Apr 15, 2016 - 8:00am

International Action on Tax Adds Urgency for U.S. to Act

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Pedestrians walk past the European Union (EU) parliament building in Brussels, Belgium. With a series of hearings, the European Parliament has put the spotlight on large companies that do business around the world. Photo credit: Jock Fistick/Bloomberg

The G-20, which is comprised of the leaders from the 20 largest economies of the world, has had an ambitious agenda in recent years, including a planned effort to better coordinate tax policy globally. 

Such efforts have always had the potential to unfairly target American businesses as various tax jurisdictions seek to claim revenues from cross-border economic activity. In short, countries want to collect more taxes to meet their budgetary and policy needs.

As part of this effort, the OECD was asked to look into international tax policy through the Base Erosion and Profit Sharing (BEPS) project. Rather than bring better coordination, the BEPS project has accelerated efforts around the world to seek additional tax revenues from companies. Countries like Australia, the U.K., and Israel have been early out of the gate with troubling initiatives, but perhaps no jurisdiction has been more active than the European Union.

The European Union has embarked upon a series of related efforts that have put international competitiveness of U.S.-based companies in the crosshairs. In a previous blog post, the Chamber questioned the use of EU State Aid laws as a backdoor attempt to address what is a fundamental tax policy debate.  U.S. Secretary of Treasury Jack Lew also has taken issue in a letter to European official indicating the EU’s tax efforts were “disturbing” and gave rise to “serious concerns about fundamental fairness.”

The European Parliament has piled on with a series of hearings to put the spotlight on large companies that do business around the world, many of which are American-based. Recently, Apple, Google, and McDonald's were put on the hot seat. This follows a similar set of hearings last fall that focused on another ten companies. 

Without question, every nation has the right to determine its own tax policy, but others then have a right to respond. If foreign jurisdictions as a result of BEPS or other tax policies make U.S. companies less competitive, then the United States has a duty to respond.

We’ve known for some time that the U.S. tax system is badly broken. It was designed for a much different time and a much different economy. Like any complex machine, the tax code requires maintenance, upgrading, and the occasional rebuild.

The recent actions in Europe and elsewhere, however, provide new urgency for legislative action. If we fail to act, American companies operating around the world will suffer a material decline in their ability to compete, with serious consequences for the U.S. domestic economy, the U.S. tax base, and job creation here at home.

There are many good reasons why the United States needs to move forward with pro-growth reforms. Efforts by other governments to reshape tax policy provides yet another, which is why we urge the president and our leaders in Congress to move quickly to find meaningful and lasting solutions to our broken tax system.

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