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Chairman Boustany Opening Statement: Examining the OECD Base Erosion and Profit Shifting (BEPS) Project

December 01, 2015

WASHINGTON, DC — Today, House Ways and Means Tax Policy Subcommittee Chairman Charles Boustany (R-LA) delivered the following opening statement during a hearing on the final recommendations recently issued by the OECD on their Base Erosion and Profits Shifting (BEPS) project.

“Good Morning. This hearing is called to order.  You might remember this Subcommittee was formerly called the Select Revenue Measures Subcommittee, but to reflect the central role of tax in the Ways and Means Committee’s agenda, Chairman Brady and the rest of the members decided to change its name to the Subcommittee on Tax Policy.  I would like to welcome some new faces to the Subcommittee on Tax Policy, Representative Kristi Noem from South Dakota, and Representative George Holding from North Carolina. You each bring with you to the subcommittee insights and experiences that will greatly benefit the important work we will undertake here going forward.

“Today the Subcommittee on Tax Policy will examine the final recommendations recently issued by the OECD on their Base Erosion and Profit Shifting (BEPS) project. 

“The alarming increase in foreign acquisitions of U.S. companies, over the past decade and especially in the last year have exposed the critical and urgent need for tax reform in America.  At 39.1%, the United States now has the highest federal and state combined corporate rate in the developed world, which is rapidly draining America of its home-grown innovation and business, and forcing companies to relocate to countries with more business-friendly tax regimes. Globalization of the business marketplace has created historic opportunities for growth that were previously impossible; however, as the old adage goes, there’s no such thing as a free lunch, and with every advancement comes a price.  Just last week, Pfizer, an American company founded in 1849 in New York City announced the largest foreign acquisition of an American company in history.  That is not the first, nor will it be the last, foreign acquisition pushed over the line by our broken tax code. 

“The last time comprehensive tax reform took place in the United States was 1986, and since then our international counterparts have capitalized on our lack of action, outpacing us to a debilitating degree in adopting the tax reforms needed to attract capital investment.  As international tax regimes have evolved, multinational companies have also evolved to become increasingly savvy in minimizing their overall tax liability; international competition for business and a fiduciary duty to shareholders obligates companies to be proactive.  The political and policy hurdles that have prevented tax reform efforts from moving forward seem to pale in comparison to the problem America faces with the mass exodus of American companies through foreign acquisitions.

“Since 2001, global economic instability alongside the increasing mobility of capital and high-value profitable business activities, have served as natural and powerful motivators for international tax reform.  The substantial migration of multinational companies to more favorable tax jurisdictions has placed front and center an acute international awareness that there are limits to the tax burdens countries can place on their resident companies before they must seek a more favorable tax environment elsewhere.  All the while, the United States has failed to keep with the pace and is being left behind. 

“Indeed, the need for tax revenue resulted in the push by the OECD to launch the BEPS project.  The OECD’s BEPS project was intended to target limited, overly aggressive tax planning that resulted in inappropriate tax avoidance.  In fact, one key theme of the BEPS project was to eliminate “cash boxes” – i.e., shell companies with few employees or economic activities and which are subject to no or low taxes.  However, the project quickly morphed into a fundamental rewrite of global tax practices, including those of the United States, in an opaque process outside the reach of the U.S. political process. 

“The OECD’s BEPS project recommendations are deeply troubling on a number of levels, not the least of which is the aggressive attempt to impose substantial tax policy changes on the international community under the guise of eliminating so-called “harmful tax practices” to ensure multinational companies pay their “fair share” of taxes owed in the jurisdictions in which they operate. This is a highly subjective standard set by the OECD that seems to unnecessarily target American companies, while also disregarding the detrimental impact these recommendations will have on U.S. companies that currently operate under the worldwide system of taxation observed in the U.S.  

“The BEPS project may have been motivated by an underlying belief that creating a business-friendly tax regime to attract business investment to one’s country is itself an illegitimate and harmful practice that must be eliminated; but the BEPS project ended up making recommendations that will achieve the opposite result by encouraging countries to create patent boxes, which will effectively force worldwide companies to shift their business operations out of the United States.  Moreover, the exposure of American companies’ highly sensitive information through the country-by-country reporting requirements within the BEPS recommendations are not constrained by any rationale for the breadth of information required, and also lacking appropriate protections for the highly sensitive nature of this information.

“The BEPS project final recommendations issued this year, coupled with the present European Commission investigation into the alleged receipt of illegal state aid by mostly American companies, expose what appears to be an extremely disturbing and multi-faceted attack, targeted specifically at American companies. 

“Ladies and gentlemen, we are out of time; we have had nearly three decades of procrastinating on tax reform. This must be the Congress of action that takes the tough, but necessary steps to reform our tax code for the sake of American families, American companies, and regaining our standing as the world’s leader in fostering innovation and business growth.”