And residents or u. S. Interests, those interests are clearly impacted by the behavior of other countries. And the u. S. Tax base can be eroded not only by the behaviors of multinationals but by behavior of other governments. Thank you and thank you for the opportunity. Good to be here, don, thank you very much for this opportunity to speak about policy and reform. It seems to me ive seen this movie before, however. We all love to sit around and talk about policy. I will get to policy in a second. Let me just say while we talk about policy, our tax system is being slowly eroded at the level of administration. Doesnt matter what the rules are if you dont have people to enforce them. If you just take a wink, a quick look at whats happening to the intern Internal Revenue service, you would realize it doesnt matter what the rules are. Weve lost so many people the enforcement capability is diminished. Unless that gets rectified. Who cares about tax reform if we dont have a tax system. Saying all that ill turn to tax policy. I see beps as the revenge of the source basis approach to tax. And part of it, i think is true. I get this a little bit from what bob stack said because the deal as i understood it coming out of world war ii was in the eternal war of residence source, the Resource Companies would limit their tax of the tax and the Residence Companies would undertake to avoid double taxation. Thats been the u. S. View of the world. Its particularly and dramatically reflected in our treaty policy where we are way beyond the oecd in favoring the country of residence. Whats happened, i think, is that the residence countries, we were and still are presumably the premier residence country. Failed to do their part of the deal. They failed to impose tax on their own taxpayers. I think you could draw a direct line, not even a dotted line, between check the box and beps. I think beps is a direct reaction to the check the box rules. And they were used aggressively by u. S. Taxpayers in ways that got under the skin of a lot of countries. I think it was probably a foreseeable thing that would happen. You had to take i think the problem im like john, i never been inside a corporation. I think the problem inside a corporation is the war between the long view and the short view. I mean, it does seem to me that taking the short view in terms of tax planning has resulted in a lot of pretty aggressive things, which have led to the beps what we see in beps. Saying that, the question for me has been how should the United States react to that . Weve been the premier country going around the world telling other countries be reasonable. If you want our investment, limit your tax. Frankly the indians, chinese, brazilians, a lot of other countries theyre not buying it anymore. They are answering us look, well set our own tax policy thank you very much. You guys in the United States arent doing such a great job either. Frankly thats where we are. I think we have to come to terms with that. Theres only a couple of things i think we can do. So far, my perception, some will say this is unfair, is that our policy is essentially been to do nothing. Pretend beps doesnt exist. Unfortunately it does exist. The the upshot will be dramatic for a lot of countries. We cant do a heck of a lot about it. I do hold hope we can dispute resolutions. The efforts of bob and others to advance ways of getting disputes resolved. I see a lot of disputes on the horizon. One thing we can do is do nothing. We can double down on our basic policy of saying residence country rules, we go to brazil, india and try to convince them to be reasonable in their treatment of our companies. Ive had a fair amount of experience recently particularly in india. I tell you it doesnt work very well. So i dont see that thats going to be fruitful. The third thing we could do i think it is something thats long overdo that we could rethink the balance between our own source basis taxation as opposed to residence based taxation. If you put wanted to put your finger on one of the major problems with tax policy, International Tax policy in the United States, its that everybody seems to think almost exclusively about the outbound rules. Ive seen entire books written in this town called International Taxation where there wasnt a word about inbound. Guess what . The Inbound Investment in the United States on a year by year basis is staggering. I saw the statistics this morning. It aint 1946 anymore, guys. And so we really ought to revisit rules that have been in place for over 50 years. We havent touched the Foreign Investors tax act from 1966 except at the margins, its time to rethink that and rethink our treaty policy as well in my view. If you wanted to address inversions, lowering the corporate rate as a means of addressing inversions is in my view mindless. You cant get the rate even close to being low enough to remove the incentive. What you can do is you can pay more attention to the Inbound Investment once people do invert. Why people invert at the end of the day is its just better to be foreign in the United States. We treat people better. Our rules are more generous. The irs audits of the inbound investors are lighter. In many cases nonexistent. All of that needs more attention. It isnt going to be cured by a little bit of policy around the edges. We really need to rethink where we stand in the world. We dont stand in the same place we stood in 1962 and 1966. And in my opinion, what is really needed is a thorough going review of our statutory law on Inbound Investment. Next comes treaty. I think we are way too favorable to the residence countries in treaties. These are radical thoughts. Nobody pays attention to what i say anyway. I think we should can the nondiscrimination clause why . Because we want to are discriminate. Lets get less hypocritical. I was disappointed today some extent in the new model treaty which doesnt go far enough in my opinion for a complete rethink. You cant really do it you cant start with the treaty you