Tighter enforcement of corporate tax laws by other countries could be a problem for the United States if it means businesses pay more tax to foreign governments and cross-border disputes increase, a senior U.S. tax official said on Friday.
"It's disturbing ... If we're not careful, we're going to see a lot of dispute, the U.S. tax base put increasingly at risk," said Michael Danilack, a deputy commissioner at the Internal Revenue Service, speaking at a conference.
Danilack raised concerns about the Organisation for Economic Co-operation and Development's fight against corporate tax avoidance, known as the "Base Erosion, Profit Shifting," or BEPS, project and its impact on global tax collections.
Launched last year, the project emerged from world governments' concerns about tax dodging by multinational companies. Those concerns led the Group of 20 most powerful economies to ask the OECD to recommend solutions to the problem.
As the OECD works on its recommendations, Danilack said, some foreign countries are using the BEPS project as a reason to get more aggressive on companies' tax audits.
"The whole BEPS discussion has encouraged countries that felt they weren't getting their fair share to be more aggressive," he said, warning of "a great, big sucking sound" of U.S. tax revenue declines.
The United States could lose revenue under BEPS, he said, because the IRS offers foreign tax credits to U.S. companies for taxes that they have already paid to foreign governments. The idea is to ensure that companies do not pay the same tax twice at home and abroad.
If a foreign government collects more taxes from U.S. companies, then the IRS might have to issue more tax credits, which could undercut U.S. corporate tax collections.
Another concern for the United States is that BEPS could increase litigation between countries fighting for the same corporate tax dollars, tax lawyers said.
The OECD has set a May 19 public meeting to hear feedback on its most recent BEPS proposals.
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