Our Mission is to keep our audience with an interrupted stream of selected financial information from different serious sources, with the objective to provide online tools with information about investments in the financial markets. We supply you, with the following information: Asia Markets Closing Report, Europe Markets Closing Report, Wall Street Market Closing Report, Market News, Commodities Daily Price Report, Daily Treasury Yields Report, EU/FX Daily Report.
Jan 28, 2020
China Coronavirus: How Big Companies Won New Tax Breaks From the Trump Administration
The overhaul of the federal tax law in 2017 was the signature legislative achievement of Donald J. Trump’s presidency.
The
biggest change to the tax code in three decades, the law slashed taxes
for big companies, part of an effort to coax them to invest more in the
United States and to discourage them from stashing profits in overseas
tax havens.
Corporate executives, major investors and the
wealthiest Americans hailed the tax cuts as a once-in-a-generation boon
not only to their own fortunes but also to the United States economy.
But
big companies wanted more — and, not long after the bill became law in
December 2017, the Trump administration began transforming the tax
package into a greater windfall for the world’s largest corporations and
their shareholders. The tax bills of many big companies have ended up
even smaller than what was anticipated when the president signed the
bill.
One consequence is that the federal
government may collect hundreds of billions of dollars less over the
coming decade than previously projected. The budget deficit has jumped
more than 50 percent since Mr. Trump took office and is expected to top
$1 trillion in 2020, partly as a result of the tax law.
Laws
like the 2017 tax cuts are carried out by federal agencies that first
must formalize them via rules and regulations. The process of writing
the rules, conducted largely out of public view, can determine who wins
and who loses.
Starting in early 2018, senior officials in
President Trump’s Treasury Department were swarmed by lobbyists seeking
to insulate companies from the few parts of the tax law that would have
required them to pay more. The crush of meetings was so intense that
some top Treasury officials had little time to do their jobs, according
to two people familiar with the process.
The lobbyists targeted a
pair of major new taxes that were supposed to raise hundreds of
billions of dollars from companies that had been avoiding taxes in part
by claiming their profits were earned outside the United States.
The
blitz was led by a cross section of the world’s largest companies,
including Anheuser-Busch, Credit Suisse, General Electric, United
Technologies, Barclays, Coca-Cola, Bank of America, UBS, IBM, Kraft
Heinz, Kimberly-Clark, News Corporation, Chubb, ConocoPhillips, HSBC and
the American International Group.
Thanks in part to the chaotic
manner in which the bill was rushed through Congress — a situation that
gave the Treasury Department extra latitude to interpret a law that was,
by all accounts, sloppily written — the corporate lobbying campaign was
a resounding success.
Image
A section of the Senate bill. Congress gave final approval to the Tax Cuts and Jobs Act on Dec. 20, 2017.Credit...Jon Elswick/Associated Press
Through
a series of obscure regulations, the Treasury carved out exceptions to
the law that mean many leading American and foreign companies will owe
little or nothing in new taxes on offshore profits, according to a
review of the Treasury’s rules, government lobbying records, and
interviews with federal policymakers and tax experts. Companies were
effectively let off the hook for tens if not hundreds of billions of
taxes that they would have been required to pay.
“Treasury is
gutting the new law,” said Bret Wells, a tax law professor at the
University of Houston. “It is largely the top 1 percent that will
disproportionately benefit — the wealthiest people in the world.”
It
is the latest example of the benefits of the Republican tax package
flowing disproportionately to the richest of the rich. Even a tax break
that was supposed to aid poor communities — an initiative called
“opportunity zones” — is being used in part to finance high-end developments in affluent neighborhoods, at times benefiting those with ties to the Trump administration.
Of
course, companies didn’t get everything they wanted, and Brian
Morgenstern, a Treasury spokesman, defended the department’s handling of
the tax rules. “No particular taxpayer or group had any undue influence
at any time in the process,” he said.
Racing for a Win
Ever since the birth of the modern federal income tax in 1913, companies have been concocting ways to avoid it.
In
the late 1990s, American companies accelerated their efforts to claim
that trillions of dollars of profits they earned in high-tax places like
the United States, Japan or Germany were actually earned in low- or
no-tax places like Luxembourg, Bermuda or Ireland.
