World

Trump, Congress seek to curb tax avoidance

WASHINGTON US 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 address profit-shifting schemes that include so-called 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, which starts on June 29, officials and lobbyists said.

Lawmakers have said that the current tax code incentivises profit shifting overseas due to the high 35 per cent US corporate income tax rate and rules that allow companies 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 Mr Trump and Republicans in Congress also want to end US taxes on foreign earnings, companies could eliminate their US tax bills altogether without restrictions.

Tax reduction strategies have been employed for decades by companies including Apple and Amazon.

Independent analysts estimate the federal government misses out on more than US$100 billion (S$138 billion) a year in corporate tax revenues as a result of tax reduction manoeuvres.

That is equal to one-third of the US$300 billion in annual corporate tax revenues.

Many schemes seek lower corporate tax bills through "transfer pricing" - using transactions between business units to shift income abroad. The shift often coincides with the transfer of intangible assets, such as intellectual property to low-tax nations where companies can expect single-digit tax rates.

- REUTERS

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