The Tax Management Transfer Pricing Report ™ provides news and analysis on U.S. and international governments’ tax policies regarding intercompany transfer pricing.
Feb. 25 — The U.S. business community has lost the global public relations battle on international tax planning—and should consider whether a proposed global minimum tax would be better for their interests than continuing with the status quo, a top Treasury Department official said.
Robert Stack, deputy assistant secretary for international tax affairs, said global non-governmental organizations have “eaten the lunch” of U.S. multinationals on setting and influencing the global political agenda.
“It isn't even a close call,” Stack said. “In fact, they haven't only eaten the lunch of the business community, they've eaten their breakfast, lunch and dinner.”
Continued media coverage about alleged tax abuse, increasingly aggressive actions from tax administrations and the general terms of debate about standard international tax practices show that multinationals have lost control of the “narrative,” Stack said.
“If you go through any literature on tax issues in developing countries, and illegal activities, transfer pricing is always in the litany of things that are the crimes in Africa depriving people of billions of dollars,” he said.
Stack spoke at the annual meeting of the U.S. chapter of the International Fiscal Association in Coral Gables, Fla., on Feb. 25.
The costs of increased tax controversy have been “enormous” for U.S. companies, Stack said, including not only litigation and planning costs, but damages to company brands.
“It pains me to think of the economic engine of the world, our multinationals, painted around the world as tax dodgers worthy of the worst opprobrium that's possible,” he said.
Stack said the proposed global minimum tax—which would tax the worldwide profits of U.S. corporations at 19 percent on an immediate basis—would discourage companies from stripping earnings to low-tax jurisdictions, and thus dampen political controversies about stateless income.
Obama first proposed the global minimum tax in 2015, and earlier this year included it in his final budget request to Congress .
“From where I sit, I don't think it is a fair bet to say that companies are going to be able to move through, after tax reform, into a system where you're paying normal tax rates where you do business, but you've left open a window somewhere of much lower tax, whether it's zero or 12.5 percent, and you're able to sustain the world where you're able to play in that marginal space,” he said.
One area where countries are likely to become more aggressive is with transparency, especially after the Organization for Economic Cooperation and Development approved new country-by-country reporting standards as part of its project to combat tax base erosion and profit shifting, Stack said.
“What is probably most important for the U.S. business and tax community to understand is that more transparency is coming,” Stack said. “The likelihood that in five or 10 years governments—not necessarily the U.S. government—around the world are not going to demand more transparency from multinationals as to where they earn their money, where they pay their taxes and how much just strikes me as unreasonable as it was to think that we didn't invite the BEPS project by walking up to the various lines in multinational tax, having it wind up in newspapers in one way or another, and then push us into a process that has a lot of people in a tailspin.”
At an earlier panel, tax directors from several corporations discussed how to deal with the transparency demands imposed by the OECD's new country-by-country reporting standards.
“Don't think about this as information reporting,” said John Haertel, vice president of tax at Kimberly-Clark Corp. in Irving, Texas. “Call it strategic risk management.”
Haertel said his company had been developing information technology systems to rapidly respond to questions it anticipates receiving from tax administrations after they receive the country-by-country reports, rather than researching the information manually.
Kevin McWilliams, vice president for tax at International Paper Co. in Miami, said that “for tax people like us, you're faced with something like this, immediately you want to fix it.” But, he added, “there are very important communication and educational aspects about this.”
While the rules on country-by-country reporting require the information to be kept confidential, McWilliams said companies should anticipate that the information will be disclosed.
“As we all know, when this information gets filed, and disseminated around the world, it will no longer be confidential,” McWilliams said. “It will get leaked, it will get used by the press, it will get used by NGOs. It's important to get ahead of that early.”
McWilliams said his company has run preliminary country-by-country reports to see what issues it would raise and brought those concerns to the boardroom level to develop communication strategies to prepare for when the report might become public.
To contact the reporter on this story: Alex M. Parker in Coral Gables, Fla., at firstname.lastname@example.org
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