The U.S. International Tax System at a Crossroads

1. The U.S. International Tax System at a Crossroads Barbara Angus, Tom Neubig, Eric Solomon, and Mark Weinberger

2. U.S. International Tax System • Current Situation • Outdated • Too Complex • Ineffective in supporting the goals of the government and businesses • System has been augmented, patched, clarified and tweaked regardless of the long-term competitive effect and worldwide tax policy trends

3. Consensus: Review and Modernization of the U.S. International Tax Rules • Reason: The business landscape in the United Stated has transformed • Increasingly global economy • New markets and industries have opened • Flow of capital has shifted • New economic powers have risen • As a result, the U.S. international tax system has become obsolete and stands at a crossroad

4. Proposed Changes • 2009: • Curtail deferral of foreign earnings by denying expense deductions on a current basis • Restrict the use of foreign tax credits to offset U.S. tax on foreign earnings • Eliminate the check-the-box entity classification rules in structuring foreign operations • 2010: • Tax treatment of transferred intangible property

5. Goals of Proposed Changes • “Strike a Balance” - Make U.S. Businesses more competitive globally and make America a more attractive location for business investment • Limit the role taxes play in investment decisions • Reduce incentives to move jobs overseas • Eliminate loopholes that allow companies to avoid paying taxes

6. What needs to be addressed? • The discussion should encompass a global view. • How have the dynamics of the global economy changed? • What role should other countries’ tax systems play in determining international tax policy in the United States? • What tax policies would best support the needs of the U.S. Government and businesses in today’s economy?

7. What needs to be addressed? Cont. • What are the potential consequences of placing additional tax burdens on foreign investments? • How do the U.S. Transfer pricing rules fit into the U.S. tax system and integrate with the rules of U.S. trading partners?

8. Focus • Tax policy should foster a competitive global environment and maintain a clear focus on what is best for the U.S. economy and the American people.

9. Conclusion • Choosing the right path… • International Cooperation • “We can no longer meet the challenges of the 21st century economy with 20th century approaches” – President Obama • Using international activity to your advantage • Planning for future growth of population and global commerce • Ensure success through tax laws

10. What are the goals of the proposed changes to the U.S. International tax policy? • The goal of the proposed tax changes to U.S. international tax policy is to make U.S. businesses more competitive globally and make America a more attractive location for business investment by limiting the role taxes play in investment decisions, reducing incentives to move jobs overseas, and to eliminate loopholes that allow companies to avoid paying taxes. A tax policy that fosters a competitive global environment and maintains a clear focus on what is best for the U.S. economy and the American people.