By Sam Obenhaus
Senate
Finance Committee Chairman Max Baucus (D-MT) is pushing forward with tax
reform. On November 19, he released a draft bill that proposes changes to
the way the IRS taxes foreign earnings of U.S. corporations.
Under
current law, the U.S. operates a modified residential taxation system that stands
in contrast to the territorial system used by most other countries. Under
the U.S. system, U.S. multinational firms must pay U.S. taxes on income earned abroad
with a few exceptions. Most importantly, deferral provisions in the U.S. tax code allows companies to avoid paying U.S. taxes on foreign income until
they decide to repatriate that money back to the U.S. This, of course,
creates a disincentive to bring money back to the U.S.
Baucus’s
draft addresses a few of these issues while maintaining the U.S.’s rather unique
worldwide taxation regime. Instead of moving to a territorial system,
Baucus proposes to do away with deferral. His plan calls for immediately
imposing a tax on U.S. firms’ foreign earnings but at a lower statutory
rate. It would also limit some of the mechanisms U.S. corporations use to
shift income-generating assets from the U.S. to low-tax jurisdictions abroad.
The
proposal has been met with mixed a mixed reception. Some businesses,
especially those without significant international operations, came out in
support of the proposal. U.S. multinationals were less enthused. And
at least one Senate Finance Committee Republican, Sen. Rob Portman (R-OH), did
not reserve judgment. “I fear that if we have a minimum tax under a
worldwide system, it will encourage more U.S. companies to incorporate
overseas,” he said.
For
more on this story visit the Wall
Street Journal and Bloomberg
BNA’s International Tax Monitor.
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