Saturday, April 16, 2016

Another view of U.S. international taxation

I recently got to hear a non-U.S. individual who is a prominent tax lawyer abroad addressing international tax issues in the context of OECD-BEPS.  What he said was interesting, whether or not one fully agrees with it.

In his account, the U.S. decided long ago to treat its own multinational firms far more favorably than any peer country treats its multinationals.  The mechanism for this was permitting the U.S. firms to treat royalties that are foreign source income as active rather than passive (even though they generally are deductible in the jurisdiction from which one group members pay them out to other group members).  Thus, the royalties don't face either foreign tax or our subpart F rules, but accumulate tax-free in tax haven affiliates.  Peer countries, by contrast, would have taxed the royalties under their CFC rules.

The U.S. decision effectively to sacrifice any taxing claims with respect to its multinationals' foreign source income has led the EU countries to say: Maybe we should grab something here, since the U.S. has decided against taxing it.  Hence, OECD-BEPS, to which the U.S. has been invited - but not as a guest, rather as the meal.

This coming Tuesday, when I speak at the annual NYU-KPMG Tax Lecture on Current Issues in (International) Taxation, I strongly suspect that U.S. tax lawyers, with U.S. corporate clients, who are on my panel (a mid-afternoon "debate" session) will sing quite a different tune regarding how rigorously the U.S. treats its multinationals compared to peer countries, although not regarding OECD-BEPS.

1 comment:

burnspbesq said...

Your colleague missed an important point in his analysis: the effort required to comply with the active licensing exception isn't exactly trivial. The squad of marketing people fanning out from the European headquarters (be it in Amsterdam, Zurich, or wherever), circling the globe seeking out new licensing opportunities, isn't a myth.