Last modified: 2014-12-10
Abstract
The United States presently has the highest statutory corporate tax rate in the world. However, there has been much discussion recently, including Congressional hearings, about abusive corporate tax avoidance strategies that have shed light on how most U.S. large multinational corporations (MNCs) pay a much lower effective tax rate. The more recent techniques, referred to as BEPS (Base Erosion and Profit Shifting), serve to shift US profits to low tax foreign jurisdictions.
What many have taken from these hearings is that these abuses have reduced corporate tax receipts to one-third of their level in the mid-1980s, which has worsened our national debt. In addition, the hearings suggested that effective tax rates for corporations have declined by 50% since the mid-80s.
The most recent form of abuse is known as a Corporate Inversion, whereby the U.S. MNC is effectively acquired by a foreign corporation allegedly to immediately reduce the U.S. tax base and move jobs overseas. Our presentation is intended to:1) Shed an objective light on the facts of these transactions;
2) Discuss how the U.S corporate tax code discourages U.S. investment compared to the rest of the world;
3) Explore a key defense of U.S. MNCs - they have a fiduciary responsibility to minimize taxes;
4) Highlight the facts about the historical level of corporate tax receipts and why its apparent decline may also be caused by other factors besides BEPS;
5) Summarize conflicting studies that attempt to determine the true effective U.S. corporate tax rate after considering preferences, incentives, and loopholes, and the historical trend of that rate;
Finally, we will summarize the factors that support why substantive corporate tax reform is needed; the criteria for sound reform; and a summary of the more significant corporate tax reform proposals.