All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Baucus US tax reform proposal: A warning for Apple and Google

apple.jpg

After the release of Senate Finance Committee chairman Max Baucus’ discussion draft outlining his proposals for US corporate tax reform, Jim Ditkoff, senior vice president – finance and tax – at science and technology company Danaher Corporation, analyses the proposals and explains why companies like Apple and Google may regret some of their lobbying efforts.

Ditkoff immediately draws comparison between the Baucus discussion draft and previous proposals made by Dave Camp, chairman of the House Ways & Means Committee.

“I think it’s interesting, and perhaps inevitable, that the Republican proposal that is now being championed by Baucus (Montana Democrat) is the proposal of Ways & Means chairman Camp (Michigan Republican) to tax all of the pre-enactment earnings and profits of foreign subsidiaries of US corporations at a reduced US tax rate,” said Ditkoff.

However, Baucus is seeking to not only impose the retroactive tax (the discussion draft is vague here, saying this would be at a reduced rate of “for example, 20%, payable over eight years”) but also wants to currently tax most of the future income of foreign subsidiaries of US corporations, whether that income is active or passive and whether or not that income is repatriated.

“Specifically, Baucus offers the choice of a US tax on 80% of all foreign earnings or on 60% of active foreign earnings and 100% of other foreign profits,” said Ditkoff.

But the Senate Finance Committee chairman does have one proposal that Ditkoff likes.

“That is his proposal to tax the income of foreign subsidiaries from selling products or providing services to US customers at full US tax rates. This is obviously not good tax policy,” he said. “It means that foreign companies without a US parent will have a tremendous advantage in selling products and providing services to US customers.”

On top of that, Ditkoff believes the proposal would not encourage US multinationals to move their tax haven foreign manufacturing operations back to the US, saying there are plenty of non-tax reasons to manufacture in Singapore or China, rather than California.

What he likes about the proposal is that it targets companies such as Apple and Google that have been arguing the loudest for a territorial tax system.

“They wanted to continue manufacturing the products they sell to US customers in foreign tax havens and then to bring those low-taxed profits back to the US tax-free to finance buy-backs – nobody is even pretending anymore that these companies were going to use those funds to create jobs in the US,” said Ditkoff. “Now Baucus is saying that they won’t need to pay US taxes on the repatriation of those foreign manufacturing profits, because they will be subject to full US taxes the moment they are earned. Be careful what you wish for.”

more across site & bottom lb ros

More from across our site

This week Switzerland opens consultation on draft legislation to implement the OECD’s global minimum tax rate, while Germany cuts VAT amid the highest inflation rate in decades.
ITR looks into the biggest transfer pricing cases in 2022 including multinational companies McDonald’s, BlackRock, and Rio Tinto.
TP technical leader at ‘big four’ firm KPMG Philip Roper talks to senior reporter Leanna Reeves about how businesses can mitigate the transfer pricing impact of higher interest rates in the UK.
Vikas Garg talks to reporter Siqalane Taho about how regulation, technology and the goods and services tax has affected the manufacturing company.
A major shift is underway in tax as the profession transitions from a mostly accounting and finance sector to a hybrid industry that requires significant IT skills, say tax experts.
The Biden administration is about to give $80 billion to the Internal Revenue Service to enhance the tax authority’s enforcement processes and IT systems.
Audi, Porsche, and Kia say their US clients will face higher prices under the Inflation Reduction Act after the legislation axes an important tax credit for electric vehicle production.
This week Brazil’s former President Luiz Inacio Lula da Silva came out in support of uniting Brazil’s consumption taxes into one VAT regime, while the US Senate approved a corporate minimum tax rate.
The Dutch TP decree marks a turn in the Netherlands as the country aligns its tax policies with OECD standards over claims it is a tax haven.
Gorka Echevarria talks to reporter Siqalane Taho about how inflation, e-invoicing and technology are affecting the laser printing firm in a post-COVID world.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree