IRS: Corporate Base Broadening

The IRS has announced that it will crack down on two important practices — dividend witholding avoidance, and corporate transfer pricing.

The first one appears to be aimed primarily at offshore tax treatment for hedge funds, although it’s part of a larger, concerted effort to restrict the use of offshore havens to avoid taxes. We don’t believe that the hedge fund industry needs or deserves sympathy, but it is notable that this measure piles on at an already extraordinarily difficult time for those folks. More importantly is how far these kinds of measures go, and whether they’ll have a negative impact on (a) future capital formation and (b) human capital allocation and migration.

The second one is more of a concern because, in a sense, it aims to broaden the corporate tax base in the U.S., at a time when profits are under severe pressure, and — as far as we know — there is little or no discussion of lowering the nominal corporate tax burden. If these kinds of measures get traction and start to snowball, it would be very bearish.

URLs:

http://www.webcpa.com/article.cfm?ARTICLEID=30085