Debating the Merits of Worldwide Combined Reporting in Maryland
In the corridors of Maryland’s legislative assembly, a significant policy shift is under consideration that could alter the landscape of corporate taxation. Lawmakers are deliberating on the implementation of worldwide combined reporting (WWCR), a system designed to provide a more precise calculation of profits subject to state corporate tax, thereby aiming to curb tax avoidance strategies employed by corporations.
Amidst this debate, the Tax Foundation has published a blog with claims that have sparked controversy. One such claim suggests that WWCR could inadvertently result in less taxable income for the state, implying it might act as an overall tax cut. However, this theory is met with skepticism from various quarters, including evidence from Massachusetts, where less than 4 percent of corporate income tax revenue is derived from companies opting for WWCR.
Furthermore, the Tax Foundation’s critique of the methodology used to estimate the revenue potential of WWCR has been called into question. The assertion that all foreign earnings are considered tax avoidance is refuted by the use of Congressional Budget Office estimates that exclude legitimate foreign earnings from revenue projections.
Another point of contention is the claim that WWCR could lead to unpredictable and volatile corporate income tax collections. Proponents argue that by eliminating the opportunity for offshore profit shifting, tax collection forecasting may actually become more straightforward.
The Tax Foundation also raised concerns about the complexity of consolidating profits in various currencies. However, this is a routine process for U.S. corporations with international operations, and such details are typically addressed through regulatory processes.
Lastly, the substance of the Tax Foundation’s arguments has been scrutinized, especially considering its financial ties to corporations known for aggressive international tax avoidance strategies. The organization’s funding sources and leadership connections to companies like Microsoft, Gilead, and Pepsi—corporations with histories of utilizing offshore tax shelters—add an additional layer to the critique of their stance on WWCR.
Advocates for WWCR maintain that it is a sensible reform that will ensure fair taxation of multinational corporations’ in-state activities. They argue that ending offshore tax avoidance will strengthen Maryland’s tax base and level the playing field between small businesses and large multinationals. As the debate continues, the motivations behind opposition to WWCR become increasingly apparent in the context of the potential impact on corporate tax strategies.