In the hope of closing loopholes that allow companies to avoid paying federal taxes, Sen. Chris Van Hollen (D-Md.) has co-sponsored two bills that would eliminate a tax incentive for corporations to keep their tax-money abroad.
The bills would eliminate an incentive that companies use to avoid paying U.S. taxes. There were also which are also co-sponsored by Democratic senators Tammy Duckworth (D-Ill.) and Amy Klobuchar (D-Minn).
The first of the two bills, the Removing Incentives for Outsourcing Act, would eliminate a loophole that allows companies to reduce their domestic tax liability through other countries. The second bill, the Disclosure of Tax Havens and Offshoring Act, would require companies to disclose their financial records for other countries. It would show which organizations use foreign tax havens as a way of reducing their federal tax obligations.
“Congress should be focused on growing the economy and creating good-paying American jobs but the Republican tax law made it so that companies are rewarded when they ship jobs overseas. That has to change,” Van Hollen said in a statement. “These two bills will ensure that we know when corporations are offshoring jobs or sheltering profits in tax havens, and (will) close tax loopholes that create perverse incentives for companies that outsource jobs. It’s part of our ongoing fight for American workers.”
Under U.S. law, companies can use foreign tax credits to offset their overall tax burden. If companies can show they paid taxes in another country they made profits in, they can lower their U.S. tax burden through the use of foreign tax credits. This part of U.S. tax code is meant to offset the burden of paying taxes on foreign profits abroad and in the United States. However, some companies use it as a loophole to avoid paying U.S. taxes, according to Van Hollen.
If passed, the bill would mandate a per-country minimum tax. This would look to de-incentivize the use of tax-haven countries that allow corporations to use their lower tax rates to reduce their U.S. tax burden. This, according to Klobuchar, would make so-called tax havens less attractive to major corporations and would repatriate tax revenue back to the United States.
“Our tax laws should encourage American companies to keep jobs in America, not send them overseas. But the new tax law didn’t stop worker layoffs in the United States. In fact, it actually created a terrible incentive to move jobs and operations abroad to take advantage of tax havens,” Klobuchar said in a statement.
There have been several attempts by U.S. lawmakers to repatriate overseas tax revenue from American companies, but none have passed recently. Currently, the two bills have no Republican co-sponsors, and neither bill has made it out of committee since being introduced in November and March respectively.
Many countries and jurisdictions have unusually low tax burdens. It provides an incentive for international corporations to set up a base in areas like Panama, the Cayman Islands and the British Virgin Islands. All in a way to reduce their tax burden in their home countries.
According to the Internal Revenue Service, some U.S. citizens illegally hide their assets overseas to defraud the government. The lost tax revenue has totaled an estimated $100 billions a year. Meanwhile, major companies can legally avoid paying U.S. taxes through tax-havens.
Clark Gascoigne, deputy director of the Financial Accountability and Corporate Transparency Coalition, said that under current U.S. tax law companies are incentivizes to avoid paying U.S. taxes.
“Requiring that tax rates apply to multinationals’ offshore profits on a per-country basis is a necessary piece of any effort to end the incentive for offshore tax games,” he said.