Watch Out For Increased Tax Enforcement to Battle COVID-19—Good Idea or Money Grab? By STEVEN TOSCHER and TENZING TUNDEN © 2020
The Independent Commission for the Reform of International Corporate Taxation (“Commission”) is a group of leaders from around the world who believe that there is both an urgent need and an unprecedent opportunity to bring about significant reform of the international corporate taxation system. The Commission is comprised of influential members from parliament, the United Nations, and academia.
The Commission published a report on June 15 titled “The Global Pandemic, Sustainable Economic Recovery, and International Taxation.”[i] In this report, the Commission recommends that governments should increase enforcement with regards to tax havens and international tax avoidance.[ii] Doing so would give governments the resources needed to assist public health and workers hurt by the COVID-19 pandemic.
In view of the effects of COVID-19 on the global economy and governments, the Commission believes that present tax rules will not be sufficient.[iii] As profits fall so will corporate tax revenues. Sales and value-added tax revenue decline with consumption and personal income tax revenue with employment.[iv] Global tax revenues will likely fall more than the 11.5% decline experienced from 2007 to 2009.[v]
The Commission believes that governments should not lower corporate tax rates since the base that this rate will be applied to will be significantly less than prior years or even negative while the pandemic lasts. Reductions to corporate tax rates will not stimulate corporate investment because there is already excess capacity and expansion plans are constrained by uncertainty.[vi] The Commission feels that now is not the time halt tax coordination efforts amongst governments. The authors recommend greater international cooperation to prevent tax avoidance by large firms – implementing the agenda proposed by the G-24 for global formulary apportionment of taxing rights.[vii]
The Commission used the example of cruise lines that are seeking support from the U.S. government. Many of these cruise lines are headquartered in tax havens, such as Panama and Bermuda, to minimize their tax obligations– yet they are seeking relief from the federal government.[viii]
The Commission wants effective taxation of wealth, and offshore wealth, to be put in place.[ix] The use of “offshore” structures allows not only the real ownership of this wealth to remain hidden, but also its location and its existence.[x] This same secrecy can also lead to tax evasion, avoidance, and financial crimes.
The Commission suggests that governments should do the following:
- Set a minimum effective corporate tax rate of 25% all across the world to stop base erosion and profit shifting,
- Introduce progressive digital services taxes on the economic rents captured by multinational firms in this sector.
- Mandate country-by-country reporting of public assistance for corporations,
- Make data on offshore wealth public to help governments that want to levy a wealth tax on their richest taxpayers, and
- Require higher corporate rates to more consolidated industries like technology.
Congress is currently considering increases in the IRS budget. Given the prominent members of the Commission, such as professors Thomas Piketty and Gabriel Zucman, this report may influence the U.S. Congress to increase the IRS budget directed at enforcement in the international tax arena. You know what Willie Sutton said when they asked him “why he robbed banks?”
Steven Toscher is the Managing Principal at Hochman Salkin Toscher & Perez P.C., and specializes in civil and criminal tax litigation. Mr. Toscher is a Certified Tax Specialist in Taxation, the State Bar of California Board of Legal Specialization and represents clients throughout the United States and elsewhere involving federal and state, civil and criminal tax controversies and tax litigation.
Tenzing Tunden is a Tax Associate at Hochman Salkin Toscher Perez P.C. Mr. Tunden recently graduated from the Graduate Tax Program at NYU School of Law and the J.D. Program at UC Davis School of Law. During law school, Mr. Tunden served as an intern at the Franchise Tax Board Legal Division and at the Tax Division of the U.S. Attorney’s Office (N.D. Cal).
[i] This report is available at https://static1.squarespace.com/static/5a0c602bf43b5594845abb81/t/5ee79779c63e0b7d057437f8/1592235907012/ICRICT+Global+pandemic+and+international+taxation.pdf.
[ii] Id. at 3.
[iii] Id. at 4.
[iv] Id. at 4-5.
[v] Id. at 5.
[vii] See https://www.g24.org/wp-content/uploads/2019/03/G-24_proposal_for_Taxation_of_Digital_Economy_Jan17_Special_Session_2.pdf
[viii] Leticia Miranda and Isabel Soisson, Most Cruise lines Don’t Pay Federal Income Tax – Just one of the Reasons why They Are Not Getting a Bailout, NBC News, April 1, 2020, available at https://www.nbcnews.com/business/business-news/most-cruise-lines-don-t-pay-taxes-u-s-just-n1172496.
[ix] Id. at 6.