Tax Law’s Look-through Rules Can Address Citizens United

Whatever merit there is to granting corporations the Constitutional right of free speech, as the Citizens United case does, there is no merit to granting that right to foreign corporations.  Or to U.S. subsidiaries of foreign corporations.  Or to U.S. corporations owned by foreigners or — for goodness’ sake — by foreign governments.

Fixing this anomaly would take a Constitutional amendment at this point.  The Supreme Court is unlikely to reverse its 5-4 decision:  the Justices most likely to leave are dissenters.

I’m not saying States and the Federal Government should be obligated to restrict speech of foreign-influenced entities.   But governments should be able to say those corporations can’t contribute to campaigns or spend money to influence American elections.

Tax law provides plenty of precedent for denying or granting rights to corporations based on ownership. For instance, a controlled foreign corporation is one in which U.S. shareholders own more than 50 percent, by vote or value.  Code section 957(a). Continue reading Tax Law’s Look-through Rules Can Address Citizens United

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Gruesome tax

The Raleigh paper published the letter below (they like short ones).   I titled it “Terrifying Tax Tactics,” but that may have been too much to print in one column.
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Not-so-scary tax

North Carolina’s inheritance tax applies only to folks who meet their Maker while worth over $5 million. Just in time for Halloween, the tax-exempt Civitas Institute said it’s a gruesome tax that turns Revenue Department officials into grave robbers (Oct. 30 Under the Dome).   That kind of rhetoric aims to frighten us and stop us from thinking. Boo!

Continue reading Gruesome tax

Tax riots in China

The WSJ reports:

” . . . the disturbance followed aggressive collection of new charges for the use of machines used to make children’s wear, the town’s mainstay product. The tax was targeted at small, independent workshops that often aren’t licensed and are manned mostly by migrant laborers who earn money per piece produced.

“They said workshop managers were being charged between 300 yuan (about $48) and 600 yuan for each machine used, in what Chinese discussing the matter online called the ‘sewing-machine tax.’ It amounts to about twice as much as was collected in the past.”

http://online.wsj.com/article/SB10001424052970204505304577003503223216724.html?KEYWORDS=china+tax

It’s a lot easier for taxers to count sewing machines once than either (1) to measure production by counting each and every item that leaves the facility or (2) to measure piecework, maybe daily, payments to workers.   Was the sewing machine tax in lieu of a tax on production?  Maybe so, since the operators were reportedly unlicensed.  In any event, it was too effective.  And it targeted a narrow group that could identify its members.

How I got interested in tax

Right out of college in 1969, my first job was teaching French at maybe the best public high school in North Carolina.  I was making $6,300 a year, which seemed like a lot, since all-in costs at Davidson College had been around $2,000.  So I could afford to go to France in the summers.  The epiphany was when I found out I could deduct all my living expenses (I took some classes, did an internship or “stage,” and traveled).

Deductions for travel were later called a loophole:  “Congressional discussion of the 1986 revisions makes clear that a French professor who tours France to brush up on his language skills is not entitled to a tax deduction.”  http://chronicle.com/article/Tax-PlanningSabbatical/126293/.  They got me.  I was on the Joint Committee staff then, and don’t remember the change.  I don’t think I was involved.

I remember, as I was putting my documentation together to claim my deduction, my father telling me, “If you claim $12 a day, they’ll never question it.”  I was living low to the ground back then.

 

 

 

Obama’s proposal on income from intangibles — the main part

“Under the [September 19 Obama Administration] proposal, if a U.S parent transfers an intangible to a controlled foreign corporation (CFC) in circumstances that demonstrate excessive income shifting from the United States, then an amount equal to the excessive return would be treated as subpart F income.  This would reduce the deficit by $19 billion over 10 years.”  http://www.whitehouse.gov/sites/default/files/omb/budget/fy2012/assets/jointcommitteereport.pdf

Great.  But what is “excessive”?  How much income-shifting is OK?  This looks as vague as our old “commensurate with income” standard.  (I was always irritated when that standard was labeled “super-royalty.”  A salary commensurate with income is not a super-salary.)  Strike “excessive” and you’re getting somewhere.

Or “if a U.S parent shifts income from the United States by transferring an intangible to a controlled foreign corporation (CFC), then an amount equal to the income [from that intangible?] would be treated as subpart F income.”

The anti-tax crowd has it both ways. But so do I.

Advocates of a territorial system for international tax — where the USA would not tax any foreign income of U.S. corporations — say we should adopt it because the other major industrialized countries have it.

When it comes to a Value Added Tax, the fact that every other major industrialized country has one DOES NOT MATTER to those folks.

They are as consistent in their antipathy to taxation as I am in my sympathy for it.