The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.
June 9 — Democrats on the Senate Finance Committee are working on a package of anti-inversion measures, according to a staffer with the committee.
“Some pieces of it are anti-inversion, other pieces are what I would describe as mini-reforms of the international system that might lessen the incentives to invert,” said Todd Metcalf, the chief Democratic tax counsel for the Senate Finance Committee. “Rather than sort of trying to slam the door shut, or build the wall, which seems to be the theme of this year.”
Speaking at a transfer pricing conference co-sponsored by Bloomberg BNA and Baker & McKenzie LLP June 9, Metcalf said that Democrats on the committee have been working on the package with the Joint Committee on Taxation for “several months,” and that it would likely be unveiled during the summer.
Sen. Ron Wyden (D-Ore.) is the ranking Democrat on the Finance Committee, which is chaired by Sen. Orrin Hatch (R-Utah).
Inversions—when a company establishes an offshore tax residency, usually through a merger with a foreign entity—have become a hot political topic in recent years. In April, the Department of Treasury released a package of regulations aimed at inversions and some of the related issues, such as earnings stripping (24 Transfer Pricing Report 1560, 4/14/16).
Metcalf also emphasized that only a broader, fundamental overhaul of the tax system would ultimately deal with the inversion issue.
He said the recent Treasury regulations were a “nudge” to Congress to push for legal changes.
“Maybe not so gentle—a notice to Congress that, you're not doing what you need to do, so we're going to do what we can do,” Metcalf said. “If you think that's a problem, hopefully, you'll take the bull by the horns and actually fix the problem.”
Metcalf spoke at a panel with several other congressional tax staffers—who all agreed there were significant hurdles to a comprehensive tax overhaul in the near future, including matching the legislative possibilities with the political climate.
“There is a great wave of populism. Part of me thinks it's two different sides—imagine it's a word with two fonts,” said Aruna Kalyanam, the Democratic tax counsel for the House Ways and Means Committee. “It's hard to see how we go forward with something that looks like a big corporate tax cut. I don't think President Trump would be able to sign something like that into law. I don't know that President Clinton or President Sanders would sign something like that.”
Metcalf said, however, that many corporate chief executive officers have told the committee that merely going to a territorial system—in which overseas profits are generally exempted from U.S. taxation—wouldn't be enough to make the U.S. system competitive, if it isn't accompanied by a corporate rate cut.
“The consensus among those CEOs was no, it doesn't solve the problem,” Metcalf said. “So now we're back in this box—maybe international-only isn't going to yield the result that we need.”
Mark Prater, the Republican chief tax counsel for the Senate Finance Committee, said that a tax overhaul package would likely follow the approach chosen by former Ways and Means Chairman Dave Camp (R-Mich.) and include measures which identify and target intangible income.
“You've got to create some kind of an exemption system going forward that, frankly, looks at conventional active business income one way, and looks at the more mobile dynamic intangible income in a different way,” he said—adding that it might “not be that different.”
Metcalf reiterated previous statements that Senate Democrats were working on several “discussion drafts,” in the hopes that they may be ready to negotiate a tax overhaul package when a new administration begins in 2017 .
“If history is any indicator, there typically are big tax bills that come out of a new administration in the first year,” Metcalf said. “At least we'll all be ready when the opportunity presents itself, which I think all of us kind of agree we hope is sooner than later.”
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