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Corporate Pressure For US International Tax Reform

by Mike Godfrey,, Washington

23 October 2015

Major US investor Carl C. Icahn and the Chief Executive Officer of TechNet, Linda Moore, have both recently written letters to leading lawmakers pointing out that the passage of international tax reform by Congress has become a matter of extreme urgency.

In his letter, Icahn announced that "the time has come to hold Senators and Congressmen accountable for the current gridlock in Congress that prevents important legislation from being passed. This is why I'm currently preparing to form a Super Political Action Committee (PAC) with an initial commitment of USD150m from me personally."

He said that the PAC will focus on "the pernicious effects that are occurring and will continue to occur as a result of Congress's failure." In particular, he called for the passage of international tax reform to stop the "corporate tax inversions" being used by some US multinationals to move their tax residences abroad – away from the high 35 percent US headline federal corporate tax rate – and to unlock their unrepatriated earnings held offshore.

He favored the bipartisan tax reform framework proposed earlier this year by Senators Rob Portman (R – Ohio) and Charles Schumer (D – New York), who suggested a transition away from the present "worldwide" US international tax system to "a dividend exemption or hybrid territorial-type system."

They also recommended that, during that transition, the United States should adopt a deemed repatriation tax on the USD2 trillion in deferred earnings held abroad by US multinationals, at a rate significantly lower than the US statutory corporate rate.

"Most of these companies would be willing to pay a five percent to 10 percent incremental tax on this money upon bringing it back to the United States where much of it would be invested in new capital and used to create new jobs," Icahn wrote. "Additionally, the nearly USD200bn in new taxes thus realized could be used" to part finance a long-term extension to the Highway Trust Fund.

"We should enact this legislation immediately," he added. "After this December, because of elections, etc., it will be almost impossible to pass until the next Administration. I'm certain, if we wait two years it will be too late."

In her letter, Moore emphasized that implementation of the OECD's base erosion and profit shifting (BEPS) project, and the European Commission's state aid rulings against Starbucks and Fiat, mandated an immediate response by the United States.

She wrote that, due to the effect on US-headquartered companies of BEPS and the future measures expected to be taken by individual jurisdictions, "the US tax base will suffer in significant ways, and there will be incentives for jobs to be created abroad rather than at home."

Similarly to Icahn, Moore of TechNet is said to favor international tax reform establishing "a dividend exemption system combined with repatriation of accumulated foreign earnings, and an innovation box to encourage intellectual property development in the United States."

"These impending actions by our trading partners have created an immediate need for the White House and Congress to respond with countervailing changes to US corporate tax law, even if the political consensus for comprehensive tax reform does not currently exist," she concluded. "A failure to act now cannot be remedied by the next Administration or Congress."

TAGS: compliance | tax | tax compliance | law | intellectual property | corporation tax | multinationals | legislation | transfer pricing | tax rates | United States | tax reform | BEPS

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