GAO: International Taxation: Information on the Potential Impact on IRS and U.S. Multinationals of Revised International Guidance on Transfer Pricing
Globalization has increased incentives for multinational corporations to shift profits from country to country to use differences in the countries' corporate tax systems to reduce taxes. This profit shifting can lead to the erosion of U.S. and other countries' corporate tax bases, reducing tax revenues. OECD did a comprehensive analysis of corporate base erosion and profit shifting and, in the fall of 2015, issued 15 action plans to address the problem. GAO was asked to analyze the effects on the U.S. economy of adopting OECD actions.
GAO analyzed the potential effects of the two actions furthest along in implementation: revised transfer pricing guidelines and new transfer pricing documentation, including country-by-country reporting. For these actions, GAO examined (1) how likely it is that the action would reduce BEPS, (2) what is known about the potential administrative and compliance costs of the action, and (3) what is known about the potential effects the actions could have on the U.S. economy. Report.
GAO: New Markets Tax Credit: Better Controls and Data Are Needed to Ensure Effectiveness
The financial structures of New Markets Tax Credit (NMTC) investments have become more complex and less transparent over time. The increased complexity is due, in part, to combining the NMTC with other federal, state, and local government funds. Based on GAO's survey of Community Development Entities (CDEs) an estimated 62 percent of NMTC projects received other federal, state, or local government assistance from 2010 to 2012. While combining public financing from multiple sources can fund projects that otherwise would not be viable, it also raises questions about whether the subsidies are unnecessarily duplicative because they are receiving funds from multiple federal sources. In recent years, private investors have claimed more than $1 billion in NMTCs annually. Report.
GAO: Corporate Tax Expenditures: Information on Estimated Revenue Losses and Related Federal Spending Programs
Tax expenditures--special exemptions and exclusions, credits, deductions, deferrals, and preferential tax rates claimed by corporations, individuals, or both--support federal policy goals but result in revenue forgone by the federal government. Congress and the administration are reexamining tax expenditures used by corporations as part of corporate tax reform.
Estimated tax revenue that the federal government forgoes resulting from corporate tax expenditures increased over the past few decades as did the total number of corporate tax expenditures. In 2011, the Department of the Treasury estimated 80 tax expenditures resulted in the government forgoing corporate tax revenue totaling more than $181 billion. Many of these tax expenditures are broadly available to both corporate and individual taxpayers. In examining their narrowly focused reported purposes, one-third of the 24 corporate-only tax expenditures appear to share a similar purpose with at least one federal spending program. Report.
GAO: Tobacco Taxes: Large Disparities in Rates for Smoking Products Trigger Significant Market Shifts to Avoid Higher Taxes
In 2009, CHIPRA increased and equalized federal excise tax rates for cigarettes, roll-your-own tobacco, and small cigars. Though CHIPRA also increased federal excise tax rates for pipe tobacco and large cigars, it raised the pipe tobacco tax to a rate significantly below the equalized rate for the other products, and its large cigar excise tax can be significantly lower, depending on price. Treasury collects federal excise taxes on tobacco products.
Large federal excise tax disparities among tobacco products, which resulted from the Children’s Health Insurance Program Reauthorization Act (CHIPRA) of 2009, created opportunities for tax avoidance and led to significant market shifts by manufacturers and price sensitive consumers toward the lower-taxed products. Monthly sales of pipe tobacco increased from approximately 240,000 pounds in January 2009 to over 3 million pounds in September 2011, while roll-your-own tobacco dropped from about 2 million pounds to 315,000 pounds. For the same months, large cigar sales increased from 411 million to over 1 billion cigars, while small cigars dropped from about 430 million to 60 million cigars. According to government, industry, and nongovernmental organization representatives, many roll-your-own tobacco and small cigar manufacturers shifted to the lower-taxed products after CHIPRA to avoid paying higher taxes.
While revenue collected for all smoking tobacco products from April 2009 through fiscal year 2011 amounted to $40 billion, GAO estimates that federal revenue losses due to market shifts from roll-your-own to pipe tobacco and from small to large cigars range from about $615 million to $1.1 billion for the same period. Report.