Mr. Cope monitors the development of U.S. tax law daily through postings on government websites, daily tax publications, monthly tax journals, tax newsletters, tax conferences and meetings of professionals organizations in New York and Washington. Each month he publishes the Tax Insights Blog, which describes and analyzes significant U.S. tax developments (e.g., judicial decisions, regulations, proposed tax legislation) having cross-border tax consequences. The blog's content should be of interest to U.S. businesses with foreign operations and businesses headquarted outside the United States with U.S. investments or U.S. operations.
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International Tax Reform Considered by Senate Finance Committee
On March 17, 2015, the Senate Finance Committee held a two-hour hearing on reforming the provisions of the Internal Revenue Code dealing with the taxation of cross-border income. Four individuals testified at the hearing: Pam Olson an attorney with PricewaterhouseCoopers holding the title United States Deputy Tax Leader & Washington National Tax Services Leader, Anthony Smith, Vice President of Tax & Treasurer of Thermo Fisher Scientific Inc., Rosanne Altshuler, Professor of Economics and Dean of Social and Behavioral Sciences of Rutgers University, and Steve Shay, Professor of Practice of Harvard Law School. Olson and Shay have held senior positions in the Treasury’s Office of Tax Policy in the past. Although international tax reform has been discussed for year in Washington and no substantive legislation has been enacted, the current discussion may build a consensus that will lead to legislation, most likely after the next Presidential election in 2016.
The materials prepared for the hearing and the hearing itself identified various factors providing an impetus for international tax reform in the United States as well as the policy issues to be addressed in crafting tax legislation to respond to those factors. Although the Senate Finance Committee has not yet drafted a legislative proposal, the questions asked by the senators during the hearing as well as their comments provide some insights as to the broad outlines of any bipartisan legislation that may follow.
Obama Administration’s Budget Addresses Some BEPS Action Items
On February 2, 2015 the Obama administration released the description of the revenue proposals in its fiscal 2016 budget, commonly referred to as the “Green Book.” From an international tax perspective, this year’s Green Book is notable because there are several new revenue proposals that align with action items under consideration by the OECD and the G20 as part of the BEPS (Base Erosion and Profit Shifting) initiative. Below we discuss several of the Administration’s latest proposals in the context of the corresponding BEPS action items.
New House Rule Puts Dynamic Scoring of Tax Legislation in the Spotlight
On January 5, 2015, the House of Representatives adopted H. Res. 5, which provides certain basic procedural rules for the 114th Congress. Included in the resolution is a provision requiring “the Congressional Budget Office and Joint Committee on Taxation, to the extent practicable, to incorporate the macroeconomic effects of ‘major legislation’ into the official cost estimates used for enforcing the budget resolution and other rules of the House.” Incorporating macroeconomic effects into official cost estimates of legislation is popularly known as “dynamic scoring.” This approach to estimating tax revenue has been discussed for many years but has never been officially adopted. Should significant tax legislation be proposed during the 114th Congress, dynamic scoring of that legislation could have a significant impact on how such legislation is perceived by members of Congress and the public.
Joint Committee on Taxation Estimates Federal Tax Expenditures for 2014-2018
On August 5, 2014 the staff of the Joint Committee on Taxation released a report entitled estimates of federal tax expenditures for fiscal years 2014-2018. The report is of interest because discussions of U.S. corporate tax reform often center on reducing the U.S. corporate tax rate while expanding the corporate tax base. An expansion of the corporate tax base would ordinarily result in a reduction in corporate tax expenditures.
Joint Committee on Taxation Estimates Revenue Loss if Section 965 is Revived
Section 965 was enacted in 2004 to encourage U.S. multinationals to repatriate offshore funds by providing for a temporary, one-time reduced rate of tax on dividends paid by controlled foreign corporations. In light of recent estimates that U.S. multinationals now have more than $1 trillion of earnings deferred from U.S. tax in controlled foreign corporations and the desire to fund various legislative initiatives, Sen. Orrin Hatch requested the Joint Committee on Taxation (the “JCT”) to provide a revenue estimate assuming section 965 was reenacted in 2014. In a letter dated June 10, 2014, the JCT estimated that such a proposal would not raise revenue; rather it would have a revenue cost of $95.8 billion for the period 2014 - 2024.
President Obama’s Budget Would Tighten U.S. Subpart F Rules
On March 4, 2014, the Obama administration released its fiscal 2015 budget. The revenue proposals of the budget are contained in in a document commonly referred to as the Green Book. The 2015 Green Book, which contains 297 pages of proposed tax increases and tax expenditures, includes 17 international tax reform proposals that would significantly raise taxes on U.S. multinationals. While the proposals are unlikely to garner much political support in the near future, some of them may enter into the mix of any political compromise needed to fund a revenue neutral reduction in the corporate tax rate – should serious corporate tax reform discussions materialize after the Congressional elections in the fall.
The Obama Administration Releases Its Fiscal Year 2014 Budget
On April 10, 2013, President Obama delivered his administration's proposals for the federal government's 2014 budget to the U.S. Congress. The budget addresses both federal spending and federal revenue (i.e., taxes). Each year, the tax proposals included in the budget are published separately in a book with a green cover, which is referred to colloquially as the "Greenbook." This year's Greenbook has two main components: (i) a traditional budget proposal, i.e., proposed tax increases, and (ii) a framework for revenue-neutral tax reform.