Divisions in US over OECD corporate tax proposals

Senior Republicans voice concerns over Obama administration’s response to plan

Political divisions are opening up in Washington over the US response to the overhaul of international tax rules by the global powers, an initiative with big implications for Ireland’s corporate tax regime.

The Republican leaders of the two tax-writing committees in the US Congress have written to treasury secretary Jacob Lew saying they are troubled by the Obama administration’s response to key element s of the OECD plan.

After Dublin intervened twice in two years to scrap the most controversial aspects of the Irish business tax system, developments in Washington raise questions over the scale of the eventual US response to the OECD’s plan to curtail base erosion and profit shifting (Beps) by big companies.

Concern

The OECD project flows from concern around the world that large companies are paying too little tax on their profit after huge public bailouts of the global banking system.

Pressure on the Irish Government as a result of this initiative led it to phase out the “double Irish” scheme and eliminate rules which enabled companies to claim “stateless” tax status in Ireland.

In the US, however, Senate finance committee chairman Orrin Hatch and House ways and means committee chairman Paul Ryan warned Mr Lew against “precipitous decisions” which would “impose constraints on US tax policy and added burdens on US companies, especially on the basis of weak empirics and metrics”.

There has been some criticism of the Beps project within the US treasury department, but the intervention of the two committee chairmen is significant as Republicans control both the Senate and House of Representatives. Their support would be required for the US government to execute any fundamental change to US business tax rules in light of the Beps project.

In a joint letter to Mr Lew last week, Mr Hatch and Mr Ryan said Congress will craft the tax rules it believes work best for the US “regardless of what the treasury department agrees to” regarding Beps.

They cited particular concern about new country-by-country reporting standards, a part of the OECD plan which could have ramifications for multinationals that use Ireland as a centre for their international tax planning.

Massive impact

The Paris-based OECD itself said new obligations on multinationals to provide country-by-country reports will have a “massive impact” on them. Multinationals would be required to provide aggregate information annually in each jurisdiction.

One day after the OECD produced its formal proposal, however, the two committee chairmen urged Mr Lew to provide a legal memorandum detailing its authority for requesting and collecting country- by-country information from US multinationals.

They also requested details on how the country-by-country reporting documentation from multinationals operating in the US would be utilised, and wanted justification for agreeing that information on US multinationals can be directly collected by foreign governments. They said: “In the event we do not receive such information, Congress will consider whether to take action to prevent the collection of the country-by-country and master file information.”

They had “significant concerns” about many other Beps proposals. These included: modifying the permanent establishment rules; using “subjective” general anti-abuse rules in tax treaties; and collecting “even more” sensitive data from US companies.