have to start with redoing the statute. Rethinking the statute. My third approach, the three approaches i see to beps are do n nothi nothing, double down. Its right the storource countr should reduce tax. Or maybe take a few leaves from the book of brazil india and china who say we have a market and were going to impose tax on the entry into our market. We have a market, too, in the United States. I dont think you can plan around that market. That market isnt going anywhere. So it seems to me that thats what i would see as coming out of the beps material. Thank you. First let me say how delighted i am to be here and thank don. Without don i wouldnt be here. I was a lawyer laboring in a wall street law firm and don called the senior partner in the firm and said do you have anyone who is foolish enough to come to washington. The partner said ive got just the guy. It changed my life. Without don i wouldnt be here. I thank you. So i rarely find myself in agreement with david but i certainly do. I really think we need to focus more on our source base taxation. We dont know residences are anymore or source is anymore. What we need to focus on is destination which is what david is talking about i think. To frame International Tax reform i like to start outside the tax world. What is it were trying to accomplish . I think the answer is maybe to raise revenue but probably not. But to increase the standard of living, jobs, competitiveness of u. S. Firms but only to the extent its a vehicle to increase the u. S. Standard of living. How do taxes come into play . How should we change our tax system to do that . I actually think looking at other countries are doing is a good place to start. I dont find race to the bottom very helpful. Its a label. Maybe its a race to the top. Because what theyre looking to do is attract investment and theyre using their tax systems to do that. And i have only two reasons i can think of as to why we wouldnt look at what other countries are doing. One of them is maybe we think were smarter than the rest of the world. For long time we did. Its pogo. We met the enemy he is us. No other country in the world could put together a group of people like in this room, maybe thats a blessing, maybe its a problem. But were not smarter than the rest of the world. Maybe were different than the rest of the world. Maybe we were once when we had the big large u. S. Market to ourselves and didnt have much foreign competition. U. S. Firms didnt have to compete abroad. No longer. Today as a result of technology, trade, low cost of transportation, the u. S. Is a small open economy. Larry summers and jim heinz did a great job making that point. Were not different than the rest of the world anymore. What is the rest of the world doing . Lowering their corporate rates, adopting territorial systems without minimum taxes. What i mean by that is current home country tax on active business income. If its passive interest income, maybe thats one thing. Active business inm ccome nobods doing it. Its a bad view. Its a hybrid system. Its too broad it will hurt the competitiveness of u. S. Firms. It will not stop base erosion we have a 15 minimum tax. A headline rate in the u. S. Of 35 . Intangibles will foreign governments will raise rates to soak up the minimum tax and u. S. Multinationals will stop reducing their rate. Its a bad idea and no other country has one. So if were going to reduce our rates and adopt a territorial system, how do we pay for it . Rate reduction. Id start with base broadening on things that cant move. Id rely on the ramsey rule. Slow railroads, pipe lines and telecommunication and cable. Things that have to be here and cant move and arent in the traded sector. This is what the uk did. What we do with real estate. Its as i said the ramsey rule. Id capitalize a lot of things, repairs, advertising, i understand that a timing item. Well be using dynamic scoring whether you like it or not. And dynamic scoring shows a lot of growth outside the window. The uk did a study and showed that 60 of the revenue lost would be made with Economic Growth in the long run. Id adopt thin cap rules like the rest of the world. Dividend deduction or Credit System. Higher taxes on dividends or Capital Gains. Accrual taxation as eric has recommended or even a pfic regime. Individuals are less mobile. How to pay for territorial. First, on a static basis territorial doesnt cost very much. An analysis in 2006 you excepted all dividends, youd raise a billion dollars. On a static basis were collecting no revenue. Having said that the joint committee has estimated moving to a territorial system would cost 25 rate, 220 billion. Were at a 35 maybe 300 billion to 400 billion. There are two pieces to that revenue lost. Incremental income shifting from a territorial system. Two, the joint committee is anticipating the dividends will come back in the ten year window that wont be sheltered by credits. I dont know why theyre assuming that. I dont think they will in the next ten. Having said that, thats the headline number. So i would address instead of using a blunt tool like the minimum tax i would address base erosion. I think its a problem. I dont think its a bigger problem under territorial than it is today. I think today its a heads i win, tails i lose. I think its a huge problem. Try to identify where the problem is. So where is the problem . Go to your cfo and say id like to move something offshore. When do you move something off shore for tax reasons . When the tax savings are greater than the nontax costs of moving. When is that . Got a big tax savings. You can count on. When do you have big tax savings you can count on . When you have high margins for the foreseeable future. When do you have those in a competitive market . Only when you have protected intellectual property. Thats the only time you can have high margins over a long period. Thats the plus side of moving. What are the costs . The costs of moving if you have your products can be put into a fedex envelope and shipped