I had the privilege of testifying before the Ways and Means Committee [on July 22nd]. Below is the text of my oral testimony. The official witness testimony can be found here. And the excellent pamphlet by Joint Committee on Taxation is here.
Mr. Chairman, there is overwhelming evidence of inordinate profit shifting by U.S. multinationals to tax havens like Bermuda, Switzerland, Ireland, Singapore, and the Cayman Islands. Average per-employee profitability in these five tax havens compared to other foreign jurisdictions is ten times larger than in other countries.
Tax planning done by the pharmaceutical industry is a prime example of the transfer pricing problem.There has been a tremendous shift --in drug company profits--out of the United States. The share of profits booked here dropped from two-thirds in 1997 to less than one quarter in 2008.
Irrespective of your views about the best guiding principle for international tax policy, we should all be able to agree that the inefficiency of subsidies, provided through aggressive transfer pricing, is a drag on economic growth and job creation.
Around the world, governments protect their tax bases with a wide variety of anti-deferral rules. These rules serve as backstop to transfer pricing rules. Representative Doggett's proposal to end deferral for certain sales and royalty payments is fully consistent with this approach.Also in this vein is the Administration's proposal to end deferral for excess profits of intangibles in low-tax countries.
It is up to Congress to act.
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