For over 50 years, Bloomberg Tax’s renowned flagship daily news service, Daily Tax Report® has helped leading practitioners and policymakers stay on the cutting edge of taxation and...
Limiting excess foreign returns and denying deductions for offshore earnings are among the options for guarding against base erosion if the U.S. shifts to a territorial system, a Republican Senate staffer said.
Tony Coughlan, tax counsel for the Senate Finance Committee, said he has seen several base erosion-related proposals as part of the mix for tax reform, as the GOP border-adjusted tax plan appears to have fallen out of favor.
“There’s a lot of talk about base erosion, people get into it pretty quickly once they start talking about territorial,” Coughlan said. He spoke during a June 7 panel discussion at a tax conference sponsored by Bloomberg BNA and Baker McKenzie.
U.S. corporations have long advocated shifting to a territorial system, which would exempt most or all foreign income from U.S taxation. But critics claim it could risk losing the U.S. tax base without measures to prevent income shifting—a much stickier subject, which often pits different industries against each other.
Coughlan said the proposals he has seen include stronger Subpart F rules, limits on excess returns in foreign jurisdictions, and “round-trip” rules that would tax income from intangible assets used for sales or services in the U.S. He said he has also heard suggestions that a territorial system, which exempts foreign income from U.S. taxation, should also disallow deductions for U.S. entities that contribute to that income.
Many of the ideas suggested by Coughlan are similar to those in a 2014 draft from then-Ways and Means Committee Chairman Dave Camp (R-Mich.), including Option C, which taxed intangible income over a certain return and included “round-trip” rules that resulted in a minimum level of taxation in any jurisdiction.
The Camp proposal fell out of favor as Republicans pushed a border-adjusted cash flow tax as part of their reform blueprint, which was released in June 2016. But now that the blueprint has stalled—following heavy opposition from the retail sector—some of Camp’s ideas are returning to the discussion, Coughlan’s statement suggests.
Coughlan said denying deductions related to foreign income could act as a measure against base erosion by reducing the incentive for companies to earn money offshore.
“To the extent somebody thought, ‘Oh, we’ll just ship all of our money offshore to take advantage of this new territorial regime, they’d have to realize that what went along with that is they’d lose some of those deductions,’” Coughlan said.
He also said some advocated focusing on a cut in the corporate rate, which is currently 35 percent.
“If we got it down from 35 to 15, you’re done,” he said. “Don’t worry about base erosion. Nobody’s going to be eroding out of the base, at least not nearly enough. So that’s one stream of thought.”
Coughlan said early 2018—before the midterm campaign season heats up—marks the latest that tax reform could be finalized during this congressional session.
“The main talk is we need to do tax reform sooner—it gets more difficult the more we roll into 2018,” he said.
To contact the reporter on this story: Alex M. Parker in Washington at email@example.com
To contact the editor responsible for this story: Molly Moses at firstname.lastname@example.org
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)