On December 16th, CFA Society Chicago hosted a timely panel discussion focused on US corporate tax policy and how it compared to the tax policies of other nations. The current policy motivates US companies to move profits to overseas subsidiaries where corporate taxes are much lower. Corporate tax inversions may become more common; these will become an important political issue as the election year unfolds.
Mr. Graziano began the event with a presentation entitled “Corporate Tax Risk, The Thin Gray Line”. He makes the case that US Corporate Tax Policy is not competitive on a global basis. The US has not cut its corporate tax rate in over 25 years and has the highest tax rate (35%) of any developed country. This antiquated tax policy has motivated US corporations to take action to avoid paying tax in their home country.
The method whereby US companies are able to enjoy the lower tax rates of foreign countries has led to the storing of corporate cash in the country where the lower tax is paid. Many multi-national US companies now have large cash holdings in countries other than the United States. The ramifications of these large cash holdings being held abroad by US corporations was discussed at length in the presentation and during the panel discussion. To repatriate the cash, US corporations would have to pay the 35% federal tax along with any state tax.
Mr. Graziano began the panel discussion by asking if it thinks that US corporations have an economic (or moral) obligation to pay a repatriation tax. The panelists were unanimous in their opinion that there is not an obligation. The US has created its own problem in this regard due to its inability to reform these policies.
There was a brief discussion as to how a US value added tax (VAT) might help to replace lost tax revenue if the corporate tax rate was lowered. The possibility of repeating another “one-time” tax repatriation holiday as was done in 2004 was also discussed. The panelists were convinced that another “one-time” tax holiday would not solve the problem. There was very little evidence that the US economy benefitted from the 2004 tax holiday.
Panelists were unanimous in their belief that the antiquated US corporate tax rate puts US corporations in a difficult predicament. Under the current laws, corporations are incented to move cash and business overseas to the detriment of the US economy. In this environment, tax inversion transactions that make American companies subsidiaries of a parent company in another country can be expected to increase.
Unfortunately, there is no easy solution without bipartisan support for reform.
Panelist: Barry Jay Epstein, Ph.D., CPA, CFF
Dr. Epstein is a Chicago based financial reporting expert, author, and litigation consultant. In his work with Epstein & Nach LLC, he has consulted and/or testified in over 120 cases.
Panelist: Anna Green, CPA
Ms. Green is a Tax Partner with PwC Chicago’s Industry Tax Practice. She is responsible for managing a team of professionals providing tax accounting advice to large corporate clients.
Panelist: Robert M. Wilson
Mr. Wilson is an investment officer and research analyst at MFS Investment Management. He is responsible for working with portfolio managers to integrate ESG (environmental, social and governance issues) into the investment decision making process