By
WASHINGTON — APPLE got a big surprise
last week when the European Commission ordered Ireland to
collect more than $14 billion in back taxes from the company. The global giant
had been attributing billions of dollars in profits to a phantom head office,
allowing it to pay a tax rate of 1 percent or lower.
Both Apple and Ireland are appealing the decision, but
the commission’s announcement was the latest sign that multinational
corporations are running out of places to hide from paying taxes. The door is
now open for Congress to fix our own corporate tax code, which has allowed the
biggest multinationals to shirk their obligations for decades.
The Apple ruling is big, but it is only the latest
international effort to end the deals that American multinationals have used to
pay near-zero tax rates. The European Commission is investigating Luxembourg’s
tax arrangements for Amazon and McDonald’s, and last year the European Court of
Justice struck down tax advantages to companies and their subsidiaries selling
e-books throughout Europe. Also last year, Britain enacted a new tax to target
profits siphoned off by international companies — nicknamed, without much
subtlety, the “Google tax.”
It’s not just Europe. The Organization for
Economic Cooperation and Development and the Group of 20
nations are coordinating on a global effort to end the cross-border games that
allow companies to avoid taxation by moving money among various subsidiaries.
Multinational corporations are especially worried about losing access to Cayman
Island-style tax rates in European countries where they can also get rule of
law, political stability and an educated professional class of attorneys and
consultants.
The Treasury Department has pushed back against the
European Commission over the Apple case, concerned about the impact on the
Internal Revenue Service’s authority. But Treasury has also finalized new
country-by-country reporting requirements that could help expose the
jaw-dropping variety of tax-dodging schemes multinational companies employ. At
the Group of 20 summit meeting in China last weekend, President Obama
reiterated his support for a cooperative global effort to end the international
tax shell game.
Now that they are
feeling the sting from foreign tax crackdowns, giant corporations and their
Washington lobbyists are pressing Congress to cut them a new sweetheart deal
here at home. But instead of bailing out the tax dodgers under the guise of tax
reform, Congress should seize this moment to take three crucial steps to repair
our broken corporate tax code.
First, Congress should increase the share of
government revenue generated from taxes on big corporations — permanently. In
the 1950s, corporations contributed about $3 out of every $10 in federal
revenue. Today they contribute $1 out of every $10, despite their reliance on
federal investments to start and expand their businesses.
The National Science
Foundation helped fund some of the initial work of Google’s founders. Apple’s
consumer products still rely on technology that originated in federally funded
research. To usher in the next generation of prosperous American companies —
and to make the investments we need to sustain broad-based economic growth —
the current generation of corporate winners must step up and pay its fair
share.
Second, Congress should encourage investment in jobs
here in the United States. Giant corporations are pushing corporate tax reform
proposals that offer a lower permanent tax rate for earnings generated abroad
than earnings generated at home. That is nuts. Preferential tax treatment,
either through special rates or deferred due dates, creates a huge financial
incentive for American companies to build businesses and create jobs abroad
rather than in the United States. Our tax code should favor jobs and businesses
at home — period.
Third, Congress should level the playing field for
small businesses. Small companies in Massachusetts don’t stash profits in the
Netherlands. They can’t hire a team of accountants to set up a “reverse hybrid
mismatch” to slash their taxes. This puts small businesses at a competitive
disadvantage as they end up shouldering more of the burden of paying for
education, infrastructure, research, the military and everything else our
nation relies on to succeed.
I have been pushing Congress to take these steps since
I arrived in the Senate in 2013. The common refrain from Republicans who oppose
these measures is that taking them would encourage American companies to flee
abroad. But as other nations step up to prevent tax avoidance, that case gets
weaker and weaker. And we have the leverage to tighten our tax code because
these companies want what America offers: the world’s wealthiest consumers, the
world’s best work force, the world’s most reliable legal system and the world’s
deepest capital markets.
For years, corporate tax
dodgers have taken full advantage of all the benefits of being American
companies, while searching out every possible way to avoid paying American
taxes. Now that other leading countries are starting to get tough on tax
enforcement, these tax dodgers suddenly want to move their money back to the
United States. When they do, they should pay their fair share, just as working
families and small businesses have been all along.
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