US should respond to OECD tax project with an ‘innovation box’November 30, 2015
While the U.S. is plagued by inertia when it comes to tax policy, the rest of the world hasn’t been standing still. The biggest change of late has been the completion of the Organization for Economic Cooperation and Development’s (OECD) Base Erosion and Profit Shifting Project, or BEPS, a multiyear endeavor with the express goal of deterring multinational corporations from shifting their profits across countries to exploit tax rate differentials.
The extent to which this effort will be judged successful is to be determined, but one outcome that’s already known is that the final version of the project essentially codified the use of “innovation boxes” in member countries. The most productive response for the U.S. to the BEPS project — in terms of spurring domestic investment and job creation — would be for Congress to create an innovation box tax regime as well.
With both tax-writing committees holding hearings on BEPS this week and the recently announced Pfizer-Allergan merger fomenting vitriol about corporations “deserting” America, the political environment may be propitious to consider a less-than-comprehensive tax reform that addresses the the conflicting incentives the code provides U.S. multinationals.