United States: U.S. International Tax Policy: 10 Questions For 2015

The year 2015 promises to be an active one in U.S. international tax policy, as new players take the stage in the tax reform debate, the Base Erosion and Profit Shifting (BEPS) effort continues to develop and even begins to go into effect around the world, and corporate inversions remain a hot tax policy topic after a year of intense publicity and aggressive executive action. Against this backdrop, 2015 likely will feature a great deal of activity in the international tax arena, even if fundamental changes to the U.S. international tax regime remain unlikely in the near term. Here are 10 pressing questions that may be answered as the year unfolds.

1. Can "business only" tax reform be made to work?

It is widely agreed that President Obama and congressional Republicans are too far apart on individual income tax policy to make that a productive area of discussion. On the other hand, it is often said that the two sides "are not that far apart" on business tax reform, in the sense that almost everyone agrees that the U.S. corporate income tax rate is too high and that the tax base should be broadened in at least some respects as part of a rate reduction effort. Thus business tax reform could be an area of constructive engagement during 2015. More detailed discussions over the course of this year will reveal how much agreement there really is between the two sides, as well as how challenging it will be to design a coherent business tax reform approach without broadly implicating the individual income tax rules, in light of the fact that so much business is conducted through pass-through entities whose income is taxable under the individual regime.

2. Can policy makers agree on revenue goals for business tax reform?

It is likely that President Obama and congressional Republicans can agree that revenue-neutral business tax reform would be a worthwhile objective, if reform could improve the efficiency, perceived fairness and administrability of the rules. However, disagreements might arise as to whether, for example, the legislation must be revenue-neutral over the conventional 10-year budget window, or indefinitely in a "steady state." If there is a one-time surge in tax revenues from a deemed repatriation of foreign earnings as a transition into a territorial dividend exemption system, will that enable the enactment of policies with negative longer term budget effects as conventional budgeting principles would permit, or will President Obama invoke steady state neutrality to require dedication of this one-time revenue surge to other priorities, such as infrastructure spending, as indicated in the president's fiscal year (FY) 2016 budget proposal? The latter scenario would mean that the permanent policy would have to tilt more heavily towards base broadening in order to accomplish tax reform on a revenue neutral basis.

In addition, the concept of revenue neutrality for a business tax reform package as a whole may obscure many other revenue effects of potential interest. In particular, various segments of the business community (e.g., large multinationals, smaller businesses, U.S.-based companies, non-U.S.-based companies, various industrial sectors) will be interested in whether tax reform is revenue neutral for them, or if instead they are being called upon to finance someone else's tax cut (or benefiting from someone else's tax increase). Accomplishing revenue-neutral business tax reform to the satisfaction of both major political parties and all of these different segments of the business community will be a challenge.

3. Will "dynamic scoring" materially lighten tax reform's base-broadening load?

Although conventional revenue estimates are already "dynamic" in the sense that anticipated behavioral responses to proposed legislation are taken into account (i.e., microeconomic analysis), these estimates historically have been "static" in the sense that the macroeconomic baseline (overall size of the economy) is held constant. For the vast majority of business tax proposals, this distinction is of no consequence, as only the very broadest business tax proposals would be more than a drop in the macroeconomic bucket in view of the size of the U.S. economy. But for the most significant changes, such as a several-point reduction in the corporate income tax rate, there may be macroeconomic effects as well, and congressional Republicans are taking steps to account for these effects in scoring the revenue effects of tax reform. Their hope is that macroeconomic growth expected to result from large tax-cutting measures could boost projected tax receipts, thereby partially offsetting the more direct revenue-losing effects of such measures. This in turn would reduce the amount of base broadening necessary to accomplish tax reform on a revenue-neutral basis, making tax reform an easier lift.

Whether this scenario plays out in practice remains to be seen, and depends critically on what kind of political buy-in these dynamic scores receive—they will still be presented alongside (not instead of) conventional scores, and the White House and congressional Republicans might continue to differ regarding which one is the appropriate yardstick for determining revenue neutrality.

4. Will Congress invoke budget reconciliation procedures in order to pass tax reform legislation?

Although Republicans currently control both houses of Congress, "control" means different things as applied to the House of Representatives and the Senate, respectively. In the Senate, individual members and the minority party have greater blocking power (for example, in the form of the filibuster), such that a supermajority of 60 (out of 100) votes is typically required to pass legislation in the Senate, whereas in the House the majority party can more easily work its will. An exception to the Senate's supermajority requirement is legislation put before the Senate to "reconcile" taxing and spending measures with a budget resolution. Under this reconciliation process, only a simple majority vote in the Senate is required, but the legislation must be limited substantively in various respects (for example, it cannot increase deficits beyond the budget window, and thus might need to include "sunset" provisions). Such legislation would remain vulnerable to a presidential veto.

