International Tax Issues

• DOI: http://doi.org/10.1002/jcaf.22009
• Published date: 01 November 2014
• Date: 01 November 2014
• Author: Caroline D. Strobel

73

© 2014 Wiley Periodicals, Inc.

Published online in Wiley Online Library (wileyonlinelibrary.com).

DOI 10.1002/jcaf.22009

IRS

D

e

p

a

r

t

m

e

n

t

s

Caroline D. Strobel

International Tax Issues

The tax issue most likely to

receive attention from Congress

after the midterm elections is

taxation of foreign multina-

tional corporations. The news

has been filled with reports

about the amount of cash that

is parked overseas that could be

repatriated to the United States

by our multinational corpora-

tions. Corporations are reluctant

to repatriate cash to the United

States because they must pay the

difference between the U.S. tax

rate and the rate of tax that they

paid on their foreign earnings.

We have the highest corporate

tax rates in the world, with a top

rate of 35%. Other developed

countries’ corporate tax rates

top off at around 25%. This dis-

parity has caused an increasing

number of our large multina-

tional corporations to consider

undertaking a corporate inver-

sion by acquiring a foreign cor-

poration and moving the corpo-

rate headquarters to that foreign

country with its significantly

lower top corporate tax rate.

A second important issue

concerning our tax system is

the fact that we are the only

country in the world that taxes

worldwide income. This includes

not only corporations, but indi-

viduals as well. Other developed

countries tax income earned in

their country, but do not tax

income earned by their corpora-

tions and citizens in other coun-

tries. Thus, there is no disincen-

tive to repatriating cash earned

in other countries. These two

issues need to be carefully con-

sidered by Congress and action

taken, which probably means

a reconsideration of corporate

deductions in order to maintain

revenue levels.

With this as a backdrop,

the balance of this column is

going to cover the portion of the

report by the National Taxpayer

Advocate that discusses the defi-

ciencies in the administration of

our tax system that covers inter-

national taxation.

INTERNATIONAL TAXPAYER

SERVICE

U.S. citizens and residents

are subject to tax on their

worldwide income and have

the same general tax reporting

requirements whether they live

in the United States or abroad.

Taxpaying requirements have

become so confusing and the

compliance burden so great

that taxpayers are giving up

their U.S. citizenship in record

numbers. The IRS emphasizes

online service to international

taxpayers, but taxpayers still call

the IRS because online services

remain limited.

Because the online service

for international taxpayers

remains limited, taxpayers still

call the IRS for information,

which requires a toll number.

The level of service declined

from 78% to 72% in one year.

The individual taxpayer identi-

fication number (ITIN) appli-

cation for noncitizens and the

Form 1040NR are not available

to be filed electronically. The

International Individual Tax

Assistance (IITA) team has not

been made permanent and there

is no ongoing IRS commitment

to improving service for interna-

tional taxpayers.

The National Taxpayer

Advocate recommends that the

IRS make IITA a permanent

initiative with reporting respon-

sibilities; prioritize the delivery

of online services to interna-

tional taxpayers by including

initiatives affecting them in early

pilot projects; make available

free electronic filing of tax forms

such as Form 1040NR and the

ITIN application; improve the

level of service for international

taxpayers who call the inter-

national call site; and explore

the use of voice-over Internet

protocol and other alternative

methods of telephone services