United States: Tax Policy Update - June 23, 2015

NUMBER OF THE WEEK: $3 Trillion. The projected addition to the federal deficit over 10 years if Republican presidential hopeful Rand Paul's flat-tax proposal went into effect, according to a Tax Foundation analysis of the plan. Paul has said he would cut spending to prevent deficit increases. His 14.5 percent flat-tax for corporations and individuals has also been criticized for hurting middle-income earners while reducing taxes for those with high incomes. Paul claims it would send the economy into overdrive, helping earners at all levels.

LEGISLATIVE LANDSCAPE

JCT Releases Repatriation Report. The Joint Committee on Taxation (JCT) published a report this week examining the various options for harnessing some cash flow from U.S. multinationals' earnings held abroad ahead of the House Ways and Means subcommittee hearing tomorrow on using a repatriation tax holiday to finance the dwindling Highway Trust Fund. House Republicans seem to be coalescing around repatriation as the short-term answer for propping up the trust fund until a longer-term solution can be developed, but it's unclear if Senate Republicans will go along with the approach. The Senate Finance Committee will explore ways to promote public-private partnerships in its highway funding hearing this week—an approach that has wide-spread support among House members. But, as Chairman Paul Ryan (R-WI) pointed out in last week's Ways and Means hearing on highway funding, there isn't time to implement grand new financing schemes before the trust fund is set to run out at the end of July. The only funding option he ruled out is any increase in the gas tax.

Ryan on Tax Reform: "Don't Fight For the Table Scraps." Chairman Ryan (R-WI) gave some insights into his views on tax reform—along with his dismal prognosis for comprehensive changes while President Obama remains in office—during a panel discussion with the Wall Street Journal last weekend. In addition to expressing serious concerns about international developments in tax policy led by the OECD's base erosion and profit shifting (BEPS) project, Ryan advised the business community to focus on the "broader goal" of lowering the corporate rate rather than "fight[ing] for the little tiny table scraps" of special provisions, or "carveouts." "Maybe your finances are rigged around this particular tax benefit or that particular tax expenditure, but know that at the end of the day here, we just want to get these rates down in the first place," Ryan said. Read and watch more here.

REGULATORY WORLD

CCCTB's Comeback. The European Commission announced that it will re-launch the Common Consolidated Corporate Tax Base (CCCTB) proposal as part of an action plan released last week. The CCCTB proposal would allow multinational corporations to calculate their corporate tax under a single set of tax rules for all EU member states. While the proposal doesn't establish a uniform tax rate across the states, it aims to ensure that there is a "fair payment of tax" where profits are earned and not based simply on where the corporations are located. Read more here.

U.S. Model Tax Treaty Expected Before Year's End. Treasury reinforced its request for comments on the model tax treaty provisions, which were released last month. Many of the provisions released stand inapposite to the recommendations resulting from the Base Erosion and Profit Shifting (BEPS) project. There are differences in defining special tax regimes and designing limitation of benefits provisions without a principal purposes test. International Tax Counsel Danielle Rolfe indicated that they are hoping to release the final revised U.S. Model Tax Treaty by the end of 2015, and that they seek input from the public regarding these provisions.

Risk-Based Audit to Focus on International Issues. Following up from last week's news that the IRS is forgoing the continuous audits of large companies, the risk-based audit approach will focus on international tax issues like transfer pricing. Recently-appointed Large Business & International Commissioner Douglas O'Donnell stated that continuous audits would be ongoing, but those companies under such audits would be based on risk and not just the size of the companies. O'Donnell noted that there would be some formal announcement signaling the end of the CIC program and ushering in guidance on risk-based audits.

EU FTT Design in French Vision. The much-anticipated European Financial Transactions Tax (FTT) may soon be taking form. On June 18, the 11 EU member states that agreed to impose the FTT indicated that the design of the tax is soon approaching. For years, the participants were unable to reach a consensus on which financial products to tax, and how to tax it. French Finance Minister Sapin stated that it "corresponds with the French vision of tax"--one being very broad, on both shares and derivatives, with a low rate. Sapin expects an announcement to come at some point in July. The original plan of implementing the FTT at the outset of 2016 still appears far-off, however.

LINE ITEMS

We've added a new section to the Tax Policy Update! The Line Items section will provide a quick roundup of the most recent and relevant tax news.

  • The House Judiciary Committee has approved the Business Activity Tax Simplification Act (H.R. 2584), Mobile Workforce and State Income Tax Simplification Act (H.R. 2315), and Digital Goods and Services Tax Fairness Act (H.R. 1643). The three bills would affect the ability of states to impose business activity taxes on out-of-state companies, income tax on certain nonresident workers, and multiple taxes on digital goods and services.
  • The Congressional Budget Office, along with the Joint Committee on Taxation, released an analysis of the budgetary and economic effects of repealing Obamacare. According to the report, repealing the law would increase the federal budget deficit by $137 billion. Read more here.
  • In a 280-140 vote, the House passed a bill that would repeal the 2.3 percent medical device excise tax. There is still no agreement on how to offset the cost of the bill ($24.4 billion). Senate Democrats have indicated they would not support the repeal without an offset. Read more here.
  • The European Commission published a list identifying 30 tax havens around the world. The list is updated once a year. In conjunction with the list, the EC also released its consultation document on corporate tax transparency in the European Union. The consultation is open for public comment until Sep 9, 2015. Read more here.

LOOKING AHEAD

Relevant Congressional Activity

Wednesday, 6/24

House Ways and Means Committee
The Subcommittee on Select Revenue Measures holds a hearing on "Repatriation of Foreign Earnings as a Source of funding for the Highway Trust Fund."

Thursday, 6/25

Senate Finance Committee
The full committee holds a hearing on "Unlocking the Private Sector: State Innovations in Financing Transportation Infrastructure."

Other Activity

Tuesday, 6/23

Brookings Institute
Brookings holds a forum on "Promoting Financial Well-Being in Retirement." U.S. Secretary of Labor Thomas E. Perez will deliver keynote remarks. The first panel will discuss a new paper by Professor Wesley Yin of UCLA that seeks to address challenges in the private long-term care insurance market.

Thursday, 6/25

World Bank and IMF
The World Bank and IMF host a seminar on "Macro, Trade, and Finance." For more details, click here.

Friday, 6/26

Extra-Territoriality and Financial Regulation
The Atlantic Council, the Institute of International Economic Law at Georgetown University, the University of Paris II (Assas), and Pennsylvania State University hold the second annual conference of the Journal of Financial Regulation to discuss ways regulators and economic authorities fashion rules that extend beyond their borders to achieve national and international objectives. Read more here.

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