Wednesday, February 13, 2013

US hammering out details on corporate tax disclosure/EITI?

Today the State Department hosted the first meeting of the US Extractive Industries Transparency Initiative Advisory Committee, the "multi-stakeholder group of civil society representatives, extractive sector companies, and federal and state government agencies that will guide implementation of this important transparency initiative in the United States."  From the notice:
The group’s meeting today is hosted by Secretary of the Interior Ken Salazar, the senior official leading USEITI in the United States. The State Department represents the United States on the EITI International Board, which is the EITI’s global governance structure. 
Today’s meeting represents an important milestone for the vision President Obama presented in September 2011 when he announced the United States intention to pursue full participation in EITI. This commitment underscores the Administration’s belief that this initiative benefits countries in all regions and at all levels of development. The United States has long supported transparency as a critical component of sound governance in countries’ oil and other extractive industries. Implementing EITI is one of the commitments made by the United States in its Open Government Partnership National Action Plan, which is an international effort to promote transparent, accountable and open governments.
The EITI international Secretariat posted this transcript of remarks by Secretariat Head Jonas Moberg, excerpt:
...the EITI in the US can contribute towards improved natural resource governance. It can contribute to the rebuilding of trust in offshore activities, towards natural resource governance without corruption and with greater certainty about companies paying the taxes and royalties they should be paying. 
An added bonus for the rest of us is that you send a clear global leadership message, demonstrating a willingness to practice what you preach. This global message is particularly important if we are to work together with the world’s large growing economies on improved natural resource governance. 
37 countries are implementing the EITI, and so you are joining a global community of multi-stakeholder groups that are working on these issues. 
...The interest around the world in what you are doing is considerable. Along the way there are some key decisions that need to be taken: on how the MSG will function, the scope of the reporting, the government and private sector entities that should participate, defining materiality and agreeing how much detailed information should be disclosed. 
I don't have any more info on how the meeting actually went and unfortunately the media doesn't seem at all interested in this movement forward for corporate tax transparency. More's the pity since everyone seems to be getting exercised about corporate tax avoidance and here is one very real and tangible approach being hammered out as we speak even as the industries campaign hard to prevent it coming to fruition.


  1. Allison,

    Here is an interesting and completely unrelated question for you. If the US Congress ended foreign deferral for corporate income would it be a treaty override?

  2. No because the treaty doesn't apply to us persons (for the most part), so it wouldn't change anything. Treaties generally apply to foreigners investing in your country, not how you tax your own people (yes, including corps) when they earn income abroad.

  3. That is what I suspected. However, in a purely political realm the corporate tax cuts in Canada(average rate now 26/27%) enacted by both Liberal and Conservative governments since 1999/2000 are highly dependent intellectually as an economic development strategy on the US keeping deferral(due to the high level of US investment into Canada). If deferral is eliminated on Canadians subs of US multinationals the CIT cuts enacted by Ottawa simply transfer tax points to Washington. So given the amount of political "investment" by Ottawa into CIT cuts as an economic development strategy they might have something to say about the US eliminating deferral.

    Having said that I consider the odds of the US eliminating deferral incredible low. I think the odds that the US would move towards the Canadian system of taxing foreign earned corporate income to be far more likely. Notwithstanding there are a few Senators and Reps in DC largely on the left side of the political spectrum proposing to do this as part of getting rid of the sequester. There is another proposal I am trying to find by Carl Levin that might be construed as stripping Treaty Benefits from companies like McDonalds Canada that invest working capital in US bank deposits or corporate debt. (I am actually trying to get the text of the Levin proposal to see if their is an explicit treaty override).

  4. Chance that the US will end deferral: 0. You are correct that deferral is what makes tax competition possible and profitable.

  5. Given I have not commented on the subject of this post here is a go. If you believe EITI is a good idea(and I generally do)I think the way US is going about this is the "Right" way to go. Inasmuch as the US is promoting an international "standard" and is at least conceivable committing itself to that same international standard on an equal and equivalent basis.

    1. Yes, the approach is, we will go first, and we hope others will follow our example. We know this might curb our edge in global tax & regulatory competition, but it's the high road and we are determined to take it. Lead by demonstrating the behavior you want to see. Otherwise it's do as we say, and definitely not what we do. Refreshing, ain't it. But I am worried about EITI. I think API is derailing it and the industry as a whole could destroy it, almost as quietly (in terms of media coverage) as the silence that brought the legislation into being.

  6. The other thing is how to do get around the whole sparing credits issue with the global south. The US gets beat up for not signing many tax treaties with the global south however, the US response in part is unlike Canada the US doesn't want to accept sparing credits as Canada has in treaties with Brazil, Nigeria, Tanzania, Ivory Coast, Argentina etc.

  7. True--the tax sparing issue is what stalled a US-Brazil treaty all these years. But tax sparing is bad policy overall because it's nothing but a race to the bottom, no source country can impose taxes effectively. Residual taxation is bad for tax competition. So if you want to curb tax competition you've got to have current taxation, anti-deferral measures.

  8. You were probably the one who referred me to following paper originally but I liked the following passage:

    The tax-sparing provisions that Canada has agreed to over the years range
    from the narrow to the expansive. The most generous and expansive provision of
    all is article 22 of the Canada-Brazil income tax convention (1984).54 One writer
    suggests that this treaty
    seems to provide an unlimited credit for both business income tax and non-business
    income tax, with the limitation on the credit being the Canadian tax on the same
    income computed before the tax credit and on the assumption that the Brazilian tax
    on dividends does not exceed 25 percent of the gross and, on interest and royalties,
    20 percent of the gross.55
    The current trend, however, is to the narrow type of provision. For example, in
    the Canada-Argentina tax treaty, signed in 1993,56 article 23 limits tax sparing to
    the first five years of the treaty (subject to extension) and provides that sparing
    does not apply to interest otherwise exempt from Argentine withholding tax under
    the treaty.

  9. The implication I got from the paper was the Canadian position in favor of acceptance of tax sparing is really designed to antagonise the US. Canada could never figure why Brazil and the US disagreed about it so much. However, Canada was much more willing to take Brazil's side on the matter