Thirteen prominent US tax professors and other tax experts have co-authored an important paper that identifies technical flaws and adverse consequences of the US House and Senate tax reform bills provisions, including key international tax reform proposals.
The paper, The Games They Will Play: Tax Games, Roadblocks, and Glitches Under the New Legislation, released December 7, also offers proposed solutions to address the problems identified, ranging from modifications to scrapping a provision altogether.
The authors state that the House and Senate proposals imposing a minimum tax on foreign-source intangible income will encourage companies to locate real assets and investments abroad so as to exempt a larger portion of income, contrary to US interests.
Also, companies are able to avoid the minimum tax by leveraging foreign assets because borrowed funds will increase basis in assets, the authors note.
In addition, the authors state that use of a global approach to the minimum tax, rather an a country-by-country approach, will induce firms to shift investments offshore to blend low- or zero-taxed income from tax havens with income from higher taxed foreign countries.
The special low rate of 12.5 percent in the Senate bill for export income likely runs afoul of WTO rules and, unless anti-abuse provisions are added, could encourage round tripping of products namely, selling products abroad and then having them sold back to the US.
This provision could also encourage companies to sell unfinished goods to foreign manufactures for assembly abroad rather than US manufacturers, contrary to US interests, they said.
The inbound earnings stripping provisions could violate WTO rules and tax treaty obligations, the authors state.
The authors also note that the last minute addition of the corporate AMT to the Senate bill results in a full or partial reversal of a number of reforms to the international tax system.
The paper was authored by: Reuven Avi-Yonah, University of Michigan Law School; Lily Batchelder, NYU School of Law; J. Clifton Fleming, Brigham Young University; David Gamage, Indiana University; Ari Glogower, The Ohio State University Moritz College of Law; Daniel Hemel, University of Chicago Law School; David Kamin, NYU School of Law; Mitchell Kane, NYU School of Law; Rebecca Kysar, Fordham University School of Law and Brooklyn Law School; David Miller, Proskauer Rose, LLP; Darien Shanske, UC Davis School of Law; Daniel Shaviro, NYU School of Law; an Manoj Viswanathan, UC Hastings College of the Law.
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