In 1980, corporate tax rates around the world averaged 46.63 percent and 38.84 percent when weighted by GDP. Since then countries have recognized the impact that corporate taxes have on business investment decisions so that in 2018, the average is now 26.47 percent and 23.03 when weighted by GDP for 208 separate tax jurisdictions.[

States and localities give away billions of dollars annually in tax incentives, so Amazon’s situation is nothing new. But they’re an extremely inefficient way to provide tax relief or grow the economy. When incentivized firms relocate, incumbent businesses and individuals end up footing the bill for the increased demand in public services.

It’s an oft-cited statistic that 75 percent of venture capital in the U.S. goes to just three states: New York, California, and Massachusetts — and it has for years. If it’s going to take years to close that gap, why not offer an incentive for investors to put their money in other places?

That’s the thesis behind Opportunity Zones, a tax incentive program laid out by Congress in last year’s Tax Cuts and Jobs Act.

I recently hosted our latest video broadcast of ‘Talking Tax,’ which delved into the latest on tax reform — from rulemaking to state conformity — and then analyzed the impact of the Wayfair decision. Below are some highlights from our discussion and summaries of recent developments.

Opportunity zones, created as part of the Republican tax cut bill signed into law by President Trump late last year, promote long-term investment in low-income communities by allowing incentives for investors who develop projects in economically distressed areas. Investors who direct money to qualifying areas can receive cuts on their capital gains taxes after the assets are owned for a certain number of years.

The $1.5 trillion tax reform legislation known as the “Tax Cuts and Jobs Act” (TCJA) represents the biggest change to the tax code since 1986. While the implications for businesses are broad and complex, we’ve summarized some of the most common tax reform questions for manufacturers:

As Congress cobbled together the biggest tax overhaul since 1986, they nearly wiped out the essential sources of funding for large-scale community development projects—namely, three federal tax credit programs that attract private investment for neighborhood revitalization. Developers, financiers, and municipalities pushed back and managed to keep most of what they wanted intact. But now they are dealing with what some of them describe as the new tax law’s unintended consequences.

U.S. companies are ramping up spending on their businesses at the fastest pace in years, a long-awaited development after years of tepid growth.

With so much cash on company balance sheets, U.S. companies face competitive pressure to use the tax windfall strategically.

The new tax bill is a game changer for manufacturers. For years, they have focused on cost containment to maintain profitability. But with lower tax rates, easier access to foreign cash, and favorable expensing provisions for buyers, manufacturers can think more about how to grow their business and prepare for the future.

For all its support, however, the legislation may yet fall victim to a larger tax battle waging between the House and Senate

Nearly two-thirds of respondents in the latest survey by the National Association for Business Economics say President Donald Trump's tax cuts, which were promoted as likely to spur hiring and investment, haven't affected their plans.

Taxing inputs in a sales tax leads to “tax pyramiding.” Throughout the production cycle, the tax can be assessed multiple times. This leads to higher prices for consumers, fewer job opportunities for workers, or limits the business’s ability to expand. If too many business inputs are taxed, a state’s sales tax could actually start to function as a gross receipts tax.

This week’s map looks at just one of the many business inputs that states tax in their sales tax bases: manufacturing machinery.

Like all legislation, the new tax law is not perfect. However, it is clear that comprehensive tax reform is good for skills, wages and jobs, all of which feed into a strong economy. 

More than two-thirds (71%) of participants said they believe that companies located in high-tax states face the risk of talented employees leaving to seek employment in states where the tax burden is lighter. The list of highest-taxed states includes several that are teeming with corporate headquarters, such as California, New Jersey, and New York.

The law modernizes the U.S. tax code by shifting from a worldwide to a territorial tax regime, which is in line with most developed nations. Under a worldwide system, all income, no matter where earned, is subject to domestic taxation, but with credits for taxes paid to other countries. Under a territorial system, a company is only taxed on domestic economic activity.

After the last major overhaul of the corporate tax system, in the mid-1980s, regulators in many states were slow to act — in effect allowing utilities to pocket tax savings until new rates took effect.

Some states are trying to prevent that from happening again.

China said on Thursday that it would temporarily exempt foreign companies from paying tax on their earnings, a bid to keep American businesses from taking their profits out of China following Washington’s overhaul of the United States tax code.

History suggests that tax law changes by themselves are often not key drivers for transactions or for investment performance. However, there is likely to be a period of transition and market flux as investors restructure to optimize tax outcomes with implications for the underlying asset classes. Corporations are likely to separate the real estate aspects of their businesses.

“The U.S. is seen throughout the world as a great place for manufacturing," said Stephen Gray. "We have incredible competitive advantages, and I think the tax reform package will actually help us."

Both bills propose a permanent cut to the corporate tax rate from 35% to 20%. The Ways and Means bill wants that cut right away – as does the White House. But the Senate wants to delay it by a year. This would lower the cost of their bill by more than $100 billion and give them more revenue to use for other changes. Despite the debate over timing, both agree the cut should be permanent. That, combined with the transition to a territorial system of taxation with a 100% deduction for foreign dividend income, is very welcome.

