Multinational companies brace for crackdown on international tax issues
March 19, 2009
World Trade\Interactive
Two business associations released recently a report defending the global activities of multinational corporations. The report comes as Congress and the Obama administration are preparing to crack down on what they see as some MNCs’ evasion of U.S. taxes on income they earn abroad.
The study was commissioned by Business Roundtable and the United States Council for International Business. A press release from the two groups cites Matthew Slaughter, a professor of international economics at Dartmouth’s Tuck School of Business and the author of the study, as saying it shows that “the notion that U.S. multinationals have ‘abandoned’ our country by shipping the majority of their operations overseas is not supported by the facts.” In fact, the press release states, the worldwide operations of U.S. MNCs are highly concentrated in the U.S., with nearly 2.3 domestic employees for every one foreign affiliate employee, thus refuting the idea that international expansion tends to “hollow out” domestic operations. In addition, the foreign affiliates of MNCs are located primarily in high-income countries, not low-income countries.
According to Slaughter, the study also found that MNCs make a substantial contribution to the domestic economy and that the specific way they do this will be key in helping the U.S. recover from the current economic downturn. MNCs “strengthen the American economy through a combination of their domestic activity and their international engagement, which together stimulate capital investment, research and development, and trade,” Slaughter said. “These productivity-enhancing activities, in turn, lead to more job opportunities and to larger average paychecks for millions of American workers.” In addition, MNCs “that are able to compete effectively in foreign markets will be better positioned to help lead America out of recession. By preserving and enhancing the health, vitality and competitiveness of their worldwide operations, U.S. multinational companies can help stem job losses in the United States and, eventually, hire more American workers.”
The study was released just as government officials and lawmakers seeking ways to generate additional revenue for economic stimulus efforts are turning their attention to stronger enforcement of rules on income MNCs earn overseas. “Each year, the United States loses an estimated $100 billion from U.S. taxpayers using offshore tax schemes to dodge their U.S. tax obligations,” Sen. Carl Levin, D-Mich., told the Senate Finance Committee March 17. These schemes include “networks of offshore trusts and corporations with hidden assets” and “deceptive offshore transactions used to recast taxable income as allegedly tax free payments,” Levin said. The money lost from these activities is money that cannot be used to “maintain our highways, protect our borders, advance medical research, and inspect our food,” Levin said.
In response, Levin and others introduced earlier this month S. 506, the Stop Tax Haven Abuse Act. This bill includes provisions that would treat certain foreign corporations managed primarily from the U.S. as U.S. domestic corporations for income tax purposes, authorize special measures against foreign jurisdictions and financial institutions that impede U.S. tax enforcement, and strengthen penalties on those who aid or abet tax evasion. Companion legislation (H.R. 1265) has been introduced in the House, and Treasury Secretary Timothy Geithner has reportedly expressed support for these measures.
The Obama administration is ramping up its efforts to combat tax evasion as well. According to CQ Today, Internal Revenue Service Commissioner Doug Shulman told the Finance Committee that the IRS is “hiring more international investigators and increasing the frequency of audits” and that an expanded plan for legislative and enforcement strategies will be rolled out in the near future.
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