It is not uncommon for a client to inform us of an article that they have read, which was published in one of the well-known and reputable publications, about yet another profitable multinational corporation with no corresponding U.S. income tax obligation. Moreover, they want to know how can they set up their affairs to legally do the same. Once it is explained that deferral of tax also involves prohibition against repatriation of the cash to the U.S., the conversation often ends there. The media coverage of the multinational corporations supposed “tax avoidance” continues to push the members of Congress to introduce legislation to “close the loop holes”. The latest is Senator Bernie Sanders (I-Vt) bill which was introduced on Feb. 7. A companion bill was introduced in the House by Rep Jan Schakowsky (D-Ill.).
The Corporate Tax Fairness Act would effectively end deferral by forcing inclusion of all foreign-sourced income regardless of whether or not it was repatriated to the U.S. The U.S. corporations, however, would continue to get a credit for the foreign tax they pay against their U.S. tax liability.
The bill would also modify the foreign tax credit limitation to permit foreign tax credits to only offset income from the county in which it is earned effectively nullifying a great deal of tax planning which has been done in this area.
Additionally, certain oil companies would be subject to modified rules that would disallow a foreign tax credit if the foreign jurisdiction does not impose an income tax, or the amount of the company's levy exceeds the generally applicable income tax imposed.
Companies which are using post-office boxes would not be able to claim being a foreign company. The bill would prevent corporations that are managed and controlled in the U.S. from avoiding U.S. tax by claiming to be a foreign company by using a foreign mailing address.
There have been many variations of similar bills introduced in the past but perhaps the mood is right for this one to finally become law? We will keep you updated…