June 27, 2011 – University of Houston Law Center Assistant Professor Bret Wells urged lawmakers to close a tax loophole that benefits foreign multinational corporations, creating an uneven playing field for U.S. companies and resulting in the loss of much needed tax revenue.
“I believe that tax competitiveness is a serious issue,” Wells told members of the U.S. House Committee on Ways and Means Subcommittee on Select Revenue Measures. “When the U.S. activities of U.S. domestic companies are treated less favorably than the U.S. activities of inbound competitors, a serious structural problem is created that deserves careful attention by Congress.”
Wells’ June 23 testimony involved so-called “base erosion payments” resulting in “Homeless Income,” which allows multinationals to deduct certain intercompany amounts paid to offshore tax-haven affiliates. This technique allows a large part of their income not to be subject to “taxation in the United States where it originated nor is it taxed in the offshore country where it is received,” Wells said.
An appropriate policy response to this technique, he said, “is for Congress to collect corporate taxes at a politically agreed-upon tax rate, but to do so in a manner that attempts to tax the U.S. activities of all corporations in a comparable manner.” If left unfixed, he said, this situation will cause U.S. companies to become prime take-over candidates or encourage them to take “self-help” measures to transform themselves and level the playing field. “If inbound economic participants did not have a tax advantage over their domestic competitors,” he testified, “the tax advantage of locating jobs overseas in order to supply products to the U.S. marketplace would be reduced.”
Click here to read Professor Wells’ testimony before the U.S. House committee.