Chapter
Corporate-Only Tax Expenditures Support Certain
Activities or Entities and May Seek to Contribute to Broader National Results
One-Third of the Tax Expenditures Used Only by
Corporations Appear to Share a Similar Purpose with Federal Spending Programs
Agency Comments and Our Evaluation
Appendix I. Objectives, Scope, and Methodology
Trend Analysis of Treasury Tax Expenditure Estimates
Fiscal Year 2011 Analysis of Treasury Tax Expenditure Estimates and Internal Revenue Service Data on Number
Comparison of Estimated Revenue Losses and Federal Outlays and Reported Purpose and Those Federal Activities That Appear to Share a Similar Purpose
Appendix II. Fifty-Six Tax Expenditures with Estimated Corporate and Individual Revenue Losses Reported by Treasury, by Largest Estimated Corporate Revenue Losses, 2011
Appendix III. Twenty-Four Tax Expenditures with Only Estimated Corporate Revenue Losses Reported by Treasury, by Largest Estimated Corporate Revenue Losses, 2011
Appendix IV. Number of Corporate Taxpayer Recipients for Corporate-Only
Appendix V. Reported Purpose Supporting a Specific Activity or Entity for 24 Corporate- Only Tax Expenditures
Appendix VI. Federal Activities That Appear to Share a Similar Purpose to 24 Corporate-Only Tax Expenditures
Chapter 2: Corporate Tax Expenditures: Evaluations of Tax Deferrals and Graduated Tax Rates*
Evaluation of Tax Deferrals
Deferral Is Viewed by Many as Promoting Competitiveness
Numerous Business Decisions Are Affected by Deferral and Each Has Consequences for Efficiency
Informed Judgments about Deferral’s Equity Require Information about Ultimate Beneficiaries
Deferral Adds Complexity to the Tax Code
Deferral Does Not Overlap Directly with Other Federal Programs
Deferral May Have Relatively Modest Consequences for the Federal Budget but Estimates Vary
No Consensus Exists on Which Agency Should Evaluate Deferral
Evaluation of Graduated Corporate Income Tax Rate Schedule
The Graduated Corporate Income Tax Rate Schedule’s Purpose Is Viewed as Supporting Small Businesses, but It May Not Be Well Targeted to That Purpose
Efficiency Effects of the Graduated Rates Are Disputed
Informed Judgments about the Graduated Rates’ Equity Require Information about Ultimate Beneficiaries
The Graduated Rates Likely Add Little Complexity to Determing Tax Liability But Some Evidence of Tax Planning Has Been Found
Graduated Rates Are Related to a Number of Spending Programs but the Relative Effectiveness of the Tax Expenditure Has Not Been Assessed
Moving to a Flat Corporate Income Tax Rate of 35 Percent Would Have Relatively Modest Consequences for the Federal Budget
No Consensus Exists on Which Agency Should Evaluate the Graduated Corporate Tax Rate Schedule
Agency and Third Party Comments and Our Evaluation
Appendix I: Objectives, Scope, and Methodology
GAO Tax Expenditure Evaluation Guide
Appendix II: Comparison of Territorial and Worldwide Corporate Income Tax Systems
Appendix III: IRS Statistics of Income Data on the Number of C Corporations by Taxable Income and Size of Business Receipts, 2010
End Notes for Appendix II
Chapter 3: International Taxation: Study Countries That Exempt Foreign- Source Income Face Compliance Risks and Burdens Similar to Those in the United States*
Multinational Corporations and Foreign-Source Income
Different Types of Foreign- Source Income
Most Countries Take a Hybrid Approach to Taxing Foreign-Source Income
Worldwide System with Deferral
Study Countries Vary in the Types of Foreign-Source Income Exempted from Domestic Tax and in the Rules Governing Those Exemptions
Study Countries Use Different Criteria to Qualify Foreign-Source Dividends for Domestic Tax Exemption
Study Countries Limit Tax Advantages of Earning Foreign-Source Income under Certain Conditions
Study Countries Face Areas of Compliance Risk and Burden Known to Exist in the United States
Transfer Pricing, Particularly for Intangible Property, Is a Major Compliance Risk and Source of Compliance Burden in all of the Study Countries
