America’s burdensome tax code
The U.S. corporate tax rate is not competitive in the global market. Not only is our rate higher than any other developed country, we also enforce a worldwide tax system that imposes rates on profits even when they are earned entirely abroad. Because high domestic rates make doing business from the U.S. difficult, many multinational companies have been forced to relocate valuable intellectual property abroad as well as retain earnings offshore. This intellectual property – also referred to as “IP” – could include inventions, patents, computer software, manufacturing processes, and other valuable assets. Today, it is estimated that $2 trillion in American profits are sitting in foreign countries, with no possibility to reinvest in our domestic economy.
Foreign pressure on American companies
Foreign countries are glad to host American businesses because of the economic activity and job creation they contribute to domestic economies. As a result, many countries are implementing policies that will entice additional American innovation and profits, most recently through the OECD’s Base Erosion and Profit Shifting (BEPS) project.
Many countries support the implementation of BEPS’ nexus approach, which mandates that in order to benefit from an IP Box tax rate companies must headquarter the IP’s R&D domestically, meaning that jobs and investment must be located in-country. The adoption of the nexus requirement will force American companies to relocate critical jobs and R&D abroad, hurting American workers and the economy.
Once companies commit to foreign IP Boxes it is unlikely Congress can retroactively enact policies to bring them home. The damage will be done and some of our brightest minds and groundbreaking innovation will be lost.