“The previous and current tax system incentivizes offshoring, corporate inversions out of the U.S., profit shifting to foreign tax havens and other tax avoidance schemes,” CPA CEO Michael Stumo and CPA Vice Chairman of the Board Brian O’Shaughnessy wrote in a letter to Senate Finance Committee Chairman Chuck Grassley, R-Iowa, and House Ways and Means Committee Chairman Richard Neal, D-Mass.
“Multinational corporations … can strategically allocate earnings to subsidiaries outside of the U.S. while allocating costs to locations within the U.S.,” Stumo and O’Shaughnessy continued.
Tax reform legislation enacted at the end of 2017 reduced the ability for companies to shift profits to low-tax countries, but did not end the practice, and early evidence is showing the new rules to be insufficient, the letter says.
Multinational companies have replaced their old deferral strategies with new ones distinguishing internal profit categories to avoid triggering anti-base erosion measures in the Tax Cuts and Jobs Act, according to the letter.
Companies achieve profits by accessing the U.S., the world’s largest consumer market, and multinational, foreign and domestic businesses should be taxed based upon that access, Stumo and O’Shaughnessy said.
“A sales-based taxation method recognizes that customers are the true source of profits and are far less mobile than the firm’s assets or employees,” says the letter.
In addition to taxing corporate profits through the method outlined in the letter, known as a destination-based sales factor apportionment, the U.S. should implement a GST to put the U.S. on a more even trade playing field, as U.S. exports are hit with value-added taxes averaging 17 percent in foreign countries, the letter says.
Imports to the U.S. receive a value-added tax rebate from their home country, and under U.S.-implemented GST, U.S. exports should receive such a rebate as well, Stumo and O’Shaughnessy wrote.
The letter was sent to the Senate Finance and House Ways and Means committees, which didn’t respond to requests for comment.