Funding freedom and opportunity through a strong and responsive government is a necessary function to enjoy a safe, civilized and healthy society. Public companies contribute to the public welfare directly paying scores of federal, state and local taxes and fees. Public companies create jobs and reward employees with benefits that help transform them, their families and their communities.
Tax policy can play a positive role in promoting critical incentives for the very best endeavors of companies such as research and development, charity and community service. However, tax policy can be a destructive tool that places U.S. public companies at severe disadvantages. Nasdaq believes that tax policies, that promote job creation, fair competition and efficient access to capital are both positive for the short and long term health of the U.S. and world economy. Below we list a few of our key issues.R&D Tax Credit
When the United States created the research and development (R&D) tax credit in 1981, it was the gold standard for developed nations. Now the Credit has become a political bouncing ball, requiring last minute action to renew it annually by Congress. The R&D Tax Credit is currently awaiting its 14th extension – each time creating the appearance of doubt for the corporate research community that the tax will be an option for them and their U.S. operations. The R&D credit is now near obsolete in the world, in 2009; its ranking among industrialized countries has fallen to #24 – last among industrialized nations.
The R&D credit is one of the strongest tools our nation has to spur the cutting-edge innovation that will drive the creation of more American jobs. Economists have estimated that nearly two dollars of economic activity are generated for every dollar of R&D tax benefit. This extension is one element of a tax policy that promotes innovation and competitiveness. Nasdaq supports a strengthened and permanent R&D Tax Credit. R&D spending restored now so the United States can again be the best country in the world to perform R&D and innovate.Check-the-Box Rules
Prior to 1997, classification of an entity for U.S. tax purposes was determined under an inefficient, time-consuming and a somewhat arbitrary and a costly test. In 1997, the Treasury Department approved rules, known as the “check-the-box” regulations, which allowed companies to choose the entity most suitable for their business affairs by merely checking a box on an IRS form and filing it with the IRS. The check-the-box regulations replaced the prior test classification regime with a more flexible one, allowing companies to simplify their arrangements, lower their business costs, and increase productivity. The check-the-box rules are simpler, less burdensome and allow American worldwide companies to organize so that they can achieve optimum business and tax minimization results. Many companies have made huge investments with the current rules in place and changes could have catastrophic effects on public companies with foreign operations and investments. Changes to the check-the-box rules would hurt the competitiveness of American worldwide companies, hinder their ability to create jobs, and could dramatically harm the US economy.Deferral
The United States employs a unique worldwide tax regime; corporations are taxed here on all of their profits made within the U.S., taxed abroad on their foreign profits, and then taxed again when those foreign profits are brought back to the United States. In contrast, most foreign companies that compete overseas with U.S. companies face a territorial system in which they pay taxes on their home country profits in their home country. These foreign competitors only pay taxes on their foreign profits within the foreign countries in which they earn them. This way, foreign companies do not face double taxation of their earnings when they are brought back home.
The U.S. government has long countered this competitive disadvantage with the use of tax deferral. Deferral, which has been allowed in various forms since the 1960’s, simply allows U.S. companies to pay tax on foreign earnings only when that income is repatriated.
Deferral is not a loophole in the tax code, it is a recognition that the U.S. tax system must operate within a globally competitive environment. Ending deferral would be a terrible tax policy decision for public companies that are competing around the world.