Republicans in both chambers of Congress said international tax reform is necessary to retain companies in the United States following pharmaceutical giant Pfizer’s announcement it is moving its headquarters overseas after its merger with Ireland-based Allergan, citing the country’s high corporate tax rates.
During hearings in the House Ways and Means Subcommittee on Tax Policy and Senate Finance Committee Tuesday, members expressed concern there would be more inversion deals to come.
GOP lawmakers were critical of the final recommendations issued by the Organization for Economic Co-operation and Development (OECD) on its Base Erosion and Profits Shifting (BEPS) project.
The BEPS measures suggest setting new standards for country-to-country reporting, treaty shopping and a revision of the application of transfer pricing rules.
Rep. Charles Boustany, the chairman of the House committee said he thinks the recommendations would have the opposite effect of what they set out to do, encouraging companies to create patent boxes.
“The exposure of American companies’ highly sensitive information through the country-by-country reporting requirements within the BEPS recommendations are not constrained by any rationale for the breadth of information required, and also lacking appropriate protections for the highly sensitive nature of this information,” he said in his opening statement.
National Foreign Trade Council Vice President for Tax Policy Catherine Schultz Vice President for Tax Policy, who testified before the House, said the U.S. needs to lower its corporate tax rate if it wants to compete with foreign counterparts if it wants to hold onto corporations.
“It doesn’t make sense that a bigger stick swung harder will encourage people to stay,” Rep. Mike Kelly, a Pennsylvania Republican said.
Robert Stack, the Treasury Department’s deputy assistant secretary for international tax affairs, who appeared before both committees, argued the Obama administration’s proposal would broaden the bad and lower the corporate tax rate.
Stack added the plan would only be a start, “since there will always be jurisdictions with lower tax rates.”
Senate Finance Committee Chairman Orrin Hatch said the recent Pfizer merger was not surprising given the state of the U.S. corporate tax rate.
“Throughout this process we have heard concerns from large sectors of the business community that the BEPS project could be used to further undermine our nation’s competitiveness and to unfairly subject U.S. companies to greater tax liabilities abroad,” the Utah Republican said, adding that Congress, the branch responsible for making changes to the tax code, was unable to weigh in on BEPS negotiations.
The U.S.’s nominal corporate tax rate currently stands at 35 percent, far exceeding the rates of other countries in the developed world.
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