The international provisions of TRA 17S are in some ways an improvement over TRA 17H, but they are nevertheless deeply flawed. U.S.-based MNEs have accumulated $ 2.6 trillion of low taxed income offshore. This "guilty" income derives not just from IP developed in the United States, but in many cases (for example, Google, Facebook, and Big Pharma) also from exploiting the U.S. consumer market. This is a classic "round tripping" situation in which both the supply side (production) and the demand side (consumption) are in the United States, and yet both TRA 17H and TRA 17S let the guilty parties off the hook by (a) applying a low tax rate to past accumulations, (b) applying a low tax rate to future accumulations, plus permitting tax free repatriations, and (c) adopting base erosion protections that only apply to transactions with related parties, while (for example) the advertisers on Google and Facebook are unrelated and therefore these giants are unaffected by the base erosion provisions. In addition, neither TRA 17H nor TRA 17S have any anti-inversion provisions, despite the fact that inversions will be attractive because they avoid the outbound provisions and the inbound provisions are ineffective, resulting in an overall U.S. tax rate of zero for an inverted company like Google or Facebook (no subpart F inclusion and inapplicable base erosion provisions). TRA 17S must be made tougher by (a) applying a full 35 percent tax rate to past GILTI, (b) increasing the tax rate for future GILTI, (c) applying base erosion beyond payments between related parties, and (d) redefining corporate residence as location of headquarters and imposing a corporate exit tax on moving the headquarters.
Avi-Yonah, Reuven S. "Guilty as Charged: Reflections on TRA 17." Tax Notes 157, no. 8 (2017): 1131-6.
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