Study Countries Have Placed Greater Emphasis on Enforcing Transfer Pricing Rules
All Study Countries Use Advanced Pricing Agreements to Address Compliance Risks
Complying with and Enforcing Anti-avoidance Rules,
both CFC and Other Rules, Presents Challenges in All of Our Study Countries
Exemption of Foreign- Source Income Reduces the Need for Foreign Tax Credits, but They Can Still Serve as a Compliance Risk
Canada’s Rules for Determining if Dividend Income Is Taxable, with FTCs Allowed, or Exempt Is a Compliance Challenge and Imposes Significant Taxpayer Burden
The Generation of Inappropriate Foreign Tax Credits Was Identified as a Compliance Risk in Canada but the Risk Was Uncertain for the Other Study Countries
Study Countries Differ in How They Limit Domestic Deductions for Expenses in Order to Prevent Erosion of the Domestic Tax Base
Study Countries and the United States Do Not Regularly Report Basic Information about the Revenues Generated by Taxing Foreign-Source Corporate Income
Recommendation for Executive Action
Appendix I. Objectives, Scope, and Methodology
Appendix II. Transfer Pricing Documentation Requirements in the Study Countries
Appendix III. Example from Australia of the Process for Obtaining an Advanced Pricing Agreement
Appendix IV. Examples of Other Anti-avoidance Rules in the Study Countries and the United States
Appendix V. Description of Dividend Exemption Systems in Japan and the United Kingdom
CORPORATE TAXES: REFORM ISSUES AND EVALUATION OF FEDERAL EXPENDITURES
CORPORATE TAXES: REFORM ISSUES AND EVALUATION OF FEDERAL EXPENDITURES
Library of Congress Cataloging-in-Publication Data
Chapter 1: Corporate Tax Expenditures: Information on Estimated Revenue Losses and Related Federal Spending Programs
Estimated Revenue Losses from Corporate Tax Expenditures and the Number of Corporate Tax Expenditures Have Increased Since 1986
More Than Two-Thirds of Corporate Tax Expenditures Are Also Used by Individuals
Corporate Tax Expenditures Span Many Budget Functions; One-Third of Corporate-Only Tax Expenditures Share a Similar Purpose with Federal Spending Programs
Corporate Tax Expenditures Span Many Budget Functions, and Estimated Corporate Revenue Losses Are Concentrated in Two Budget Functions
Corporate-Only Tax Expenditures Support Certain
Activities or Entities and May Seek to Contribute to Broader National Results
One-Third of the Tax Expenditures Used Only by
Corporations Appear to Share a Similar Purpose with Federal Spending Programs
Agency Comments and Our Evaluation
Appendix I. Objectives, Scope, and Methodology
Trend Analysis of Treasury Tax Expenditure Estimates
Fiscal Year 2011 Analysis of Treasury Tax Expenditure Estimates and Internal Revenue Service Data on Number
Comparison of Estimated Revenue Losses and Federal Outlays and Reported Purpose and Those Federal Activities That Appear to Share a Similar Purpose
Appendix II. Fifty-Six Tax Expenditures with Estimated Corporate and Individual Revenue Losses Reported by Treasury, by Largest Estimated Corporate Revenue Losses, 2011
Appendix III. Twenty-Four Tax Expenditures with Only Estimated Corporate Revenue Losses Reported by Treasury, by Largest Estimated Corporate Revenue Losses, 2011
Appendix IV. Number of Corporate Taxpayer Recipients for Corporate-Only
Appendix V. Reported Purpose Supporting a Specific Activity or Entity for 24 Corporate- Only Tax Expenditures
Appendix VI. Federal Activities That Appear to Share a Similar Purpose to 24 Corporate-Only Tax Expenditures
Chapter 2: Corporate Tax Expenditures: Evaluations of Tax Deferrals and Graduated Tax Rates*
Evaluation of Tax Deferrals
Deferral Is Viewed by Many as Promoting Competitiveness
Numerous Business Decisions Are Affected by Deferral and Each Has Consequences for Efficiency
Informed Judgments about Deferral’s Equity Require Information about Ultimate Beneficiaries
Deferral Adds Complexity to the Tax Code
