26 February 2016 EY Center for Tax Policy: This Week in Tax Reform for February 26 Finance multiemployer hearing: The Senate Finance Committee will hold a hearing on Tuesday, March 1 (at 10 a.m.) on "The Multiemployer Pension Plan System: Recent Reforms and Current Challenges." Witnesses: Finance trade hearing: The Finance Committee will hold a hearing on "Free Trade Agreement Implementation: Lessons from the Past" on Thursday, March 3 (at 10 a.m.). Witnesses: Ways and Means human resources hearing: The House Ways and Means Subcommittee on Human Resources will hold a hearing entitled "Getting Incentives Right: Connecting Low-Income Individuals with Jobs" on Tuesday, March 1 (at 10 a.m.). Ways and Means oversight hearing: The House Ways and Means Oversight Subcommittee will hold a hearing on "Protecting the Free Exchange of Ideas on College Campuses" on Wednesday, March 2 (at 10 a.m.). Brady, Boustany on international tax reform: House Ways and Means Committee Chairman Kevin Brady (R-TX) made clear February 24 that he has charged the Committee and Tax Policy Subcommittee Chairman Charles Boustany (R-LA) in particular with developing an international tax reform proposal. "I am convinced the first step we can take toward overall pro-growth tax reform is to permanently lower the tax gates and allow our US companies to bring their profits back home to invest in our communities, in jobs, in research and development, in growth ... " he said, in concluding a hearing during which Republican members sought to draw connections between global tax pressures and effects on average Americans. Participating in an Urban Institute-Brookings Institution Tax Policy Center (TPC) event February 25, Chairman Brady said he is not sure how far they can go but the Committee will try to advance the urgent issue of international tax reform given the impact on communities. For his part, Rep. Boustany said February 24 that he wants to have a draft bill ready by the end of March. "We are hoping to get something done this first quarter," he said, as reported by Tax Notes. Boustany earlier told the American Action Forum, however, that enactment of international tax reform this year is "probably unlikely" given the tight time frame and current president, but that the Committee would nonetheless see how far they can go with a bill. During both the hearing and TPC event, Chairman Brady said the blame for the current situation of companies moving overseas or being acquired by foreign competitors is split between the out-of-touch US tax system and actions by other countries, like the OECD BEPS project that may force companies to restructure and move operations overseas. Brady at Tax Policy Center: Chairman Brady took questions following an address to the TPC event during which he continued to list principles for the Committee's tax reform effort. He said the charge he laid out for the Committee shouldn't aim to place the country in the middle of the pack but in the lead, and that he has encouraged members to be bold in their thinking. "Just tweaking the tax code we have today simply won't cut it," he said, adding that it is more politically difficult to do a mediocre tax reform than a comprehensive plan that generates excitement. In an earlier panel at the event, G. William Hoagland, Senior Vice President at the Bipartisan Policy Center, suggested that the populist tone of the presidential election may make it difficult to act only on international tax issues this year without addressing individual tax reform. Asked about that point, Chairman Brady said the trend of companies leaving the United States is worrisome to everyone. Brady said the direct result of global tax developments is the loss of jobs, and because companies that are pushed overseas have local suppliers there is a negative impact that ripples through local economies. Regarding how revenue from a one-time tax on overseas income should be allocated, Brady repeated that he wants revenue to go toward lowering rates but alluded to support by Democrats for using the revenue for infrastructure investment. Ways and Means international hearing: The February 24 Ways and Means Committee hearing focused on the urgency of reducing the statutory corporate tax rate and moving toward a dividend exemption system in light of pressures put on US-based multinational companies, including the adoption by other countries of elements of the OECD BEPS project and EU state aid investigations. Republican members and three witnesses made this case, though the hearing did turn partisan in some respects as Democrats questioned whether moving to a more territorial tax system along with adoption of an innovation box would make both domestic companies and the US economy more competitive. Chairman Brady drew attention to testimony from Raymond Wiacek of Jones Day about the impact on local communities when US-based companies are acquired by foreign-based competitors. Wiacek cited as an example Detroit, where the whole economy was once based on the auto industry, and said the United States cannot afford to lose another round of US companies in strong sectors like technology and pharmaceuticals. Rep. Boustany said lawmakers must communicate the urgency of the pressures facing US companies to the public, who may not understand terms like EU state aid, inversions, and OECD BEPS action items, but do understand what happens when a US-based multinational company leaves. "We need to make that case and impart that sense of urgency