Do your tax strategies reflect your business operations and brand you a good corporate citizen?

In 2016, the U.S. Department of the Treasury announced plans to remove President Andrew Jackson from the face of the $20 bill. A reexamination of Jackson’s history as a slave owner and proponent of the Indian Removal Act led some to question whether he was the right person to appear on the front of the $20 note. Corporate taxpayers these days are also feeling the ground shift as notions of what comprises a proper taxpaying citizen are changing.

Today’s senior tax advisors, including tax directors at large companies, were raised on Judge Learned Hand’s quote from Gregory V. Helvering: “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” As a result, the distinction between successful yet “edgy” tax planning and tax evasion often came down to a judicial decision.

There is an emerging trend, though, that suggests large corporations are required to pay some tax to be considered good corporate citizens. How much tax is debatable, but it seems clear that tax strategies that result in untaxed, “stateless” income are the hallmark of poor corporate citizenship. These changing social norms are influencing the tax strategies of large public corporations — witness GE’s sell-off of its credit arm, which was the focal point of much of its tax planning.

Public sentiment also influences the political class. Both the House Republican and Trump tax plans call for eliminating the deferral of foreign corporate earnings from U.S. tax regulations. This tax deferral has been a feature of the Internal Revenue Code since its creation in 1918. Changing public views may ultimately doom this nearly century-old principle of tax law.

Learned Hand’s influence hasn’t yet been completely purged, though. Tax planning based on and aligned with business strategies and based in countries that simply have lower tax rates will continue to stand. Tax advisors and corporate tax directors hoping for a continuation of aggressive tax planning without much business substance should consider Bob Dylan’s words: “You don’t need a weatherman to know which way the wind blows.”


The Tail Wags the Dog

by Bill Henson on March 10, 2017

While it might look great on paper, the proposed Border Tax Adjustment could have some unintended consequences. Learn more about how, if implemented, the adjustment could change the U.S. business landscape.

Charleston, South Carolina is well known for a particular architectural style known as the “Charleston Single House.”  Built in the 1700s, the houses are only one room wide but very long.  Legend has it that the style was designed to minimize property taxes, which were based on street frontage.

For a modern day version of this same theory, look no further than the street outside your door.  Tax depreciation rules favor the purchase of “heavy” SUVs and trucks for use in business. As a result, many businesses purchase Hummers or other large SUVs even though a smaller vehicle would suit their needs.

Examples like these are why it’s important to consider unintended consequences when tax reform proposals are discussed.  Consider the House Republican proposed “Border Adjustment Tax.”  If things work as planned, it could be great, but when you consider potential challenges such as treaty and WTO issues, there could be some interesting side effects.

The Border Tax Adjustment is expected to raise the value of the dollar, which would increase the cost of U.S. exports for foreign customers.  And those still trying to import into the U.S. (those expected to offset the confiscatory U.S. tax with a more valuable revenue stream) will have higher energy and input costs, as petroleum markets are U.S. dollar denominated.

It’s also said the tax will lead to higher demand for U.S. manufactures, but a booming manufacturing sector in the U.S. will require more employees –– lots of them.  The current U.S. unemployment rate is at 4.7 percent, which most economists consider to be full employment. Creating more demand in an already scarce market isn’t going to help create the skilled workers companies need. Nor will a restrictive immigration policy.

There isn’t a simple tax policy change that can single-handedly fix what ails U.S. and global business.  More often than not, using tax law as a policy lever can result in significant economic distortions.  As charming as a Charleston Single House may be, a wiser tax policy doesn’t influence architecture (or business investments).


New rules for IMMEX companies importing sensitive goods

March 6, 2017

Summary: These come with a narrow, four-month authorization period, so be sure to keep track of all sensitive goods imported on a temporary basis. At the end of January, new rules went into effect for companies operating as maquiladoras and temporarily importing sensitive goods under Mexico’s IMMEX program. The most notable change is the new […]

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21st century Icarus: Alignment is critical to international tax planning

March 6, 2017

Summary: The raid on Caterpillar’s headquarters by federal agencies highlights the critical need for alignment between business operations and international tax strategy. Caterpillar’s tax woes have culminated in a raid on their corporate offices by agents from the IRS and the Department of Justice, who are seeking information on the company’s international tax planning strategies. […]

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Will the Border Adjustment Tax survive?

February 24, 2017

If you’ve been anticipating quick enactment of tax reform proposals, you may be frustrated. One key element of the House GOP tax reform proposal has significantly contributed to the delay. The border adjustment feature of the GOP proposal has polarized taxpayers and caused concern among U.S. trade partners. As currently configured, the border adjustment denies […]

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New requirements for the temporary importation of sensitive goods becomes effective for IMMEX companies

February 20, 2017

Recently, amendments related to general rules and criteria in Foreign Trade matters for IMMEX companies, went into effect as of Jan. 31, 2017. While not an all-inclusive list, some of the new requirements for IMMEX companies temporarily importing sensitive goods*, are the following: Provide information of the sensitive goods to be temporarily imported and the […]

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IRS announces new audit campaigns

February 17, 2017

While the White House moratorium on Federal regulations has caused a slight pause in the development of tax reform, it doesn’t mean the wheels of tax policy will come to a complete halt. In fact, one of the first changes we’re seeing is with IRS audits. Historically, IRS business audit exams were typically conducted by […]

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What does the proposed border adjustment tax mean to businesses?

February 10, 2017

There’s been a lot of talk lately about tax reform, and the “border adjustment tax” has been a particularly hot topic. As proposed by the House Republicans, the border adjustment tax would revamp how businesses are taxed in the United States by replacing the income tax with a cash flow tax. The tax rate would […]

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Final regulations for foreign financial assets issued

February 3, 2017

In February 2016 the IRS released final regulations under Treas. Reg. Section 1.6038D-6. The regulation applies to domestic entities, and beginning with the January 2016 tax year, requires certain corporations, partnerships, and trusts to file Form 8938 with their U.S. income tax returns. Under the new regulation, Form 8938 (which is used to report specified […]

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Reduced income tax rate effective due to Mexico repatriation program

February 2, 2017

The Mexican government included a new repatriation program in its presidential decree issued on January 18, 2017.  The program reflects Mexico’s efforts to encourage investment in certain strategic areas within Mexico and to incentivize Mexican companies to repatriate their liquid assets.  While not an all-inclusive list, a summary of the repatriation program is as follows: […]

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