Google, Apple, Cisco, Pfizer, Merck, Coca-Cola, Facebook and many others have deployed elaborate techniques
that let the companies pay taxes at far less than the 35 percent
corporate tax rate in the United States that existed before the 2017
changes. Their playful nicknames — like Double Irish and Dutch Sandwich —
made them sound benign.
The Obama administration and lawmakers from both parties have tried to combat this profit shifting, but their efforts mostly stalled.
When
President Trump and congressional Republicans assembled an enormous
tax-cut package in 2017, they pitched it in part as a grand bargain:
Companies would get the deep tax cuts that they had spent years
clamoring for, but the law would also represent a long-overdue effort to
fight corporate tax avoidance and the shipment of jobs overseas.
“The
situation where companies are actually encouraged to move overseas and
keep their profits overseas makes no sense,” Senator Rob Portman, an
Ohio Republican, said on the Senate floor in November 2017.
Republicans
were racing to secure a legislative victory during Mr. Trump’s first
year in office — a period marked by the administration’s failure to
repeal Obamacare and an embarrassing procession of political blunders.
Sweeping tax cuts could give Republicans a jolt of much-needed momentum
heading into the 2018 midterm elections.
To speed
things along, Republicans used a congressional process known as “budget
reconciliation,” which blocked Democrats from filibustering and allowed
Republicans to pass the bill
with a simple majority. But to qualify for that parliamentary green
light, the net cost of the bill — after accounting for different tax
cuts and tax increases — had to be less than $1.5 trillion over 10
years.
The bill’s cuts totaled $5.5 trillion. The corporate income
tax rate shrank to 21 percent from 35 percent, and companies also won a
tax break on the trillions in profits brought home from offshore.
To
close the gap between the $5.5 trillion in cuts and the maximum price
tag of $1.5 trillion, the package sought to raise new revenue by
eliminating deductions and introducing new taxes.
Shifting Money
Two
of the biggest new taxes were supposed to apply to multinational
corporations, and lawmakers bestowed them with easy-to-pronounce
acronyms — BEAT and GILTI — that belie their complexity.
BEAT
stands for the base erosion and anti-abuse tax. It was aimed largely at
foreign companies with major operations in the United States, some of
which had for years minimized their United States tax bills by shifting
money between American subsidiaries and their foreign parent companies.
Instead of paying taxes in the United States, companies send the profits to countries with lower tax rates.
The
BEAT aimed to make that less lucrative. Some payments that companies
sent to their foreign affiliates would face a new 10 percent tax.
The other big measure was called GILTI: global intangible low-taxed income.
To
reduce the benefit companies reaped by claiming that their profits were
earned in tax havens, the law imposed an additional tax of up to 10.5
percent on some offshore earnings.
The Joint Committee on
Taxation, the congressional panel that estimates the impacts of tax
changes, predicted that the BEAT and GILTI would bring in $262 billion
over a decade — roughly enough to fund the Treasury Department, the
Environmental Protection Agency and the National Cancer Institute for 10
years.
Sitting in the Oval Office on Dec. 22, 2017, Mr. Trump signed the tax cuts into law. It was — and remains — the president’s most significant legislative achievement.
Built-In Loopholes
From the start, the new taxes were pocked with loopholes.
In
the BEAT, for example, Senate Republicans hoped to avoid a revolt by
large companies. They wrote the law so that any payments an American
company made to a foreign affiliate for something that went into a
product — as opposed to, say, interest payments on loans — were excluded
from the tax.
Let’s say an American
pharmaceutical company sells pills in the United States. The pills are
manufactured by a subsidiary in Ireland, and the American parent pays
the Irish unit for the pills before they are sold to the public. Those
payments mean that the company’s profits in the United States, where
taxes are relatively high, go down; profits in tax-friendly Ireland go
up.
Because such payments to Ireland wouldn’t be taxed, some
companies that had been the most aggressive at shifting profits into
offshore havens were spared the full brunt of the BEAT.
Other
companies, like General Electric, were surprised to be hit by the new
tax, thinking it applied only to foreign multinationals, according to
Pat Brown, who had been G.E.’s top tax expert.
