New Yax System for MultiNationals

Tax Equity For the World- but NOT the US. Of course!

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I’ve been advocating a change in the business income tax for a long time. And (of course), I consider my proposal to be extremely brilliant. Far better than the 1 page change in all taxes proposed by TheDonald or the (sometimes proposed, sometimes withdrawn) special duty tax to be imposed on imports. Because my method collects revenue (as opposed to draining it- hoping for an insane 3% growth- AND the need for a magic potion to harvest funds that never appear) and is equitable.

But, of course, the GOP establishment has not latched on to my idea. The OECD (the Organization for Economic Cooperation and Development) has- which normally would mean the US is about to adopt it. Except- surprise, surprise, America First (which really means America Alone) is not among the signatories to the new tax changes that are coming.

This really means that the US is about to get shafted.  It is pretty clear what will happen when 70 other (fairly large) countries adopt what I called a multinational tax compact- and the US is not part of it- who gets the short straw.  Maybe y’all can induce your Congressfolk and Senators to see the folly of their ways. . (I really don’t care about the tax situation in China, India, and Australia [the other non-signatories to the change]- but, I know that many of my readers do exist in those nations- so you should work on your government leaders, too!)

But, first, let me (re)introduce you to the plan.

Base Erosion and Profit Shifting (OECD)

The multilateral instrument (as the OECD now calls it, it was termed the Base Erosion and Profit Shifting [BEPS] program before) was designed to stop companies from “treaty shopping”- from looking from the lowest tax nation to claim as its tax harbor. No more “Ireland”, “Luxembourg”, “Canary Island”, and similar domiciles.

The BEPS plan stops all that. And, it becomes the law of 70 nations no later than 2020. Because the agreement was signed in Paris 7 June 2017! This program has been in the works for 5 years (that’s both the OECD and my American version). The goal is to collect the taxes that each nation deserves because of the profits garnered from its citizenry or via sales to its citizens. BEPS removes the tangled mess of more than 3000 bilateral tax treaties and at least that many loopholes (or are they wormholes? given the size of the money that passes through them untaxed) companies employ.

My plan adopts a worldwide tax code that matches the current Multistate Compact (MSC) that applies in the US (in existence since 1966). Basically, the income of a multinational entity is adjusted to reflect the percent of sales in the US, the percent of payroll in the US, and the percent of property owned or rented in the US.

New Yax System for MultiNationalsAs you can see, it means that firms that ONLY operate in the US won’t be affected. (After all they have 100% of the sales here, 100% of their payroll here, and 100% of their assets here!) But, a firm that generates 1/2 its sales in the US, has about 1/4 of its payroll in the US, and 1/3 of its property in the US means their apportionment factor will be 38.1%. (That means they owe 38.1% of the applicable tax rate.) So, if their net taxable income were to be $ 1 million, the firm would be assesses 38.1% of the 35% tax rate (unless, of course, we lower it, as I clearly advocate). That means they would pay the US Treasury 13.4% of its net income- $ 134,000 in taxes.

Moreover, multinationals will no longer be able to shelter money overseas. Right now that comes to about $ 2 trillion that they “hide” from the IRS, claiming their intellectual property was developed in Ireland or from companies based in Luxembourg. Yeah, right. (And, this new system provides no financial incentive to “hide” the money, since the plan taxes funds earned in a given country by that country.)

Current and Proposed Corporate Tax Rates

Once my idea of the system is adopted, it needs to incorporate an automatic reduction (1% per year) in tax rates (for ten years) each year the IRS collects 50% more in collections than it did the previous year. Which means, by my calculations, that the maximum tax rate that immediately drops from 35% to 25% may fall to 15%.

There’s so much money to be collected (OK, not so much for Ireland, Luxembourg, and those other tax havens) that it is expected that each of the member nations will have instituted the BEPS program in under 12 months. Amazingly, this will shift the control from the multinationals who have been exploiting the loopholes back to the national treasuries that are desperate for the funds they deserve.
It’s also why my version of the program has a built-in tax rate decrement, based upon collections- for the first ten years of the program.

Now, THAT’s fair and balanced!Roy A. Ackerman, Ph.D., E.A.

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