01/04/20

From Features

Market Focus: USA

The International Tax Ping Pong

From Competition to Coordination and Back

Aparna Mathur
American Enterprise Institute

There is something new brewing on the international tax landscape. Historically, countries competed with one another by offering lower corporate tax rates and other incentives in the hope of attracting companies to locate investment, reported profits, and jobs within their borders. Now, an attempt is being made to restrain this tax competition via regulations that would allow countries to extract a growing share of companies’ worldwide profits. With this shift, a central question of international taxation appears to be how big each jurisdiction’s slice of the pie of profits should be. And relatedly, how do we set up rules to ensure that there is international consensus on how this pie is divided? These are tough questions, and ones that I suspect countries will be debating for the next decade.

There is something new brewing on the international tax landscape. Historically, countries competed with one another by offering lower corporate tax rates and other incentives in the hope of attracting companies to locate investment, reported profits, and jobs within their borders. Now, an attempt is being made to restrain this tax competition via regulations that would allow countries to extract a growing share of companies’ worldwide profits. With this shift, a central question of international taxation appears to be how big each jurisdiction’s slice of the pie of profits should be. And relatedly, how do we set up rules to ensure that there is international consensus on how this pie is divided? These are tough questions, and ones that I suspect countries will be debating for the next decade.

US Tax Reform, Simplification, and FATCA

“The Force Is Strong, Young Skywalker.”

Professor William Byrnes
Texas A & M University School of Law

On the first day of Federal Income Taxation class, my law students read this phrase, written in large letters upon the whiteboard: “The Force is Complex, Opaque, Uncertain, and Changing”. I exclaim, “For the students in the room serious about becoming tax lawyers, repeat this phrase as a mantra before class. And then continue repeating it throughout your life each day before work.” Hoping the millennials understands my Star Wars reference, I continue, “The Force will take care of you with high salaried private firm and corporate employment as well as employment in a government position, or a policy thinktank, and even as an academic.” Inevitably a student brings up tax simplification to which I respond, “Young Skywalker,” “once a Jedi, always a Jedi.” Elaborating, I explain, “Legislation and regulations are written by Jedi, known as tax staffers and Treasury counsel, who have become one with the Force and the Force is strong.”

Hoping the millennials understands my Star Wars reference, I continue, “The Force will take care of you with high salaried private firm and corporate employment as well as employment in a government position, or a policy thinktank, and even as an academic.” Inevitably a student brings up tax simplification to which I respond, “Young Skywalker,” “once a Jedi, always a Jedi.” Elaborating, I explain, “Legislation and regulations are written by Jedi, known as tax staffers and Treasury counsel, who have become one with the Force and the Force is strong.”

Two years ago, the U.S. Congress narrowly passed tax ‘reform’ legislation called the Tax Cut and Jobs Act, or just TCJA. Proponents stated that the TCJA offers ‘tax simplification’. One measure of whether simplification has been achieved is whether the tax preparation services industry had experienced a decline in revenues post TCJA. For the year 2017, Market Research.com determined the industry’s 17, 908 companies generated US$7.1 billion…