Mr. Brown, now the head of international tax policy at the accounting and consulting firm PwC, said on a podcast
this year that the Trump administration should bridge the gap between
expectations about the tax law and how it was playing out in reality. He
lobbied the Treasury on behalf of G.E.
“The question,” he said, “is how creative and how expansive is Treasury and the I.R.S. able to be.”
An Exhaustive Lobbying Campaign
Almost
immediately after Mr. Trump signed the bill, companies and their
lobbyists — including G.E.’s Mr. Brown — began a full-court pressure
campaign to try to shield themselves from the BEAT and GILTI.
The Treasury Department had to figure out how to carry out the hastily written law, which lacked crucial details.
Chip
Harter was the Treasury official in charge of writing the rules for the
BEAT and GILTI. He had spent decades at PwC and the law firm Baker
McKenzie, counseling companies on the same sorts of tax-avoidance
arrangements that the new law was supposed to discourage.
Starting
in January 2018, he and his colleagues found themselves in nonstop
meetings — roughly 10 a week at times — with lobbyists for companies and
industry groups.
The Organization for
International Investment — a powerful trade group for foreign
multinationals like the Swiss food company Nestlé and the Dutch chemical
maker LyondellBasell — objected to a Treasury proposal that would have
prevented companies from using a complex currency-accounting maneuver to
avoid the BEAT.
The group’s lobbyists were from PwC and Baker
McKenzie, Mr. Harter’s former firms, according to public lobbying
disclosures. One of them, Pam Olson, was the top Treasury tax official
in the George W. Bush administration. (Mr. Morgenstern, the Treasury
spokesman, said Mr. Harter didn’t meet with PwC while the rules were
being written.)
This month, the Treasury issued the final version of some of the BEAT regulations. The Organization for International Investment got what it wanted.
Helping Foreign Banks
One
of the most effective campaigns, with the greatest financial
consequence, was led by a small group of large foreign banks, including
Credit Suisse and Barclays.
American regulators require
international banks to ensure that their United States divisions are
financially equipped to absorb big losses in a crisis. To meet those
requirements, foreign banks lend the money to their American outposts.
Those loans accrue interest. Under the BEAT, the interest that the
American units paid to their European parents would often be taxed.
“Foreign
banks should not be penalized by the U.S. tax laws for complying” with
regulations, said Briget Polichene, chief executive of the Institute of
International Bankers, whose members include many of the world’s largest
banks.
Banks flooded the Treasury Department with lobbyists and letters.
Late
last year, Mr. Harter went to Treasury Secretary Steven Mnuchin and
told him about the plan to give the banks a break. Mr. Mnuchin — a
longtime banking executive before joining the Trump administration —
signed off on the new exemptions, according to a person familiar with
the matter.
A few months later, the tax-policy office handed
another victory to the foreign banks, ruling that an even wider range of
bank payments would be exempted.
Among the lobbyists who
successfully pushed the banks’ case in private meetings with senior
Treasury officials was Erika Nijenhuis of the law firm Cleary Gottlieb.
Her client was the Institute of International Bankers.
In
September 2019, Ms. Nijenhuis took off her lobbying hat and joined the
Treasury’s Office of Tax Policy, which was still writing the rules
governing the tax law.
Some tax experts said that
the Treasury had no legal authority to exempt the bank payments from
the BEAT; only Congress had that power. The Trump administration created
the exception “out of whole cloth,” said Mr. Wells, the University of
Houston professor.
Even inside the Treasury, the
ruling was controversial. Some officials told Mr. Harter — the senior
official in charge of the international rules — that the department
lacked the power, according to people familiar with the discussions. Mr.
Harter dismissed the objections.
Officials at the Joint Committee
on Taxation have calculated that the exemptions for international banks
could reduce by up to $50 billion the revenue raised by the BEAT.
Over
all, the BEAT is likely to collect “a small fraction” of the $150
billion of new tax revenue that was originally projected by Congress,
said Thomas Horst, who advises companies on their overseas tax
arrangements. He came to that conclusion after reviewing the tax
disclosures in more than 140 annual reports filed by multinationals.
