President Trump and congressional lawmakers are not the only ones interested in collecting taxes on global profits that American corporations are hoarding overseas. European regulators, knee deep in their own campaign to stamp out tax avoidance, have their own plans for that money.þþLast week, for instance, the European Commission billed Amazon for $293 million in unpaid taxes in Luxembourg, arguing that the country’s failure to collect the tax amounted to an illegal state subsidy. It also took Ireland to court for not following up on the $15.2 billion tax bill imposed on Apple last year.þþ“The Europeans are targeting U.S. dollars overseas that the U.S. believes should be taxed here,” said Dave Camp, a former Republican representative from Michigan who was chairman of the House Ways and Means Committee and the author of an unsuccessful tax overhaul in 2014. “We have to address this problem before the Europeans get there first.”þþThe rulings on Amazon and Apple — which those companies are disputing — are byproducts of a race among governments to lure corporate giants to their shores in the hunt for new sources of revenue. That cutthroat competition is the reason that 73 percent of Fortune 500 companies have a subsidiary in a low-tax haven, according to the Institute on Taxation and Economic Policy.þþThat rivalry has the potential to fuel tensions between the United States and its allies. Yet it could turn out that the European crackdown on American multinationals will ultimately help — rather than hobble — Washington’s efforts to get them to pay up. The harder that other countries make it for American companies to take advantage of tax havens and sweetheart deals abroad, the weaker the incentives are for businesses to stash money out of the reach of the Internal Revenue Service.þþRepublican leaders have already put at the center of their tax rewrite an idea borrowed from Europe and other countries: Replace the system of taxing the worldwide profits of a domestic corporation with one that taxes only profits earned within its own territory.þþ“If we don’t move to a more modern system, we may lose the ability to gain that revenue,” Mr. Camp warned.þþMultinationals will inevitably shop around for low rates. Americans and foreign companies have all played the same games, shifting patents and copyrights, profits and royalties to places with no or low corporate tax rates, like the Cayman Islands and Bermuda. (The I.R.S. itself went after Amazon over assets it transferred to a Luxembourg unit, but Amazon ultimately prevailed.)þþEfforts to cooperate have not always been successful, but there are signs that coordination can help. The Europeans’ effort is gradually shutting down the most notorious tax dodges that route corporate cash through Ireland and Luxembourg, said Michael J. Graetz, a professor and tax specialist at Columbia Law School.þþ“Those are like dinosaurs,” he said. “They’re moving towards extinction.”þþAnd a new rule adopted by the Organization for Economic Cooperation and Development, requiring multinationals to report their income and tax bill in each country, will make it easier for the more than 60 governments that have signed on to monitor how much is actually collected.þþSo far, the team of Trump administration officials and lawmakers who drew up the latest framework for rewriting the tax code has released mostly general principles.þþNow the I.R.S. taxes the worldwide profits of American corporations, but the tax kicks in only after that income is repatriated to the United States. As a result, American multinationals simply don’t bring much of it home. Republicans have made clear they intend to switch to taxing only profits earned within the United States, what’s known as a territorial system.
Source: NY Times
