Modelling International Tax Proposals and Revenue Estimates
Explore the modeling of international tax proposals at the US Joint Committee on Taxation, focusing on revenue estimates, targeting tax return data, and the potential effects of Pillar Two jurisdictions on US multinational enterprises. This analysis delves into predicted future revenues, behavior estimates, and the impact on constituent entities' profits and losses.
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Modelling International Tax Proposals at the Joint Committee on Taxation Paul Landefeld Joint Committee on Taxation, U.S. Congress These comments are work undertaken for the staff of the Joint Committee on Taxation, but as members of both parties and both houses of Congress comprise the Joint Committee on Taxation, these comments should not be construed to represent the position of any member of the Committee. Joint Committee on Taxation
Revenue Estimates Revenue estimate basics: Predicted future revenues under proposed law, MINUS Predicted future revenues under present law (baseline) Fixed Gross National Product (GNP) convention: Total employment, investment, and productivity held constant Estimates include behavior e.g. shifting between tax bases Joint Committee on Taxation 2 2
Model Targeting Tax return data provided by IRS Statistics of Income Forms 1120, 1118, 5471, 8975 and associated schedules Forecast line items targeting: CBO baseline and JCT forecasts of specific items (e.g. depreciation) Planned adoption of QDMTTs and UTPRs Deviations from CBO beginning in 2023 Joint Committee on Taxation 3 3
Potential Effect of Pillar Two Jurisdictions on U.S. MNEs, 2020[1] Pillar Two Jurisdiction (%) Pillar Two or UTPR Nexus Jurisdiction (%) Share of Constituent Entities 48.1 98.9 Share of Profit 49.4 99.4 Share of Profit and Losses 40.9 99.4 Note: Joint Committee on Taxation staff tabulations from Form 8975 [1] The total number of entities and the total amount of profit and losses do not include the entities in the United States and any stateless entities. Joint Committee on Taxation 4 4
Potential Effect of Pillar Two Jurisdictions on U.S. MNEs, 2020[1] Pillar Two Jurisdiction (%) Pillar Two or UTPR Nexus Jurisdiction (%) Share of Constituent Entities 48.1 98.9 Share of Profit 49.4 99.4 Share of Profit and Losses 40.9 99.4 Note: Joint Committee on Taxation staff tabulations from Form 8975 [1] The total number of entities and the total amount of profit and losses do not include the entities in the United States and any stateless entities. Joint Committee on Taxation 5 5
Pillar Two Effects on the Baseline Mechanical effects: QDMTTs lead to increased FTCs Decline in revenue (GILTI) Behavioral effects: Shift profits to QDMTT enacting jurisdictions Shift profits to the U.S. Highly uncertain effect on revenues Difficult to rely on prior studies Joint Committee on Taxation 6 6
Will C-Corps Shift Profits to the US? C-Corp Gross Royalties 400 350 300 Billions $ 250 200 150 100 Joint 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Committee on Taxation 7 7
Pillar II Scenarios 2023-2033 1. All remaining countries enact in 2024; U.S. does not enact -$122.00 2. All remaining countries enact in 2024; U.S. enacts Pillar Two in 2025 -$56.50 3. No additional countries enact; U.S. does not enact --- 4. No additional countries enact; U.S. enacts in 2025, without a U.S. UTPR $102.60 5. No additional countries enact; U.S. enacts in 2025 including a UTPR $236.50 Joint Committee on Taxation 8 8
Pillar II Scenarios 2023-2033 1. All remaining countries enact in 2024; U.S. does not enact -$122.00 2. All remaining countries enact in 2024; U.S. enacts Pillar Two in 2025 -$56.50 3. No additional countries enact; U.S. does not enact --- 4. No additional countries enact; U.S. enacts in 2025, without a U.S. UTPR $102.60 5. No additional countries enact; U.S. enacts in 2025 including a UTPR $236.50 Joint Committee on Taxation 9 9
Pillar II Scenarios 2023-2033 1. All remaining countries enact in 2024; U.S. does not enact -$122.00 2. All remaining countries enact in 2024; U.S. enacts Pillar Two in 2025 -$56.50 3. No additional countries enact; U.S. does not enact --- 4. No additional countries enact; U.S. enacts in 2025, without a U.S. UTPR $102.60 5. No additional countries enact; U.S. enacts in 2025 including a UTPR $236.50 Joint Committee on Taxation 10 10
Scenarios for ROW and U.S. 2023-2033 1. All remaining countries enact in 2024; U.S. does not enact -$122.00 2. All remaining countries enact in 2024; U.S. enacts Pillar Two in 2025 -$56.50 3. No additional countries enact; U.S. does not enact --- 4. No additional countries enact; U.S. enacts in 2025, without a U.S. UTPR $102.60 5. No additional countries enact; U.S. enacts in 2025 including a UTPR $236.50 Joint Committee on Taxation 11 11
Scenarios for ROW and U.S. 2023-2033 1. All remaining countries enact in 2024; U.S. does not enact -$122.00 2. All remaining countries enact in 2024; U.S. enacts Pillar Two in 2025 -$56.50 3. No additional countries enact; U.S. does not enact --- 4. No additional countries enact; U.S. enacts in 2025, without a U.S. UTPR $102.60 5. No additional countries enact; U.S. enacts in 2025 including a UTPR $236.50 Joint Committee on Taxation 12 12
Developments Additional details and additional adopters Will companies really move profits to the U.S.? Timing of response Pockets of low tax income Pillar One interactions Joint Committee on Taxation 13 13