Mr.
Morgenstern, the Treasury spokesman, said: “We thoroughly reviewed
these issues internally and are fully comfortable that we have the legal
authority for the conclusions reached in these regulations.” He said
Ms. Nijenhuis was not involved in crafting the BEAT rules.
He also said the Treasury decided that changing the rules for foreign banks was appropriate.
“We were responsive to job creators,” he said.
Heading to the Hill
The lobbying surrounding the GILTI was equally intense — and, once again, large companies won valuable concessions.
Back
in 2017, Republicans said the GILTI was meant to prevent companies from
avoiding American taxes by moving their intellectual property overseas.
In the pharmaceutical and tech industries
in particular, profits are often tied to patents. Companies had sold the
rights to their patents to subsidiaries in offshore tax havens. The
companies then imposed steep licensing fees on their American units. The
sleight-of-hand transactions reduced profits in the United States and
left them in places like Bermuda and the British Virgin Islands.
But
after the law was enacted, large multinationals in industries like
consumer products discovered that the GILTI tax applied to them, too.
That threatened to cut into their windfalls from the corporate tax
rate’s falling to 21 percent from 35 percent.
Lobbyists for
Procter & Gamble and other companies turned to lawmakers for help.
They asked members of the Senate Finance Committee to tell Treasury
officials that they hadn’t intended the GILTI to affect their
industries. It was a simple but powerful strategy: Because the Treasury
was required to consider congressional intent when writing the tax
rules, such explanations could sway the outcome.
Several senators then met with Mr. Mnuchin to discuss the rules.
One
lobbyist, Michael Caballero, had been a senior Treasury official in the
Obama administration. His clients included Credit Suisse and the
industrial conglomerate United Technologies. He met repeatedly with
Treasury and White House officials and pushed them to modify the rules
so that big companies hit by the GILTI wouldn’t lose certain tax
deductions.
In essence, the “high-tax exception” that Mr.
Caballero was proposing would allow companies to deduct expenses that
they incurred in their overseas operations from their American profits —
lowering their United States tax bills.
Other companies jumped
on the bandwagon. News Corporation, Liberty Mutual, Anheuser-Busch,
Comcast and P.&G. wrote letters or dispatched lobbyists to argue for
the high-tax exception.
After months of meetings with lobbyists, the Treasury announced in June 2019 that it was creating a version of the exception that the companies had sought.
An Implied Threat
Two years after the tax cuts became law, their impact is becoming clear.
Companies
continue to shift hundreds of billions of dollars to overseas tax
havens, ensuring that huge sums of corporate profits remain out of reach
of the United States government.
The Internal Revenue Service is
collecting tens of billions of dollars less in corporate taxes than
Congress projected, inflating the tax law’s 13-figure price tag.
This
month, the Organization for Economic Cooperation and Development
calculated that the United States in 2018 experienced the largest drop
in tax revenue of any of the group’s 36 member countries. The United
States also had by far the largest budget deficit of any of those
countries.
In the coming days, the Treasury is likely to complete
its last round of rules carrying out the tax cuts. Big companies have
spent this fall trying to win more.
In September, Chris D. Trunck,
the vice president for tax at Owens Corning, the maker of insulation
and roofing materials, wrote to the I.R.S. He pushed the Treasury to
tinker with the GILTI rules in a way that would preserve hundreds of
millions of dollars of tax benefits that Owens Corning had accumulated
from settling claims that it poisoned employees and others with
asbestos.
The same month, the underwear
manufacturer Hanes sent its own letter to Mr. Mnuchin. The letter, from
Bryant Purvis, Hanes’s vice president of global tax, urged Mr. Mnuchin
to broaden the high-tax exception so that more companies could take
advantage of it.
Otherwise, Mr. Purvis warned, “the GILTI regime
will become an impediment to U.S. companies and their ability to not
only compete globally as a general matter, but also their ability to
remain U.S.-headquartered if they are to maintain the overall fiscal
health of their business.”
The implied threat was clear: If the
Treasury didn’t further chip away at the new tax, companies like Hanes,
based in Winston-Salem, N.C., might have no choice but to move their
headquarters overseas.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.