Passing tax reform legislation through the reconciliation process would be no one's first choice, but it is possible that congressional Republicans could pursue it in the event that a deal with the White House proves impossible otherwise. Although the legislation might not become law in the event of a veto, it could be an achievable legislative accomplishment and an important political document heading into the 2016 elections. As such, it could be a meaningful marker for what a potential Republican president and Congress might enact in 2017 or later.

5. How deep and wide is the agreement on "tough territorial" as the basic model for the U.S. outbound regime?

It is likely that both President Obama and congressional Republicans can agree that the United States should move to a territorial-type dividend exemption system to eliminate the distortions created by making the repatriation of earnings a major taxable event, and also should tighten the existing rules (e.g., subpart F) limiting the ability to defer or avoid tax on certain kinds of income earned by non-U.S. subsidiaries. These two policy initiatives cut in opposite directions, in that one would decrease and the other would increase the U.S. tax burden on income earned by U.S.-based multinational groups outside the United States; together the initiatives are sometimes described as a "tough territorial" approach. It remains to be seen whether President Obama and congressional Republicans can agree on the nature, extent and balance of the territorial-type features and the base-broadening features of such a regime, and whether the business community would be any better off under a regime that might result from these deliberations. The president's FY 2016 budget proposal includes a "minimum tax" regime that would fit the tough territorial description. Although the proposal's various numerical thresholds make it more "tough" than "territorial," the proposal nevertheless suggests there is a chance that the two sides might be able to meet somewhere in the middle.

6. What will be the revenue and policy goals for the inbound rules as part of U.S. tax reform?

Although the U.S. international tax reform discussion has tended to focus more on the outbound rules (primarily directed at U.S.-based multinationals) than on the inbound rules (primarily directed at non-U.S.-based multinationals), more recently some focus has shifted toward the inbound rules, particularly in the wake of various BEPS developments and increased attention to inbound structures in connection with corporate inversions. As the tax reform discussion advances in 2015, it will be interesting to see how prominently inbound approaches feature in the debate, and what balance of tax-cutting and tax-raising measures are proposed by different policy makers with respect to the inbound business community.

7. If business tax reform proves elusive in 2015, will policy makers pursue a more limited tax package as a consolation prize?

It is possible that the White House and congressional Republicans will conclude that they are unable to enact business tax reform in 2015 but will agree on a more limited package of tax proposals, potentially including both revenue-raising and revenue-losing items. For example, some members propose another partial repatriation holiday, while others urge that further anti-inversion legislation be enacted without delay, and numerous industry-specific tax issues continue to be discussed (such as potential repeal of the medical device excise tax). Although the tax writers may resist the pursuit of a more limited tax package, it is possible that the mutual desire to accomplish something, even something short of true tax reform, could lead to the passage of a more limited tax package in 2015. Thus, even if tax reform remains a long shot in the coming year, the tax legislative area could still present near-term risks and opportunities for the business community.

8. When and how will the "tax extenders" package be addressed?

The "tax extenders" package of expiring tax provisions (e.g., research and experimentation credit, subpart F "look-through" and active financing rules) has again expired and thus will require legislative attention in 2015. As always, questions center on when exactly Congress might pass the extension of the provisions, whether any key provisions might fall out of the package, and the term of any extension. The rationale for pursuing such a limited extension at the end of 2014 apparently was to enable congressional Republicans to pursue a more Republican-leaning package for 2015. In addition, the nature and timing of tax extenders (routinely enacted without revenue offsets) affect the budget baseline for subsequent tax reform and thus can have a real effect on whether and what kind of tax reform eventually is achieved.

9. Will the impasse over tax treaty ratification finally be broken?

The Senate has not ratified a tax treaty instrument since 2010, because the objections of a senator have blocked the invocation of the unanimous consent procedures typically used to approve tax treaties, and tax treaties are generally not seen by Senate leadership as sufficiently important to warrant the use of extended Senate floor time, as would be required without such procedures. Several signed tax treaties and protocols are currently pending as a result, and it is likely that the impasse has some effect on the conduct of current treaty negotiations with existing and prospective treaty partners. It remains to be seen whether the new Senate majority leadership will be able to negotiate an end to the impasse.

10. What surprises may come in the form of executive action?

One of the more remarkable U.S. international tax policy developments of 2014 was the Internal Revenue Service's (IRS's) issuance of Notice 2014-52, which aggressively asserted executive authority to limit certain tax benefits following certain corporate inversion transactions. Officials have suggested that there could be more to come in this area. Even if there are no new bold strokes on inversions, the notice sets a precedent for a somewhat elastic interpretation of various anti-avoidance rules in the tax code and regulations when important tax policy objectives are thought to be at stake, which could have reverberations beyond the inversion area.

Meanwhile, even if no new tax policy issue "heats up" like inversions did in 2014, the IRS's existing guidance plan includes several important and potentially controversial items, including in the areas of repatriation and outbound transfers of intangibles. If the White House and congressional Republicans continue to have a hard time coming together on legislation in 2015, IRS guidance may remain on center stage in U.S. international tax policy.

U.S. International Tax Policy: 10 Questions For 2015

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions