The U.S. Internal Revenue Service is pursuing tax enforcement cases against companies over the issue of "stateless income," a senior agency official said on Wednesday in a reference to corporate profits that are not taxed by any country.Erik Corwin, an IRS deputy chief counsel, said there were international tax disputes with companies, "most involving consequences of complex restructurings designed either to create stateless income or to affect a tax efficient repatriation."
"So those are a family of cases that are in the pipeline and being looked at," he told tax lawyers in a speech in Washington.
Asked by reporters later to elaborate on any litigation, Corwin declined to comment. But tax lawyers said the references to stateless income and profits held offshore could signal a new enforcement approach by the IRS.
"I have not heard the IRS use the term before," Edward Kleinbard, who coined the "stateless income" phrase in a 2007 research paper, said in a telephone interview.
By “stateless income,” I mean income derived by a multinational group from business activities in a country other than the domicile of the group’s ultimate parent company, but which is subject to tax only in a jurisdiction that is not the location of the customers or the factors of production through which the income was derived, and is not the domicile of the group’s parent company.
Stateless income thus can be understood as the movement of taxable income within a multinational group from high-tax to low-tax source countries without shifting the location of externally-supplied capital or activities involving third parties. Stateless persons wander a hostile globe, looking for asylum; by contrast, stateless income takes a bearing for any of a number of zero or low-tax jurisdictions, where it finds a ready welcome.
Stateless income thus can be understood as the movement of taxable income within a multinational group from high-tax to low-tax source countries without shifting the location of externally-supplied capital or activities involving third parties. Stateless persons wander a hostile globe, looking for asylum; by contrast, stateless income takes a bearing for any of a number of zero or low-tax jurisdictions, where it finds a ready welcome.
As an example, a U.S. firm that sells software in Germany earns stateless income when through structuring the added value from the sales to German consumers is taxed in Ireland rather than
Germany or in the U.S. where the parent company resides. The same analysis would apply to a German firm whose income from sales to U.S. or French customers comes to rest for tax purposes in Luxembourg.
Concern over stateless income was raised in May when the Senate Permanent Subcommittee on Investigations released a report that found Apple Inc avoided $9 billion in U.S. taxes in 2012 using a strategy involving three offshore units with no discernible tax home or "residence." Companies that avoid taxes say they are doing nothing illegal, but are taking advantage of breaks offered by governments to create jobs and business.
The repatriation of profits has been a top concern for U.S. companies, which collectively have more than $1.5 trillion sitting offshore. Most say they keep the money there to avoid the taxes they would face by bringing it home.
The IRS official's comments came days after the G20, a group of leading world economies made up of 19 countries plus the European Union, voiced support for a fundamental reassessment of the rules on taxing multinational corporations.
On July 19, the Organization for Economic Co-operation and Development, which advises the G20 on tax and economic policy, released an action plan that said existing national tax enforcement regimes do not work. The plan took aim at loopholes used by companies such as Apple and Google Inc to avoid billions of dollars in taxes.
"We must address the persistent issue of 'stateless income,' which undermines confidence in our tax system at all levels," U.S. Treasury Secretary Jack Lew said in a statement on July 19 following the OECD report.
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Source:
Reuters
U.S. IRS pursuing 'stateless income' tax enforcement -official
WASHINGTON, July 24 (Reuters) - The U.S. Internal Revenue Service is pursuing tax enforcement cases against companies over the issue of "stateless income," a senior agency official said on Wednesday in a reference to corporate profits that are not taxed by any country.
Erik Corwin, an IRS deputy chief counsel, said there were international tax disputes with companies, "most involving consequences of complex restructurings designed either to create stateless income or to affect a tax efficient repatriation."
"So those are a family of cases that are in the pipeline and being looked at," he told tax lawyers in a speech in Washington.
Asked by reporters later to elaborate on any litigation, Corwin declined to comment. But tax lawyers said the references to stateless income and profits held offshore could signal a new enforcement approach by the IRS.
"I have not heard the IRS use the term before," Edward Kleinbard, who coined the "stateless income" phrase in a 2007 research paper, said in a telephone interview.
He is a former chief of staff to the congressional Joint Committee on Taxation and now a professor at the University of California.
Concern over stateless income was raised in May when the Senate Permanent Subcommittee on Investigations released a report that found Apple Inc avoided $9 billion in U.S. taxes in 2012 using a strategy involving three offshore units with no discernible tax home or "residence."
Companies that avoid taxes say they are doing nothing illegal, but are taking advantage of breaks offered by governments to create jobs and business.
The repatriation of profits has been a top concern for U.S. companies, which collectively have more than $1.5 trillion sitting offshore. Most say they keep the money there to avoid the taxes they would face by bringing it home.
The IRS official's comments came days after the G20, a group of leading world economies made up of 19 countries plus the European Union, voiced support for a fundamental reassessment of the rules on taxing multinational corporations.
On July 19, the Organization for Economic Co-operation and Development, which advises the G20 on tax and economic policy, released an action plan that said existing national tax enforcement regimes do not work. The plan took aim at loopholes used by companies such as Apple and Google Inc to avoid billions of dollars in taxes.
"We must address the persistent issue of 'stateless income,' which undermines confidence in our tax system at all levels," U.S. Treasury Secretary Jack Lew said in a statement on July 19 following the OECD report. (Reporting by Patrick Temple-West; Editing by Howard Goller and Andre Grenon)
Read more at: Tax Times blog
