photo, "Money!", by Tracy O., used pursuant to CC license
by Damozel | Wow. It's so simple, so obvious, and so clearly one of the things that desperately need to change. But corporations who have shipped jobs overseas aren't going to enjoy seeing those loopholes closed, which means the GOP is going to kick up hell.
But first, the plan. The Huffington Post reports:
HuffPost has posted the plan here. Key points include:
1. Removing tax advantages for investing overseas, and using a portion of those resources to make permanent a tax credit for investment in research and innovation within the United States, by means of the following changes:
[a] Reforming deferral rules so that - with the exception of research and experimentation expenses - companies cannot receive deductions on their U.S. tax returns supporting their offshore investments until they pay taxes on their offshore profits, a provision which would raise $60.1 billion from 2011 to 2019....
"Currently, a company that invests in America has to pay immediate U.S. taxes on its profits from that investment. But if the company instead invests and creates jobs overseas through a foreign subsidiary, it does not have to pay U.S. taxes on its overseas profits until those profits are brought back to the United States, if they ever are. Yet even though companies do not have to pay U.S. taxes on their overseas profits today, they still get to take deductions today on their U.S. tax returns for all of the expenses that support their overseas investment.....
As a result, this preferential treatment uses U.S. taxpayer dollars to provide companies with an incentive to invest overseas, giving them a tax advantage over competitors who make the same investments to create jobs in the United States."
(emphasis added)
[b] Closing foreign tax credit loopholes which currently allow US business that pay foreign taxes on overseas profits to artificially inflate or accelerate the US credit for taxes paid, which would raise $43.0 billion from 2011 to 2019....
"When a U.S. taxpayer has overseas income, taxes paid to the foreign jurisdiction can generally be credited against U.S. tax liabilities. In general, this "foreign tax credit" is available only for taxes paid on income that is taxable in the U.S. The intended result is that U.S. taxpayers with overseas income should pay no more tax on their U.S. taxable income than they would if it was all from U.S. sources.
"However, current rules and tax planning strategies make it possible to claim foreign tax credits for taxes paid on foreign income that is not subject to current U.S. tax. As a result, companies are able to use such credits to pay less tax on their U.S. taxable income than they would if it was all from U.S. sources - providing them with a competitive advantage over companies that invest in the United States."
(emphasis added)
[c] Applying savings from unfair overseas tax breaks to permanently extend the research and experimentation tax credit for investment in the United States. This tax credit will otherwise expire at the end of 2009. The permanent R&E tax credit will encourage investment in the US by providing a tax cut of $74.5 billion over the next 10 years to businesses that invest in the US.
2. Cracking down on overseas tax havens, raising a total of $95.2 billion over the next 10 years.
Everyone, including any company which benefits from tax havens, knows that the following happens and that it isn't fair or right:
In other cases, Americans break the law by hiding their income in hidden overseas accounts, and these tax havens refuse to provide the information the IRS needs to enforce U.S. law.
Either way, these tax havens make our tax system less fair and harm the U.S. economy."
The administration plans to implement the following changes.
[a] Eliminate a loophole that permits US companies with foreign subsidiaries to shift income to tax havens in order to make their US taxes disappear , raising $86.5 billion from 2011 to 2019....
"Traditionally, if a U.S. company sets up a foreign subsidiary in a tax haven and one in another country, income shifted between the two subsidiaries (for example, through interest on loans) would be considered "passive income" for the U.S. company and subject to U.S. tax. Over the last decade, so-called "check-the box" rules have allowed U.S. firms to make these subsidiaries disappear for U.S. tax purposes. With the separate subsidiaries disregarded, the firm can shift income among them without reporting any passive income or paying any U.S. tax."
[b] Require foreign financial institutions that have dealings with the United States to sign an agreement with the IRS to become a "Qualified Intermediary" and share as much information about their U.S. customers as U.S. financial institutions do, or else face the presumption that they may be facilitating tax evasion and have taxes withheld on payments to their customers; and -- in addition -- closing loopholes that allow QIs to claim they are complying with the law even as they help wealthy U.S. citizens avoid paying their fair share of taxes.
The IRS is already engaged in significant efforts to track down and collect taxes from individuals illegally hiding income overseas. But to fully follow through on this effort, it will need new legal authorities. Current law makes it difficult for the IRS to collect the information it needs to determine that the holder of a foreign bank account is a U.S. citizen evading taxation. The Obama administration proposes changes that will enhance information reporting, increase tax withholding, strengthen penalties, and shift the burden of proof to make it harder for foreign account-holders to evade U.S. taxes, while also providing the enforcement tools necessary to crack down on tax haven abuse....
The core of the Obama Administration's proposals is a tough new stance on investors who use financial institutions that do not agree to be Qualifying Intermediaries. Under this proposal, the assumption will be that these institutions are facilitating tax evasion, and the burden of proof will be shifted to the institutions and their account-holders to prove they are not sheltering income from U.S. taxation..
[c] Provide the IRS with better tools for prosecuting tax evaders by:
- tightening the reporting standards for overseas investments,
- doubling the penalties " when a taxpayer fails to make a required disclosure of foreign financial accounts,"
- imposing negative presumptions on individuals who fail to report foreign accounts,
- extending the statute of limitations for enforcement to six years after the tapayer reports the information; and
- hiring nearly 800 new IRS employees devoted to international enforcement, "increasing its ability to crack down on offshore tax avoidance."
via huffpost
Okay, so at least there's a plan. It's certainly not going to do more than recover a portion of the costs that taxpayers have invested in some of the companies that benefited most from our recent largesse. The Huffington Post reports:
In January, the Government Accountability Office issued a report (PDF) that found that 83 of the 100 largest publicly traded U.S. corporations reported subsidiaries in countries listed as tax havens or "financial privacy jurisdictions."
Many of those corporations are beneficiaries of billions in taxpayer dollars under the Troubled Asset Relief Program. Morgan Stanley, for instance, boasts 273 subsidiaries in tax havens, with 158 in the Cayman Islands alone. Citigroup's got 427, with 90 in the Cayman Islands, and 59 of Bank of America's tax-haven subsidiaries are there as well.
Who wouldn't want a more fair and equitable tax systems, where corporations -- like the rest of us -- are damned well compelled to pay to the government what they really owe? Who?
And (via) just listen to Erin Burnett and Joe Scarborough defending tax havens -- it's an obligation, she argues, to pay as little tax as you can, which somehow translates into corporate finagling to pay less than they should being deeply self-serving and therefore deeply moral or something. I don't know.
SCARBOROUGH: They tell me though it's all legal - ALL LEGAL.
BURNETT: Of course it is.
SCARBOROUGH: There's a big difference between tax avoidance and being an all out tax cheat.
BURNETT: That's right. Isn't it your obligation in this country - there is a tax code for a reason, to take advantage of every bit of it you can and pay as little as you can..(via)
Read Jason Linkins' response here.
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Cayman Islands Financial Services Association, which represents the financial servics industry in the Caymans, fully supports amending the tax reporting legislation to provide fully proactive reporting to the U.S. that mirrors the structure with all 27 European Union jurisdictions under the EU Savings Directive.
Posted by: Anthony Travers | May 27, 2009 at 02:07 PM