Corporate tax reform has been a battle cry in U.S. politics since the 2008 financial crisis when all sides of the political spectrum seized on different facets of corporate and fiscal fairness. Despite the attention over the past five years, however, lithe progress has been made in overhauling the system.
But a combination of fiscal pressure and political serendipity could mean that significant changes are on the way. And no part of the U.S. corporate tax regime is more at risk of change than corporate offshore tax strategies.
In fact, many are treating possible changes to the U.S. corporate tax code and the repatriation of overseas assets as a "fait accompli" in the medium term as both Republicans and Democrats search for common ground.
"If I were a chief financial officer (CFO), I would pencil that in three or four years my foreign tax rate would be 15 percent and that my domestic tax rate would he between 25 percent and 28 percent," says University of Southern California Law Professor Edward Kleinbard. In this kind of environment, that would be the best outcome for large, multinational firms."
Under current law, critics argue, U.S. corporate code encourages multinational firms to keep assets overseas since profits earned abroad are tax free as long as they are not brought back into the country. At the same time U.S.-based companies must pay the U.S. rate of 35 percent on all the income they earn, which many detractors consider high and punitive for companies with primarily domestic income.
The current regime has caused an increasing number U.S. companies with overseas subsidiaries to keep assets parked in foreign jurisdictions. A study issued by the U.S. Public Interest Research Group (PIRG) in August said that 82 of the top 100 publicly traded companies (measured by revenue) maintain subsidiaries in offshore tax domiciles, representing $1.2 trillion in assets.
Some of the largest U.S. companies--including American Express Co., Oracle Corp. and Apple Inc.--have the most significant overseas asset purses, with 15 companies accounting for nearly two-thirds of the offshore cash, PIRG said. In addition, reports in 2012 described Google Inc.'s "Double Irish" and "Dutch Sandwich" tax strategies that created convoluted mechanisms to maximize the foreign tax allowance.
But with congressional budget talks reaching a tipping point, money held overseas by U.S. companies is too much for revenue starved Washington to ignore, and the Obama...