The United States’ combined corporate tax rate of 39.1 percent is the highest in the industrialized world. That rate is now higher than Japan’s, which lowered its corporate tax rate in 2012. Our outdated tax code was put in place in 1986, when many TechNet companies did not yet exist, and needs to be overhauled to allow U.S. companies to be globally competitive. The vast majority of other developed nations have adopted competitive territorial tax systems that exempt most active foreign-earned profits from taxes when they are remitted home. The adoption of territorial tax systems by other countries (including Japan and the UK) has placed U.S.-based companies at a significant tax disadvantage. This makes American companies less competitive against foreign companies that are not subject to home country taxation on their foreign earnings and have lower corporate tax rates on earnings in their home country. At the same time, many of our trading partners have begun taking aggressive actions to challenge the legitimate tax practices of many American companies. These efforts will ultimately limit the ability of companies to bring home foreign earnings to the United States under a future tax reform measure, and will also compel companies to shift investment and employment overseas. The development of an “Innovation Box” that encourages companies to invest capital and human resources on innovation in the United States should be included in any business tax reform proposal. We also urge Congress to fully extend the Section 48 energy credit, which impacts many power sources beyond solar energy, and to include all relevant technologies. The Section 48 credit is an essential tool to maintain efficient and secure data centers, production facilities, and corporate headquarters, while maintaining our important commitment to be good stewards of our planet.
The adoption of territorial tax systems by other countries has placed U.S.-based companies at a significant tax disadvantage, making us less competitive vis-a-vis foreign competitors. TechNet supports corporate tax reform efforts that address the rapidly growing disparity in tax treatment between the United States and its trading partners. These reforms should include:
- Defending the legal right of U.S. corporations to structure global business operations consistent with relevant legal requirements.
- Adopting a competitive market based, territorial tax system with balanced safeguards against base erosion and profit shifting that does not discriminate against any particular income – including income from intangible property.
- Allowing U.S.-based companies to repatriate their current overseas cash at a reduced rate.
- Developing an “Innovation Box” that encourages research and development and job creation in the United States.
- Lowering the corporate tax rate so that it is competitive with the rest of the industrialized world.
As Congress debates international tax reform, other tax reform priorities should include:
- The seamless extension of all existing business tax credits, deductions, and exemptions.
- The seamless extension and modification of Section 48 of the Investment Tax Credit to enable projects with long development cycles, including both large fuel cell power generation systems and distributed generation systems, to effectively access the credits.
- The continued prohibition of federal Internet access taxes.
- Simplified tax requirements for mobile workers.