As published on accountingtoday.com, Tuesday 11 May, 2021.
Congressional Democrats have reintroduced legislation in the House and Senate to shed more light on the use of corporate tax havens and incentives for outsourcing jobs abroad,
The Disclosure of Tax Havens and Offshoring Act, reintroduced Tuesday, by Rep. Cindy Axne, D-Iowa, and Senator Chris Van Hollen, D-Maryland, would require public corporations to disclose their financial reporting on a country-by-country basis so Americans could see the extent to which they are abusing tax havens or offshoring jobs.
The bill fits in with the Biden administration’s Made in America Tax Plan, which was rolled out last month in conjunction with its American Jobs Plan (see story). The Biden plans aim to reduce profit shifting by multinational corporations and eliminate incentives to offshore investment by enacting a country-by-country minimum tax.
“Americans have a right to know when corporations are using incentives in our tax system to ship jobs overseas or abuse offshore tax havens,” Van Hollen said in a statement Tuesday.
Corporations can use foreign tax credits to reduce their tax liability in the U.S. on foreign profits based on amounts the company paid in taxes on those profits. The Tax Cuts and Jobs Act of 2017 allowed the use of a blended or “global rate” for the minimum tax on foreign corporate profits, but proponents of the new legislation argue that gives an incentive to companies to shift their jobs and operations abroad to avoid the minimum tax on profits booked in tax havens.
The Disclosure of Tax Havens and Offshoring Act would require large corporations to disclose basic information on each of their subsidiaries, and provide country-by-country financial information that sums together all of their subsidiaries in each country, including profits, taxes, employees and tangible assets. All the information is already reported to the Internal Revenue Service, under an international framework from the Organization of Economic Cooperation and Development, but the bill would require public disclosure data of how international tax laws are working and where corporations are locating their business activities and paying their taxes.
“Shining a light on these practices will help investors and the public understand the risks that public corporations are taking to try and squeeze out extra profits,” said Axne. “Our legislation would help level the playing field, improve transparency for investors, and hold corporations exploiting tax havens accountable with public scrutiny.”
The legislation is co-sponsored in the Senate by Sen. Amy Klobuchar, D-Minnesota; Tammy Duckworth, D-Illinois; Sheldon Whitehouse, D-Rhode Island; Bernie Sanders, I-Vermont; Dick Durbin, D-Illinois; Richard Blumenthal, D-Connecticut; and Tina Smith, D-Minnesota. The House version is co-sponsored by Rep. Jennifer Wexton, D-Virginia; Stephen Lynch, D-Massachusetts; Brad Sherman, D-California; Jim Cooper, D-Tennessee; Eleanor Holmes Norton, D-D.C.; Don Beyer, D-Virginia; Chuy Garcia, D-Illinois; and Raul Grijalva, D-Arizona.
“Some of the biggest corporations in America use accounting gimmicks to pretend their profits are earned in offshore tax havens and thereby avoid paying their fair share of taxes to the U.S.,” said Amy Hanauer, executive director of the Institute on Taxation and Economic Policy, in a statement. “This legislation takes a very reasonable step in allowing lawmakers and the public to know what these companies are up to.”
The Internal Revenue Service receives more tax information from corporations than they release publicly, and by providing greater public disclosure it might help outsiders spot incidents of noncompliance.
“The IRS has struggled to effectively identify the pockets of tax noncompliance in large corporations,” said Treasury Inspector General for Tax Administration J. Russell George during prepared testimony for a congressional hearing Tuesday on the tax gap, tax noncompliance and the role of offshore tax evasion. “For example, we reported that IRS audits of large corporations using the Discriminant Analysis System selection tool had a no-change rate of almost 55%. Audits that result in no changes can inefficiently consume IRS resources and burden taxpayers who are compliant with the tax laws. TIGTA analyzed the potential cost for excessive time charged to no-change returns, i.e., time in excess of 200 hours, and estimated that potentially $22.7 million was spent examining no-change returns for time periods in excess of 200 hours.”
Providing more disclosure of tax information by multinational companies could help reduce the use of offshore tax havens. “Corporate tax avoidance and profit shifting by hugely profitable multinational companies makes the global tax system unfair for small businesses and hard-working Americans," said Ian Gary, executive director of the Financial Accountability and Corporate Transparency Coalition, in a statement. “Our coalition strongly supports The Disclosure of Tax Havens and Offshoring Act because it provides a much-needed spotlight on corporate profit shifting and tax avoidance strategies, both to protect investors and inform policymakers and the public.”