or sent over the internet, very low cost. I think pharma, intangibles is where i think the issue is. Today, its very easy to move patents to ireland. If you move patents to ireland you have to move your manufacturing outside the United States. I can explain that later. I have a couple minutes left. Thats a big problem. We have no high tech manufacturing in the u. S. Anymore. I think my thesis is the ip is outside the u. S. , and because they cant manufacture in the u. S. Because the royalties pay would be subf income or if there would be a permanent establishment here were hollowing out our base. I would address this outbound transfer outbound base erosion with very tough transfer pricing rules that would be formulaic out law cost sharing, contract research. I would put a weighted use something called the realistic alternatives test and limit the return in a cash box to the weighted average cost of capital to the parent. Phizer doesnt go out to finance its next drug to go to a venture capitalist. Id provide a patent box, a low rate, but the rnd would have to be done in the u. S. The rnd would have to be scaled here, meaning youd have to manufacture here. I only apply it to very high margin stuff, to guys who move. Then im out of time, im in my negative territory. I would think about a dp to david said id think about a diverted profits tax for the United States. What we have left is our large u. S. Market. The india and china, now the uk has set the path for it. I think its nonsense for us to explore that im out of time, otherwise id tell you why. Treaty and deal with our treaties. Barbara . I am speaking for myself today. And im not speaking officially for the committee. I also want to thank don lubric i had the opportunity to work with him. While we werent directly colleagues and sometimes we were on the opposite side of an issue. Don approached me in a collegeal way and we were both working for a better tax system. Its a privilege to be here at the first donald lub i c symposium. I thought the question that was posed to this panel was a really important one. It also has a simple answer. Foreign tax changes do have a dramatic effect on u. S. Business and they further reinforcement the need for fundamental tax reform in the u. S. Thats my simple answer. Ill elaborate for a few minutes on that. Over the last decade countries around the world have been reduced Corporate Tax rates. The uk reduced theirs by 17 . Thats left than half of the u. S. Rate. Countries around the world have been replacing the world wide tax systems with territorial approaches for taxing the global businesses that are headquarter headquartered in that country. The spots are being taken by foreign headquartered countries. These developments all matter. The u. S. Tax system must be modernized to reflect the modern world. More recently the focus on beps has led to an anticorporate sentiment around the world. Largely focused on household name countries, largely focused on household named american countries. Rather than seeing coordinated change in International Tax policy that i think the oecd was seeking to deliver. Were seeing countries using beps as an excuse to justify what are often blatant revenue grabs. There are many examples of unilateral action being taken in the name of beps that are at odds with the beps recommendations. The uk diverted profit taxes is one example. A response to concern about the permanent establishment rules. But a very different response than the response agreed to and negotiated in the oecd that involved amendments to the permanent establishment definition in the treaty. One could say that the u. S. 385 a regulations which are controversial for many reasons, are very different response to concerns about interest deductibleability than the beps action for and the agreed recommendation with respect to limiting interest deductibleability. The reason efforts toward requiring country by country information is in sharp contrast with beps action 13s mandate for reporting of this information to tax authorities only. It seems likely that this is just the beginning of a long line of unilateral actions justified by beps, but not in line with the agreed beps recommendations. The eu eight cases are another example of law being applied beyond its original intent to target corporations. Again, almost exclusively american corporations. In the u. S. , were seeing increasingly American Companies forced to consider a foreign acquisition or to succumb to a foreign takeover as the only way to remain competitive in the global marketplace. The transactions are labelled inversions but we should recognize them for what they are, a means for survival. The ways and Means Committee held a hearing earlier this year on the global tax environment in 2016. What that means for tax reform and the clear conclusion was we need fundamental tax reform that includes a modernization of the u. S. International tax rules. An important point that was driven home at that hearing, was International Tax reform is not just an issue for global american businesses, its an issue for all american businesses if a Global Company is forced to move headquarters to a foreign country through an acquisition or takeover, that often means that over time key decisions that used to be made in the u. S. Will be made overseas instead. Thats something that will be felt throughout the companys supply chain including local businesses that provided goods and services to the american company. It also will be felt in the local community, where the Company Provided support to the symphony to the museum, to the local sports teams. I think in looking at this issue, building a wall is not the answer. Tax reform is the answer. The ways and Means Committee has been charged with leading the effort to produce a blueprint for comprehensive tax reform that will lay out the House Republican vision for 21est century tax reform. That will be released this summer. International tax reform, of course, is an integral part, element o element of