The Tax Foundation’s extensive economic research and tax modeling experience suggests that cutting the corporate tax rate to a globally competitive 20 percent would substantially lower the cost of capital which, in turn, would boost capital investment, leading to higher wages and more jobs.

The ayes have it. Our panel of tax and accounting experts, whose opinionated essays are gathered here, voted 3-1 in favor of a major cut in the federal corporate income tax rate.

...the focus of which was the likelihood of tax and healthcare reform in 2017 and the potential impact of proposed policy changes on US manufacturers.

Tennessee has no income tax, and instead funds its operations on a consumption-based sales tax. As a result, Tennessee has the following remarkable distinctions: lowest debt per capita in the country, top 10 for financial strength, fourth in long-run solvency and first in lowest cost of living.

Now that the dust of a contentious presidential election cycle is settling, tax reform may be more likely in 2017 than in past years. There are currently two plans we can look to for guidance on reform: President Donald Trump’s revised plan and the House GOP plan. Both contain significant reductions in individual and corporate tax rates, limitations on deductions and simplification of administration of the tax system. While the plans are summaries of proposed tax reform and give us a basic understanding of their intentions, neither plan answers all our questions concerning implementation for taxpayers.

It would be hard to find an industrial products CEO who was not enthusiastic about the prospect of a lower headline tax rate. Many of the CEOs also express enthusiasm for the new approach to border taxes laid out in the House Republican Blueprint.

The chief executive officers of General Electric, Lockheed Martin, Dow Chemical and other firms gathered at the White House, where they discussed regulations on minerals extracted in conflict zones, export regulations for military hardware, business taxes and problems finding technically skilled workers for manufacturing jobs.

Unlike tax and regulatory reform where the broader business community feels change, trade policy could result in a greater debate between potential winners and losers.

Overall speaking, the tax burden for manufacturers in China is 35% higher than in the U.S., Cao Dewang told China Business Networkin an interview. He added that a combination of cheap land, reasonable energy prices and other incentives means that, despite higher manufacturing costs, he can still make more money by making glass in the U.S. than by exporting Chinese-made panes to the U.S. market.

Our learnings from several years of hosting our senior tax executive forum for industrial products and services clients have been invaluable ̶ not only for our clients, but also for broadening our own perspectives.
The overarching theme of the recent client forum was the potential impact on US tax policy of the 2016 election. The theme served as a framework for discussing critical issues affecting tax in the context of adapting to change and managing risk. These sub-themes were interwoven through a series of dynamic panels, of which I’ll share a few of the highlights:

Ireland is the No. 1 source of new FDI as corporate inversions distort figures

The federal tax reforms made in 20022 may provide some insight as to how – if at all – the states may react to any upcoming federal corporate income tax reforms

The U.S. corporate income tax has a number of problems that could be addressed through a series of reforms.
Corporate income taxes reduce economic growth under most simple economic models. The drag on growth from corporate income taxes could be mitigated by moving to the full expensing of capital investment.

The merger will result in $150 million in annual tax savings as Johnson, based in Wisconsin, will shift for tax purposes to Ireland, where Tyco is based and where tax rates are lower.

The last year saw its fair share of big tax stories. The Organisation for Economic Cooperation and Development (OECD) unveiled its final Base Erosion and Profit Shifting (BEPS) Project guidelines, a set of tax reform proposals designed to modernize the corporate tax code on a global basis. The huge crop of candidates for U.S. President touted plans for rewriting the tax laws of the land. A number of regional tax authorities around the world started implementing Netflix Taxes to capture revenues on content streamed from the cloud. And, the threat of corporate tax inversions loomed large as several large corporations hinted at plans to relocate their corporate headquarters to lower tax regimes.

Several studies have raised concerns about multinational corporations shifting income from the U.S., where the corporate income tax rate is relatively high, to lower-tax countries. These studies suggest that when the difference in corporate income tax rates between the U.S. and other countries is great, U.S. businesses’ foreign affiliates claim more income in their host countries, which results in lower U.S. tax revenues. Some studies have suggested that 35 percent of U.S. corporate tax revenue is lost due to income shifting.

Imagine two companies that sell the same product across the globe and directly compete against one another. Further imagine that both companies earn the same gross profit. However, the first company is located on the U.S. side of the U.S.-Canadian border; the second company is located on the Canadian side. Thanks to the corporate tax system in the U.S., this is all the advantage the Canadian company requires.

Etsy is being called out for doing what many in tech already do

It’s no wonder viewers on our latest Talking Tax webcast said they were interested in hearing about tax legislation and policy. As one of the few developed countries still utilizing a worldwide system of taxation, US international tax policies are out of step with the rest of the world. Other countries have dramatically changed their laws in the last few years and the United States has not kept pace.

Corporate tax rates are on a trigger schedule to reduce one percentage point each year when revenues are healthy, and this revised forecast makes it very likely that they will meet the trigger requirements this year.

Globalization has forever changed the international competitive landscape, but U.S. corporate tax policy has not kept up. Because manufacturing investment is now highly mobile across borders, U.S. manufacturers and their workers have borne the brunt of this outdated thinking on corporate tax policy.

