Manufacturing Group Urges Increased Oversight of BEPS Project

The National Association of Manufacturers (NAM) -- the nation's largest industrial trade association -- strongly urges you to increase oversight of the Base Erosion and Profit Shifting (BEPS) project currently underway at the Organization for Economic Co-operation and Development (OECD). Some of the recommendations under discussion, if adopted, could have a negative impact on the global competitiveness of companies in the United States and threaten the jobs of U.S. workers.

As you know, the BEPS project began in 2012, when the G-20 asked the OECD to develop an internationally "coordinated and comprehensive" approach to address inappropriate tax avoidance, or so-called "stateless income." The BEPS Action Plan -- released in July 2013 -- outlines 15 actions on recommended changes to tax policy, taxpayer reporting requirements and information sharing among governments. Based on recent reports, the Action Plan is on track to be completed within the next few months.

In a June 2014 press release, Senate Finance Committee Chairman Orrin Hatch (R-UT) and then House Ways and Means Committee Chairman Dave Camp (R-MI) expressed the concern shared by many NAM members that the BEPS project would be "used as a way for other countries to simply increase taxes on American taxpayers."

They stated further, "[W]e are willing to work through these issues until an international consensus exists and we have achieved the right answer." We strongly agree with the Chairmen that the best way to address perceived problems is "to enact comprehensive tax reforms that lower the corporate rate to a more internationally competitive level and modernize the badly outdated and uncompetitive U.S. international tax structure."

Meanwhile, the BEPS project, progressing at a rapid pace, has heightened concerns that the exercise will end in policies that will materially damage U.S. tax reform efforts. In particular, we are concerned about recommendations to significantly limit interest deductibility. If adopted, this proposal would result in double taxation, raise the cost of capital and harm U.S. investment, making pro-growth tax reform harder to achieve.

Moreover, we also are extremely concerned with the new taxpayer reporting requirements that will impose substantial compliance costs and needlessly risk disclosure of sensitive, confidential U.S. taxpayer information (Country-by-Country reporting, Master File and Local File requirements), particularly for our privately held members. Our nation has little to gain from these new proposed requirements since the Internal Revenue Service already has access to the information for the limited purpose of administering U.S. tax laws through its domestic large company audit process. In contrast, foreign tax authorities will have access to additional company proprietary information that could be used to increase taxes on U.S. companies.

The hearings held in the House Ways and Means Committee in June 2013 and in the Senate Finance Committee in July 2014 were helpful, but more needs to be done.

The OECD's deadline is swiftly approaching, and after that there is the prospect of subsequent action by OECD and G-20 member states to implement the BEPS recommendation. There could be significant effects on both U.S. businesses of all sizes operating outside the United States, as well as on U.S. tax reform efforts, resulting from implementation in other countries of the reporting requirements discussed above as well as changes to the rules on interest deducibility, transfer pricing, permanent establishment, and CFCs. We strongly urge you to use all of the tools at your disposal to ensure that this harm does not occur, including requiring more transparency and oversight of the OECD negotiating process.

Thank you in advance for considering our request. We look forward to working with you on pro-growth, pro-competitiveness tax reform that includes a fair and balanced modern international tax system.