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Presentation to the President’s Advisory Panel on Federal Tax Reform

Presentation to the President’s Advisory Panel on Federal Tax Reform International Provisions of the Internal Revenue Code Tax Compliance and Administration Concerns. Larry Langdon March 31, 2005. The Realities of International Tax. We are in an increasingly complex global economy

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Presentation to the President’s Advisory Panel on Federal Tax Reform

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  1. Presentation to the President’s Advisory Panel on Federal Tax Reform International Provisions of the Internal Revenue Code Tax Compliance and Administration Concerns Larry Langdon March 31, 2005

  2. The Realities of International Tax • We are in an increasingly complex global economy • International tax competition is an important factor • Different countries will have competitive advantages in certain types of businesses • Corporate income taxes will be imposed by most countries in some form (e.g., income tax, VAT, etc.) • Although the form may be different, many issues such as complexity likely will remain • The worldwide tax system will continue to use the “arms length standards” for global inter-company pricing • We need to deal with old myths and new realities • Cannot use old paradigms in making policy and tax administration decisions today

  3. Impact of Tax Rules on Business • Generally for business decisions, income taxes are secondary • The complexity of our tax system complicates decision-making by business managers

  4. Issues in International Tax Reform • Some principles of international taxation will not change • Deferral is an essential and unavoidable part of the worldwide income tax system • Exists in either a remittance-based or territorial type system • Need to simplify rules for inclusion in current taxation of passive income • Arms-length pricing issues for related entities • Simplification of the tax code is essential • Examine both horizontal (across all taxpayers) and vertical (different rules for different-sized taxpayers) means of simplification • Develop safe harbors and standards for compliance • Watch administration of broad vs. narrow definitions

  5. Improvement of International Tax Administration is an Important Goal of Tax Reform • Increased simplification will increase effectiveness of tax administration • Global enterprises and tax administrators face significant challenges and limited resources • Recognize reform efforts for accounting and tax irregularities • Address sophisticated means of tax fraud and tax avoidance • Principles of global taxation and cooperation are key to success • Involvement with OECD and treaty partners • Develop worldwide systems and administration • Develop improved tools for effective tax administration • Devote resources to highest priority projects, such as transfer pricing • Develop electronic tools – both for compliance and audits • Place a higher priority on increased use of alternative tax dispute resolution tools: mediation, arbitration, international tax court?

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