With all the similarities and relationships between the U.S. and E.U. beer markets, why does the U.S. demand unequal tax treatment?

Last month, the European Union issued a report about Amazon and the taxes it pays. The online retailer does a lot of business in Europe but its corporate tax rate is in the single digits, says Crawford Spence of the University of Warwick in England. "They pay very little tax here, because most of their tax is paid in Luxembourg," he says. And Amazon isn't alone. Big U.S. companies, including Starbucks and Apple, have pared down their tax bill by funneling revenue into tax havens like Luxembourg and Ireland. Spence says it's totally legal.

A key challenge is to combine a corporate structure that allows for a low effective tax rate with the optimal physical supply chain.  These two goals are not mutually exclusive.  Supply chain transformations often require regional centralization as a way of creating new synergies.

If there is one point of common agreement among the Democratic and Republican parties, it is the need to reform the corporate income tax code. Congressional Republicans have recommended reducing the federal corporate tax rate from 35 to 25 percent while President Obama has recommended a 28 percent rate. Both would look at removing a number of tax preferences. The lack of U.S. corporate tax competitiveness, which is documented below, imposes three serious harms on the U.S. economy.

So it’s not really surprising that, as discussions of tax reform for American multinationals move away from rhetoric toward policy, jobs are de-emphasized in favor of revenue. The corporate tax reforms proposed in Mr. Obama’s budget are focused on getting more revenue from the companies that now keep jobs at home and ship their intangible property overseas.

Enacting legislation is seldom pretty. However, Congress has an opportunity now to permanently extend the research and development (R&D) tax credit. While neither the timing nor the substance of the proposed legislation is perfect, Congress and the president should enact the legislation this year. Although it would be preferable to treat this business provision on its own, political realities dictate that Congress should take the best deal that it can and make the credit permanent.

Bloomberg Businessweek reported that corporate tax inversions will cost the U.S. Treasury $2.2 billion in corporate tax revenue in 2015. According to the report, this is double what they cost the Treasury this year, and inversions will continue to cost $2 billion a year into the future. While $2.2 billion is nothing to scoff at, the report gives no context to this number. This makes inversions seem like a much larger problem for the corporate tax revenue than it really is.

The Treasury Department last month adopted new rules to make inversions, such as this one, less attractive, but the rules do nothing to address the fundamental problem, which is that the U.S. relies far too heavily on business taxation, particularly corporate taxation.

Part of the attraction is the substantial tax reforms that occurred over the last 15 years in Canada. First among these is the dramatic reduction in the corporate tax rate, from 43 percent in 2000 to 26 percent today. The U.S. currently has a corporate tax rate of 39 percent, but lawmakers are reluctant to do what Canada did, i.e. lower the tax rate, for fear of losing tax revenue. The natural question is: How much tax revenue did Canada lose? Answer: None.

Why have inversions become a big deal lately?

Walgreens Co. will complete its merger with Alliance Boots, a British pharmacy, but it will not move its headquarters overseas to reduce its U.S. tax bill.

This is an issue that, understandably, hardly anybody in elected office really wants to deal with. Yet it’s also an issue where continuing official inaction is likely to lead to a flood of corporate action that we’re all going to regret.

U.S. headquartered corporations pay an effective tax rate of 27.2 percent on income earned in foreign countries. Not surprisingly, this rate varies widely by industry.

In a twist on economic globalization less obvious than moving factories overseas, a small but growing number of corporations have relocated headquarters to Europe to escape the 35 percent tax on U.S. profits, the highest in the developing world.

Caterpillar is an American success story, but it is also a member of the corporate profit-shifting club that has shifted billions of dollars in profits offshore to avoid paying U.S. taxes

Economist William McBride explains how U.S. tax policy is stifling economic growth and domestic investment and outlines five tax reform measures that will strengthen the United States’ economic outlook in the competitive global market

The number of small firms that are not subject to the corporate income tax has been growing significantly in the last 30 years, so much so that the majority of business income in the U.S. is now taken in by these so-called "pass-through" business entities. The income from these firms is passed through to their individual owners, where it is then subject to the individual income tax, which currently has a top rate of 39.6%.

Cisco will not create new jobs in the U.S. unless changes are made to the tax policy on repatriating overseas cash, CEO John Chambers said.

Raymond Kelly, Tax & Business Services Partner, Marcum LLP

This is a unique study from PwC, World Bank and IFC. Now in its eighth year, the study provides data on tax systems in 185 economies around the world, with an ability to monitor tax reform.

Corporate tax reform has become a major issue in the fiscal policy debate, with widespread disagreement over what impact various reform proposals would have on job growth in the U.S. One of the most discussed reforms – moving to a “territorial” system in which corporations are no longer double-taxed on profits earned abroad – has raised concerns that it would undermine domestic growth and employment. Real life evidence from Canada contradicts these worries, however, according to our newest analysis on international tax systems.

Come April 1, America's corporate tax rates will be the highest in the developed world. That's bad policy for the United States.

New Treasury Department proposals include several incentives for small businesses. But at issue is the definition of "small."