Deferral Does Not Overlap Directly with Other Federal Programs
Deferral May Have Relatively Modest Consequences for the Federal Budget but Estimates Vary
No Consensus Exists on Which Agency Should Evaluate Deferral
Evaluation of Graduated Corporate Income Tax Rate Schedule
The Graduated Corporate Income Tax Rate Schedule’s Purpose Is Viewed as Supporting Small Businesses, but It May Not Be Well Targeted to That Purpose
Efficiency Effects of the Graduated Rates Are Disputed
Informed Judgments about the Graduated Rates’ Equity Require Information about Ultimate Beneficiaries
The Graduated Rates Likely Add Little Complexity to Determing Tax Liability But Some Evidence of Tax Planning Has Been Found
Graduated Rates Are Related to a Number of Spending Programs but the Relative Effectiveness of the Tax Expenditure Has Not Been Assessed
Moving to a Flat Corporate Income Tax Rate of 35 Percent Would Have Relatively Modest Consequences for the Federal Budget
No Consensus Exists on Which Agency Should Evaluate the Graduated Corporate Tax Rate Schedule
Agency and Third Party Comments and Our Evaluation
Appendix I: Objectives, Scope, and Methodology
GAO Tax Expenditure Evaluation Guide
Appendix II: Comparison of Territorial and Worldwide Corporate Income Tax Systems
Appendix III: IRS Statistics of Income Data on the Number of C Corporations by Taxable Income and Size of Business Receipts, 2010
End Notes for Appendix II
Chapter 3: International Taxation: Study Countries That Exempt Foreign- Source Income Face Compliance Risks and Burdens Similar to Those in the United States*
Multinational Corporations and Foreign-Source Income
Different Types of Foreign- Source Income
Most Countries Take a Hybrid Approach to Taxing Foreign-Source Income
Worldwide System with Deferral
Study Countries Vary in the Types of Foreign-Source Income Exempted from Domestic Tax and in the Rules Governing Those Exemptions
Study Countries Use Different Criteria to Qualify Foreign-Source Dividends for Domestic Tax Exemption
Study Countries Limit Tax Advantages of Earning Foreign-Source Income under Certain Conditions
Study Countries Face Areas of Compliance Risk and Burden Known to Exist in the United States
Transfer Pricing, Particularly for Intangible Property, Is a Major Compliance Risk and Source of Compliance Burden in all of the Study Countries
Study Countries Have Placed Greater Emphasis on Enforcing Transfer Pricing Rules
All Study Countries Use Advanced Pricing Agreements to Address Compliance Risks
Complying with and Enforcing Anti-avoidance Rules,
both CFC and Other Rules, Presents Challenges in All of Our Study Countries
Exemption of Foreign- Source Income Reduces the Need for Foreign Tax Credits, but They Can Still Serve as a Compliance Risk
Canada’s Rules for Determining if Dividend Income Is Taxable, with FTCs Allowed, or Exempt Is a Compliance Challenge and Imposes Significant Taxpayer Burden
The Generation of Inappropriate Foreign Tax Credits Was Identified as a Compliance Risk in Canada but the Risk Was Uncertain for the Other Study Countries
Study Countries Differ in How They Limit Domestic Deductions for Expenses in Order to Prevent Erosion of the Domestic Tax Base
Study Countries and the United States Do Not Regularly Report Basic Information about the Revenues Generated by Taxing Foreign-Source Corporate Income
Recommendation for Executive Action
Appendix I. Objectives, Scope, and Methodology
Appendix II. Transfer Pricing Documentation Requirements in the Study Countries
Appendix III. Example from Australia of the Process for Obtaining an Advanced Pricing Agreement
Appendix IV. Examples of Other Anti-avoidance Rules in the Study Countries and the United States
Appendix V. Description of Dividend Exemption Systems in Japan and the United Kingdom
Corporate Taxes: Reform Issues and Evaluation of Federal Expenditures
( Government Procedures and Operations )
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