through this country because American business is under assault," he said. Wiacek also said while much of the discussion is on inversions, more attention should be paid to acquisitions of US companies in non-inversion transactions. Witness Itai Grinberg of the Georgetown University Law Center said inversions are "the tip of an iceberg" and symptoms of much deeper problems. Hatch on corporate integration: In a February 24 speech at a Bloomberg BNA tax policy event, Senate Finance Committee Chairman Orrin Hatch (R-UT) discussed his forthcoming corporate integration proposal to eliminate the current double taxation of corporate income — once at the corporate level and then again at the shareholder level when the profits are distributed to shareholders as dividends. Chairman Hatch said while he is still working out the details of the proposal and deciding on the right approach, corporate integration is a "viable and workable option" and one that does not preclude the ability to enact other tax reforms. "We could pass a standalone integration bill to quickly address immediate problems. Or, as Chairman Brady recently said, it could be enacted to complement a broader international tax reform package," Hatch said. Chairman Hatch said Brady is right to pursue international tax reform but it will be difficult to enact in the current political environment. Wyden now open to territorial: Also speaking at the February 25 TPC event, Senate Finance Committee Ranking Member Ron Wyden (D-OR) suggested that he would be open to moving toward a territorial system of taxing foreign earnings, with certain caveats. Wyden said his principles for international tax reform include: making the US corporate tax rate competitive again; making the system attractive to investment and rewarding those who create jobs; and yielding revenue for infrastructure investments. "In my view, an international tax reform plan built around those principles is a territorial system without the gaming," said Wyden, who as recently as 2011 proposed repealing deferral of foreign earnings without moving to a territorial system. He noted that Senators Chuck Schumer (D-NY) and Rob Portman (R-OH) agreed to a territorial framework consistent with his principles in the context of the Committee's tax reform working groups last summer. Wyden said election-year politics "make a major tax overhaul of any kind extremely unlikely," but that Congress cannot afford to wait until 2017 to address challenges like inversions. Senator Wyden said he thinks a foreign company involved in an inversion should be required to own 50% of the American firm it's acquiring, rather than 20%, and expressed concerns about transfer pricing and earnings stripping with regard to inverting companies. He also said US tax laws should be more clear-eyed and tougher on so-called "spinversions," "hopscotch loans," and other practices. "I am putting together a proposal that will combine many of these ideas into one package to crack down on inversions and tax games to preserve our tax base for broader reform," Wyden said. In the same speech, Senator Wyden said he is also working on legislation that goes after the issue of "how tax pros game the system with sophisticated financial instruments," building on a report he released last year. He also said he is developing a proposal that will simplify depreciation. "Instead of 100 sets of depreciation rules, I want to get down to a handful that's easy to work with. And businesses will be able to average out the useful life of their equipment instead of having to use a separate schedule for every item in their inventory," Wyden said. Democrats on inversions: Despite the Republican focus on tax reform, Democrats in both the House and Senate continue to call for action targeting inversions, including during the February 24 Ways and Means hearing. Ranking Democrat Sandy Levin (D-MI) focused on earnings stripping in the context of inversions on the heels of his introduction February 23 of The Stop Corporate Earnings Stripping Act of 2016 (H.R. 4581), which seeks to limit interest deductions for foreign-controlled inverted groups in a manner similar to legislation introduced by Senators Chuck Schumer (D-NY) and Dick Durbin (D-IL) in 2014. The bill would amend IRC section 163(j) to: repeal the debt-to-equity ratio threshold; reduce the permitted net interest expense threshold to no more than 25% of the entity's adjusted taxable income; repeal the excess limitation carryforward; and permit disallowed interest expense to be carried forward only for five years. On February 25, senators including Durbin wrote to Secretary Jack Lew to urge Treasury to expedite rules to limit the use of earnings stripping and other practices by foreign-controlled US corporations following an inversion. "In the Senate Finance Committee, we've held countless hearings over the last several years examining various areas of the tax code and looking for agreement on ways to implement changes. Members from both parties and both chambers have put forward tax reform bills and proposals. Yet, despite all these efforts, we have the same outdated, unfair, and overly complex tax system that we've had for some time. People have good reason to be frustrated. Our tax system is, quite simply, an albatross. It is a roadblock, designed almost haphazardly, that stands between us and long-term growth and prosperity." — Senate Finance Committee Chairman Orrin Hatch (R-UT), February 24
Document ID: 2016-0398 | |||
