Former Treasury Official Questions Camp’s Option C; Urges Greater U.S. Participation in BEPS Discussions

Speaking last week on the centennial of the U.S. income tax, Harvard Law School professor and former deputy assistant secretary of the Treasury Stephen E. Shay criticized House Ways and Means Committee Chairman Dave Camp’s proposal to address base erosion and profit shifting (BEPS).  Called “Option C,” Rep. Camp’s proposal would adopt a territorial tax system and reduce the corporate tax rate on foreign intangible income to 15%, but would also treat a controlled foreign corporation’s intangible income as subpart F income if taxed at a rate less than 13.5%.

Professor Shay said that Option C privileges the earning of foreign intangible income without creating any incentives for scientific innovation or development in the United States.  He also warned that Option C contains such broad exemptions that it is unlikely to prevent base erosion.  “This is a classic example of a triumph of politics over policy.”

Shay also said that notwithstanding the involvement of some U.S. Treasury officials—including Robert Stack, Shay’s successor as deputy assistant secretary of the Treasury for international tax affairs—in current international efforts to address BEPS, the U.S. must be more proactive about addressing BEPS through domestic legislation.  Noting that the Organisation for Economic Co-operation and Development’s BEPS project “has very strong legs in Europe,” Shay warned that “something is going to happen with us or without us.”

Read Tax Analysts coverage of Shay’s remarks; the Ways and Means Committee’s summary of Option C; the OECD on BEPS.

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