Congress debates tax avoidance

President Donald Trump and Republican leaders in Congress will soon confront a complex challenge for tax reform: how to limit US corporate tax-avoidance schemes that take advantage of low tax rates in foreign countries.

President Donald Trump and Republican leaders in Congress will soon confront a complex challenge for tax reform: how to limit US corporate tax avoidance schemes that take advantage of low tax rates in foreign countries.

Congressional and administration staff have begun to examine options to tackle profitshifting schemes that include transfer pricing, earnings stripping and tax inversions. A decision on how to handle these in tax legislation could come before Congress leaves town for its one-week July 4 recess on June 29, officials and lobbyists said.

Legislators said the current tax code incentivised profit shifting overseas due to the high 35% US corporate income tax rate and rules that allow firms to hold profits abroad tax-free until returned to US soil.

Without effective measures against tax avoidance, experts and lobbyists said tax legislation could trigger a new exodus of income and assets abroad. Because Trump and Republicans in Congress also want to end US taxes on foreign earnings, companies could eliminate their US tax bills altogether without restrictions.

Analysts estimate the federal government misses out on more than $100bn a year in corporate tax revenues as a result of taxreduction manoeuvres. That is equal to one-third of the $300bn in annual corporate tax revenues.