“Repatriation Tax Holiday”: Choosing Words Strategically

“Tax Repatriation Holiday”:  Choosing Words Strategically

[A more legible .pdf  version of this posting is downloadable at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1963951.]

“The real goal . . . is to determine what ‘story’ a client wishes to tell about his product and then find a word that evokes it—and spurs the impulse to buy.”[1]


Tax policy turns on terms.  Witness the deliberate and effective popularization of the term “Death Tax.”[2]

Now, the “product” being offered in H.R. 1834[3] is a temporary, targeted 85-percent dividends received deduction:  an ultra-low tax rate on foreign earnings that U.S. multinationals have trapped in offshore subsidiaries, most often in tax havens.[4]  Its common name is “Repatriation Holiday.”[5]

The word “Repatriation” starts the story by surrounding the proposal with a warm glow.  “Repatriation” sounds . . . patriotic.

But repatriation, in ordinary non-tax usage, means “the act of returning to the country of origin.”[6]  U.S. law already provides that capital sent abroad may be repatriated – may come back home – tax-free.  Foreign source profits, like the proverbial bacon, may be brought home, but you can’t bring back home what never was home before.

What’s misleading is the prefix “Re-.“  We haven’t used the term “Patriation” to mean “bring home,” but we could. [7]  Instead, tax lingo has clumsily extended the term “repatriation” beyond return of capital to return on capital, that is, to profits.

“Extraction” is more accurate than “Repatriation.”  When funds are stuck and need to be unstuck, “Withdrawal” and “Dividend” don’t show the snag.  “Income Extraction Holiday” is a start.  But Ouch!  It reminds us of the dentist’s chair.

The word “Holiday” itself evokes positive feelings.  On an emotional level, “Holiday” sounds like harmless, deserved fun.  The word is on point in describing a period when ordinary duties can be legally ignored.

But “Tax Holiday” is a term of art in international taxation– one that doesn’t describe H.R. 1834.  “Tax Holiday” is the action of a source jurisdiction that foregoes tax on income for a finite period of time.[8]

What the multinationals want in H.R. 1834 is a residence country tax break.  Years ago, folks suggested that the United States extend foreign aid to developing countries by means of tax expenditure.  We would have exempted income from sources within a treaty partner — by granting a credit for foreign taxes not paid during the partner’s tax holiday.  That residence country technique was called “Tax Sparing,”[9] not “Tax Holiday.”  Income from a developing country would have needed both a source country holiday and residence country sparing to escape tax successfully.  (Luckily, the United States avoided that treaty form of tax expenditure, which is susceptible to the same kind of shifting of income from intangibles that has plagued us and has led to proposals like H.R. 1834.[10])

But in real life, every day isn’t a holiday.  And state sales tax holidays apply only to limited categories of goods sold during a short period of time, typically a few days.  “Holiday” might give the impression that H.R. 1834’s tax blessing has a short or narrow scope in time.  To be sure, the bill creates a limited (one taxable year) window for distributions.  But that window could as well be a week or a day.  The relevant period is the time when foreign earnings and profits could be accumulated and benefit from the tax break.  That’s all the way back to March 1, 1913.  Quite a holiday.

“Holiday” is accurate in one way:  holidays recur.  Multinationals got this kind of relief in the 2004 Jobs Act by saying it was a one-time deal, never to happen again.  But like a holiday, the request keeps coming back.  If something like H.R. 1834 passes, we can expect more of the same.

Opponents of H.R. 1834 are telling or selling a different story.  They say the bill provides “Amnesty.”[11]  Now “Amnesty” sounds . . . suspicious.  It sounds like the multinationals would be getting away with something – that they would be forgiven what they should have paid.

“Amnesty” overstates the case.  In ordinary usage, “Tax amnesty is a limited-time opportunity for a specified group of taxpayers to pay a defined amount, in exchange for forgiveness of a tax liability (including interest and penalties) relating to a previous tax period or periods and without fear of criminal prosecution.”[12]  But as for the trillion dollars or so of trapped income that H.R. 1834 would relieve, no tax is due . . . yet.

To be sure, milder terms are in use.  Proponent Ken Kies steers way clear of “holiday,” writing instead about “lowering the tax barriers to repatriation.”[13] And some opponents call it just a “tax break.”[14]

But the battle of labels is joined.  And the early results are in.  Recent Googling (without quotation marks) of “’tax repatriation holiday” yielded 278,000 hits within the last year; “’tax repatriation amnesty” yielded 94,000.  The multinationals are controlling the spin so far.

But there’s a more colorful title: “Jubilee.”  Like “Holiday,” “Jubilee” evokes a celebration, one limited in time.  And like “Repatriation,” “Jubilee” evokes coming home.  After every 49 years, the ancient Israelites were to observe a Jubilee year, when they were to return land to its original owner — who could then return home.[15]  But it’s hard to imagine that citizens and their representatives would want to buy – to make some fiscal sacrifice for – a “Foreign Dividend Jubilee.”

