving the issue of taxing the right type and amount of foreign income. The method can be considered more effective, but the compliance implications and derived costs may be higher compared to those that are derived from the application of other methods.
The Impacts of Tightening up on Transfer Pricing July 11, 2019 As with other anti-base erosion policies, transfer pricing regulations reveal the challenges of designing rules that address problems associated with various strategies businesses use to minimize their tax burdens. While countries may want to target specific abuses, the way the rules are designed can have real economic impacts on cross-border investment.
How Controlled Foreign Corporation Rules Look Around the World: Netherlands July 8, 2019 The Dutch tax system is characterized by its simplicity and the attractiveness to investors. With the incorporation of CFC rules, the Dutch government protected its tax base from erosion and profit shifting. The Netherlands is facing a whole series of adjustments that would create a more complex system adapted to the international standards recommended by the OECD and adopted by the European Union Council. When revising the rules authorities must be mindful about not making the system more complex and to avoid increasing the compliance burden in the country.
How Controlled Foreign Corporation Rules Look Around the World: Japan July 3, 2019 Japan is a country with a complex multilayer system to calculate the corporate income tax. As a consequence, the CFC income determination has evolved as a complex set of rules to complement the corporate income tax. It would be a great idea for the Japanese authorities to address a simplification of the rules to facilitate the entry of new capital investments into their economy.
How Controlled Foreign Corporation Rules Look Around the World: United States of America June 24, 2019 The United States was the first country to enact CFC rules, and it is probably the country with the most complex set of rules that will be presented in this blog series. The rules determine control using a combined ownership test: one for the corporation and the other at the shareholder level. The assessable income under the rules is generally passive income but the amount of foreign income subject to U.S. tax has expanded with the adoption of GILTI.
How Patent Boxes Impact Business Decisions June 20, 2019 As with every change in tax policy, there are trade-offs. The Modified Nexus Approach adds an additional layer of complexity to the already complex issue of taxing IP income. Linking tax breaks for IP income to its associated R&D activity has changed the game and will likely result in some businesses restructuring and relocating their IP assets and R&D activity. Effective tax rates on IP income will likely play an important role in determining optimal locations, giving measures such as R&D credits more importance. Whether this new approach to IP taxation will impact profit shifting and which countries will be the winners and losers is yet to be seen.
CFC Rules Around the World June 17, 2019 Our paper undertakes a review of controlled foreign corporation (CFC) rules around the world as a contribution to the global discussion over the possible expansion of existing anti-base erosion CFC regimes or the potential adoption of a minimum tax.
Summary and Analysis of the OECD’s Work Program for BEPS 2.0 June 18, 2019 From a broad standpoint, agreement at the OECD will require countries to give up some measure of their own tax sovereignty on policies they have designed to minimize the distortionary effects of the corporate income tax. Over the years tax competition has led to some countries adopting policies that are attractive to businesses because they have a more neutral rather than distortionary approach to taxing corporate income. This project could directly undermine that progress by introducing new levels of complexity and distortion that would ultimately have a negative impact on global trade and growth.
Ripple Effects from Controlled Foreign Corporation Rules June 13, 2019 Governments should recognize these trade-offs as they implement controlled foreign corporation (CFC) rules or change their tax policies in ways that increase taxes on foreign subsidiaries.
Putting the Pieces Together on BEPS June 6, 2019 Taxes matter for decisions to be made by businesses, individuals, and families, and it is important for policymakers to understand that rules can be designed to be neutral rather than distortionary.
Initial Thoughts on the OECD’s Inclusive Framework “Work Plan” to Resolve the Taxation of the Digital Economy May 31, 2019 The members of the OECD’s Inclusive Framework have set out an ambitious work plan to come to a consensus by 2020 on revising the way the digital economy is taxed. While the details of the policy changes under consideration are certainly important, equally important is the inclusion of a set of guidelines for performing comprehensive economic analysis of these policies and producing impact assessments that can inform member decision-making.
Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries May 2, 2019 The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.
Tax Foundation Response to OECD Public Consultation Document: Addressing the Tax Challenges of the Digitalization of the Economy March 4, 2019 Though the challenges to international tax policy are many, the OECD has a chance to work toward a system that creates fewer distortions and negative economic effects than the current one. However, given the policies on the table, it will certainly take quite an effort to avoid further complexity of international tax rules that creates challenges to global trade and economic prosperity.
