Thursday, March 20, 2014
Roberta Mann (Oregon) presents International Tax Reform and the Global Environment at San Diego today as part of its Tax Law Speaker Series:
Nearly everyone agrees that the United States’ system of taxing multinational corporations is broken. While nominal U.S. corporate tax rates rank near the top among developed countries, the taxes actually paid by U.S. corporations are the lowest among those countries. Debates over corporate reform are intensifying.
The U.S. asserts its taxing authority over all the income earned by its citizens and residents. This type of taxing system is called a “worldwide” system. The foreign income of foreign corporations and residents is not taxed unless it is repatriated to the United States, for example, by means of a dividend paid to the U.S. corporate parent by a foreign subsidiary. U.S. corporations and residents are allowed to reduce their U.S. tax liability by foreign tax credits for taxes paid to foreign governments. By holding foreign income overseas, U.S. multinationals avoid U.S. tax.
Other countries use a “territorial” system of taxation. Those countries tax only the income attributable to activities within their borders. Some countries have used their tax systems to attract business by low tax rates. Reformers assert that the U.S. should adopt a territorial tax system to improve global competitiveness of U.S. multinational corporations. A seldom-asked question is whether a worldwide or territorial system is best for the world’s environment?
This paper will attempt to answer that question. Focusing on manufacturing activities, I will compare environmental rules in the United States with those in emerging manufacturing economies such as Brazil, Russia, India and China. I will compare the tax rules applicable to manufacturing concerns in those countries. I will also consider whether examining international tax reform through an environmental lens could have other beneficial side effects, such as slowing harmful tax competition and improving compliance with trading norms.
Ultimately, the question is whether economic competition and capitalism can be good for the environment. Perhaps international tax reform can move the world in a sustainable direction.