There’s a more accurate label for H.R. 1834: “Retroactive Territoriality.”  A territorial system imposes no or little tax on foreign source income.  H.R.  1834 would do exactly that, but only for earnings already accumulated and now trapped offshore.

Now “Retroactive Territoriality” is technical, and it’s a mouthful.  And because it is non-countable (like “Helium” or “Honesty”), we can’t say “Another retroactive territoriality”; we have to say something awkward like “Another grant of retroactive territoriality.”  But the term “Retroactive Territoriality” sets the stage for a bigger issue:  whether we want to follow so many VAT-reliant countries to an income tax that is explicitly territorial – or to tax worldwide income currently and take away opportunities to game the system and an incentive to export capital.  Or, best of all, to adopt formula apportionment of the type many states used effectively – the worldwide unitary method.

[1] Colapinto, “Famous Names,” The New Yorker, Oct. 3, 2011, p. 38, describing how corporations go to great expense to find brand names that appeal to people.  “A great name, one consultant says, ‘takes reality and just alters it a bit.’”  Id.

[2] Graetz and Shapiro, Death by a Thousand Cuts: The Fight Over Taxing Inherited Wealth (2007), p. 76-78.  “’[D]eath tax’ [was] a linguistic move that became a central component of the [estate tax] repeal coalition’s strategy.”  Id. at 76.

[3] The “Freedom to Invest Act of 2011”:  That’s an appealing title.  So how about a  “Freedom to Spend Act,” imposing just a nominal tax on fully taxable amounts locked up in traditional IRAs?  At least, in light of the unhelpful record of the bill’s predecessor, the so-called American Jobs Creation Act, Public Law 108-35, the sponsors didn’t call H.R. 1834 the “Freedom to Hire Act.”  See Kleinbard, “Stateless Income,” http://ssrn.com/abstract=1791769, at 78 n.150 (May 15, 2011).  A somewhat different version, S. 1671, has a title with more description and less spin:  the “Foreign Earnings Reinvestment Act.”

[4] For discussion of the merits of this kind of proposal, see Kingson, “The Great American Jobs Act Tax Caper,” 58 Tax L. Rev. 327 (2005); Marples and Gravelle, “Tax Cuts on Repatriation Earnings as Economic Stimulus: An Economic Analysis,” http://www.ctj.org/pdf/crs_repatriationholiday.pdf (May 27, 2011);

Holtz-Eakin, “The Need for Pro-Growth Corporate Tax Reform: Repatriation and Other Steps to Enhance Short- and Long-Term Economic Growth,” http://www.uschamber.com/sites/default/files/reports/110907_corp_tax_reform_study.pdf (August 2011); Citizens for Tax Justice, “Will Congress Make Itself a Doormat for Corporations that Avoid U.S. Taxes?” http://www.ctj.org/pdf/repatriation.pdf (Jan 30, 2009).  Unlike its 2004 predecessor, H.R. 1834 would cut back benefits for companies that shed U.S. jobs.  S. 1671 has other bells and whistles.

[5] See, e.g., Kocieniewski,Companies Push For a Tax Break On Foreign Cash,” N.Y. Times, Jun. 19, 2011, p. A1.

[7] “Patriation” now has a non-economic meaning in Canadian Constitutional law.  Bélanger, “Patriation,” http://faculty.marianopolis.edu/c.belanger/quebechistory/federal/patriate.htm (Feb. 26, 2001).  That Canadian usage doesn’t preclude us from using the same word to mean something entirely different.  An example is the word “Dollar.”

[8] Brooks, “Tax Sparing: A Needed Incentive for Foreign Investment in Low Income Countries or an Unnecessary Revenue Sacrifice?” 34 Queen’s L. J., Spring 2009, p. 4, available at SSRN: http://ssrn.com/abstract=1434069.

[9] Id. at 5;  International Chamber of Commerce, “Tax Sparing in Tax Conventions,” available at http://www.iccwbo.org/policy/taxation/id5320/index.html

(last accessed October 4, 2011).Other countries weren’t so shrewd.

[10] See, e.g., Kingson, “The Coherence of International Taxation,” 81 Columbia L. Rev. 1151, 1160 n.31 (1981)(Germany credited by treaty Brazilian taxes not paid, even Brazilian taxes above and beyond limits set by the treaty).

[11] Citizens for Tax Justice, “Rare Consensus among Organizations Opposing Massive Campaign to Enact Repatriation Amnesty” (Sept. 30, 2011), available at http://www.ctj.org/taxjusticedigest/archive/2011/09/rare_consensus_among_organizat.php.

[13] Kies,“A Critique of the CRS Report on Repatriation,” Tax Notes, Aug. 15, 2011, p. 737.

[14] Letter from Senators Conrad and Levin, 2011 TNT 197-40 (Oct. 12, 2011).

[15] “Consecrate the fiftieth year and proclaim liberty throughout the land to all its inhabitants. It shall be a jubilee for you; each of you is to return to your family property.”  Leviticus 25:10 (NIV).


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