1 / 27

International Tax Reform

International Tax Reform. Prepared for SIEPR-TPC Tax Reform Conference Rosanne Altshuler January 18, 2013. The Current System. 35%. The Current System. 35%. 15%. Lowland. The Current System. 35%. 15%. A U.S. corporation sets up an affiliate In Lowland …. The Current System. 35%.

mimis
Download Presentation

International Tax Reform

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. International Tax Reform Prepared for SIEPR-TPC Tax Reform Conference Rosanne Altshuler January 18, 2013

  2. The Current System 35%

  3. The Current System 35% 15% Lowland

  4. The Current System 35% 15% A U.S. corporation sets up an affiliate In Lowland…

  5. The Current System 35% 15% … earns $100 and pays $15 in tax to Lowland

  6. Worldwide taxation with credit 35% $100 15% Owes $35 to U.S. ─ $15 credit for taxes paid to Lowland = $20 residual tax to U.S.

  7. Worldwide taxation with credit 35% 55% earns $100 in Highland and pays $55 in taxes

  8. Worldwide taxation with credit 35% $100 55% Owe $35 to U.S. ─ $35 credit for taxes paid to Highland = $0 residual tax and $20 of “excess credits”

  9. Worldwide taxation with credit Earns $100 15% 35% 55% Earns $100

  10. Worldwide taxation with credit 15% 35% $100 $100 Use $20 of “excess credits” from Highland to offset $20 owed on income from Lowland = $0 residual tax 55%

  11. When is Tax on Foreign Earnings Paid? $100 35% 15% Owe $20 residual tax to U.S. on earnings in Lowland ONLY when the $100 is repatriated

  12. The current worldwide credit and deferral system creates many avenues for sophisticated tax planning

  13. It’s complicated… Sub license Overseas buyers Royalties Sub license Royalties Transfer of intellectual property Royalties License

  14. Even Dilbert does Google’s Double Irish with a Dutch Sandwich

  15. Discontent with the current system has focused policy makers and analysts on possible reforms…

  16. How do Territorial Systems work? $100 35% 15% No tax owed to U.S. on the active income earned in Lowland Territorial taxation through dividendexemption (royalty payments made to parent would be taxed)

  17. List of OECD countries Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovenia, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States

  18. Territorial Tax Systems Australia, Austria, Belgium, Canada, Chile, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovenia, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom,United States

  19. Worldwide Tax Systems Australia, Austria, Belgium, Canada,Chile,Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland,Ireland,Israel, Italy, Japan, Korea, Luxembourg,Mexico, Netherlands, New Zealand, Norway,Poland,Portugal, Slovenia, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom,United States

  20. Combines central and sub-government taxes. Source: OECD tax database.

  21. Problems with current system • Income shifting and its effects on investment location decisions and revenue • Lockout effect of repatriation tax and associated costs of avoidance • Complexity • May put U.S. multinationals at a competitive disadvantage • Raises little revenue

  22. (Some) Possible Reforms • Fundamental reforms • Worldwide taxation with repeal of deferral • Dividend exemption • Grubert and Altshuler (2012): combine dividend exemption with a minimum tax of 15% • Formulary apportionment

  23. (Some) Possible Reforms • Incremental reforms • Lower the statutory rate • Repeal check the box • Administration budget proposals and other reforms of current law

  24. Evaluating the Reforms • Key considerations • Repatriation tax? • Income shifting incentives? • Tax revenue? • Simplicity? • Location incentives for tangible and intangible capital? • Expatriation incentives? • Transition rules?

  25. Effective Tax Rate Simulations* • Home country (U.S.) with tax rate of 30% • Low tax country (5% tax rate), high tax country (25% tax rate), tax haven (0% tax rate) • A discrete high tech investment in low tax country based on U.S. R&D • A routine investment in high tax location • Income shifting possible but is not costless *From Grubert and Altshuler, 2012, “Fixing the System: An Analysis of Alternative Proposals for the Reform of International Tax”

  26. Effective Tax Rate Simulations* *From Grubert and Altshuler, 2012, “Fixing the System: An Analysis of Alternative Proposals for the Reform of International Tax”. Assumes check the box remains in place unless noted.

  27. Conclusions • Look for reforms that make improvements to the current system across many dimensions including lockout effect, income shifting, competitiveness, and complexity • Goals may not be in conflict • A minimum tax combined with dividend exemption may have advantages over repeal of deferral and dividend exemption alone, and reduce their shortcomings

More Related