The Obama administration is open to negotiating the tax rates for its proposed global minimum tax and one-time tax on previously untaxed foreign deferred profits, US Treasury Secretary Jacob Lew said February 5.
Obama’s FY 2016 budget, unveiled February 2, would tax US multinational foreign earnings that are not subject to tax under subpart F at a rate of 19 percent minus 85 percent of the foreign-country effective tax rate.
The budget would also impose a one-time toll charge of 14 percent tax on multinational earnings that have accumulated overseas over the years, irrespective of whether the funds are repatriated, with a partial credit for foreign taxes paid.
Lew said that while the administration believes that the proposals’ tax rates make sense, he did not want to “overstate the scientific nature of it.” The 14 percent tax rate was selected because it was half of the top proposed 28 percent corporate tax rate, and the 19 percent tax rate was selected because “was in the zone of where we think it should be, and it was at a level where it was revenue neutral in our proposal,” Lew said, in testimony before the Senate Finance Committee.
“We do not think the numbers we have picked have absolute truth to them – we could have gone a little higher, we could have gone a little bit lower – these are the kinds of things we ought to be able to work out, [so we can] fix our broken tax system and keep American jobs here,” Lew said.
He added that the administration has not “heard arguments that undermine the basic integrity of the approach [or] arguments that suggest that there is not the basis for a bipartisan discussion to work through this.”
Lew said that there are two halves to the problem of base erosion and profit shifting by US multinationals. “One problem is tax havens, [and] their race to the bottom; the other half is broken tax codes like ours that have these ridiculously high statutory rates.”
He said the administration believes its international tax proposals will solve the problems that push US companies to tax havens. If the US does its part, it will have a better argument to stop tax havens and “their race to the bottom,” he said.
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