Levin's Opening Statement: Hearing on Tax Havens, Base Erosion and Profit-Shifting

Jun 13, 2013

Good morning and thank you all for coming to testify today on this important subject.  I am glad we are looking at the issue of international taxation today. I believe it highlights the need for tax reform to be about so much more than just lower tax rates or labels like worldwide and territorial.

We live in a global economy. That is not going to change. There have been and will continue to be major benefits from globalization – which has occurred more rapidly in recent decades than in all previous ones combined. It has been furthered by dramatic new technologies that quickly spread beyond national borders. But globalization often can spread its benefits in very uneven and sometimes harmful patterns. Indeed, it presents increasing challenges to tax policies. That is what we must confront. It is the crux of what we are discussing today.

Entities that truly have a home base in our nation, and experience the many benefits and advantages as a result, are using their presence or their pro-forma presence in other places to lower their tax bills. Often the effect is so dramatic that it is difficult for the average taxpayer to believe that such tax avoidance is legal. The fact that it is – and is widespread – only highlights the urgent need to confront it.

That truth was on vivid display last month when the Senate Permanent Subcommittee on Investigations revealed the complex structures and intra-group transactions that some multinational corporations employ in order to shift profits offshore in an effort to avoid U.S. taxes. The investigation illustrated how Apple’s international tax planning techniques have enabled the tech giant to dramatically lower its tax bill. One example showed how an Irish entity established by Apple Inc. received tens of billions of dollars of income with no tax residence, and as a result, paid no taxes. Other major US corporations like Microsoft, HP and Google have also been shown to use legal tax avoidance techniques to shift income overseas to lower their U.S. tax liability. 

The problem is not isolated to the United States. Jurisdictions throughout the world – particularly European Union member nations – are realizing that companies are engaging in complicated structures that often have no economic value or substance simply to avoid taxes. The response is anger – from businesses that compete to citizens who are facing deep cuts in important government programs.

The challenge of ending massive tax avoidance must be at the forefront of any tax reform effort worth its salt. I believe that will be confirmed by today’s testimony.

No country can compete with a zero percent tax rate. Any tax reform must end the use of loopholes and base erosion techniques, including addressing how to curtail the shifting of jobs and profits offshore. Our current tax code creates incentives for multinational enterprises to shift money overseas, and with that money goes jobs.  The days of so-called stateless income and double non-taxation must end. We cannot participate in a global “race to the bottom” that results in taxing jurisdictions being the big losers. 

Our tax code must not only promote American competitiveness at home and abroad, it must also promote domestic job creation that strengthens economic security for workers and businesses here in the U.S.  Reform of our international tax rules cannot be done on the backs of small businesses, domestic companies and individual taxpayers.

I look forward to hearing from the witnesses and learning more about their ideas to reform this area of the law.  I appreciate the time and resources you’ve spent to help inform this Committee on this complex and sometimes opaque area of the tax law.  This discussion is an important step in reforming our international tax system.