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21–122 2017

TAX REFORM: TAX HAVENS, BASE EROSION AND 

PROFIT-SHIFTING 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

JUNE 13, 2013 

Serial No. 113–FC09 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

ALLYSON SCHWARTZ, Pennsylvania 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 


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C O N T E N T S 

Page 

Advisory of June 13, 2013 announcing the hearing .............................................. 2 

WITNESSES 

Mr. Edward Kleinbard, Professor of Law, University of Southern California 

Gould School of Law ............................................................................................ 16 

Mr. Paul Oosterhuis, Partner, Skadden Arps Slate Meager & Flom LLP ......... 38 

Mr. Pascal Saint-Amans, Director, Centre for Tax Policy and Administration, 

Organisation for Economic Co-operation and Development (OECD) ............... 7 


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TAX REFORM: TAX HAVENS, BASE EROSION 

AND PROFIT-SHIFTING 

THURSDAY, JUNE 13, 2013 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON WAYS AND MEANS, 

Washington, DC. 

The Committee met, pursuant to call, at 10 a.m., in Room 1100, 

Longworth House Office Building, the Honorable Dave Camp 

[Chairman of the Committee] presiding. 

[The advisory announcing the hearing follows:] 


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Chairman CAMP. Good morning. The committee will come to 

order. Thank you all for being here. 

On October 26, 2011, as part of its overall approach to comprehensive tax reform that lowers rates and broadens the base, 

this committee released a discussion draft aimed at modernizing 

our outdated international tax rules. The draft included a structure 

that would allow the U.S. to move from a worldwide taxation system to a participation exemption system similar to that used by almost all of our major trading partners. 

In the interest of transparency, we made a specific request. We 

actively sought feedback from stakeholders, taxpayers, practitioners, economists, and members of the general public in how to 

improve the draft proposal. Since then we have heard from a wide 

range of practitioners and worldwide American companies. Nearly 

all have offered a universal observation: Having the highest corporate rate in the developed world, along with an outdated international tax system, is a barrier to success that leaves our country 

falling further behind our foreign competitors. 

Academics and economists agreed and also cautioned that any 

solution to these challenges must protect against erosion of the 

U.S. tax base through the shifting of profits to low-tax jurisdictions. 

Their concern is not without merit. Oftentimes multinational businesses reduce their tax liability by separating the jurisdiction in 

which income is booked for tax purposes from the jurisdiction in 

which the economic activity occurs. The result of these practices is 

erosion of the tax base in a jurisdiction where the activity takes 

place. 

We have all heard and read about these practices. As we will 

hear today, the commentary on these practices varies greatly. As 

policymakers engaged in the tax reform debate, it is clear that 


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there is no perfect system for taxing corporate income. But it is 

also important to bear in mind that these activities are fundamentally the consequences of bad laws and not necessarily bad companies. 

In my mind, the fact that the current Tax Code allows companies 

to achieve these tax results strengthens the case for comprehensive 

tax reform. Whether a country has a hybrid system similar to the 

current United States’ worldwide system or a dividend exemption 

system like that of our major trading partners, it is important to 

develop strong base erosion rules that protect against aggressive 

transfer pricing, migration of intangible property overseas, and foreign earning stripping. 

Let me just say that it is important to remember that the most 

effective anti-base erosion rule is a lower corporate tax rate. But 

unfortunately, while a lower rate is necessary, the rate alone is not 

sufficient. 

Mindful of the need to develop meaningful protections of the U.S. 

tax base, the international tax reform discussion draft included 

three options to mitigate U.S. base erosion. Although the merits of 

each option remain open for debate, option C, the carrot and stick 

proposal, received, and continues to receive, the most support from 

the business community, and our close work with the staff of the 

Joint Committee on Taxation leads us to believe it is an effective 

safeguard. 

Under option C, all foreign income attributable to intangibles, 

whether or not owned by the U.S. parent or foreign subsidiary, 

would be taxed by the United States at a substantially lower rate 

of 15 percent, minus any credits for foreign taxes paid on the same 

income. This approach provides a deduction for income related to 

intangibles kept in the United States—the carrot—and an immediate inclusion for income related to intangibles held abroad—the 

stick. In other words, companies would feel less pressure to shift 

income to low-tax jurisdictions because that income would be taxed 

at the same rate, whether it is earned in the United States or Bermuda. 

The results of this approach would be that moving intangibles to 

tax havens would have little or no appeal, since the income earned 

from those intangibles obviously would be taxed at the same rate, 

regardless of location. In fact, some companies have said that intangibles which have already been moved to tax havens under our 

current system could actually be moved back to the United States 

because there would not be any tax advantage to owning them 

abroad. 

The U.S. is not the only country concerned about base erosion. 

We will hear testimony today from the OECD about its base erosion and profit shifting report. As noted in the report, every jurisdiction is free to set up its corporate tax system as it chooses; however, the OECD’s attention to this issue underscores that concerns 

about base erosion exist globally and must be considered as solutions are developed that are unique to each country’s tax system. 

As I said at the outset, there is no perfect solution, and all systems have problems with base erosion. Our task is to develop a system that is more in tune with the global marketplace, and that will 

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tecting the U.S. tax base. Comprehensive tax reform that includes 

a more modernized system of international taxation, coupled with 

a lower rate, can create the climate necessary for those companies 

to prosper, invest and hire here at home. 

I will now recognize Ranking Member Levin for his opening 

statement. 

Mr. LEVIN. Thank you very much. 

Good morning, and thank all of you, the three of you, for coming 

to testify today on this important subject. 

I am glad we are looking at the issue of international taxation 

today. I believe it highlights the need for tax reform to be about 

so much more than just lower rates or labels like ‘‘worldwide’’ and 

‘‘territorial.’’ We live in a global economy. That is not going to 

change. There have been and will continue to be major benefits 

from globalization, which has occurred more rapidly in recent decades than in all previous ones combined. It has been furthered by 

dramatic new technologies that quickly spread beyond national borders. 

But globalization often can spread its benefits in very uneven 

and sometimes harmful patterns. Indeed, it presents increasing 

challenges to tax policies. And that is why we are here today, that 

is what we must confront, and it is the crux of what we are discussing, as I said, here today. 

Entities that truly have a home base in our Nation and experienced many benefits and advantages as a result are using their 

presence, or their pro forma presence, in other places to lower their 

tax bills. Often the effect is so dramatic that it is difficult for the 

average taxpayer to believe that such tax avoidance is legal. The 

fact that it is, and is widespread, only highlights the urgent need 

to confront it. 

That truth was on vivid display last month when the Senate Permanent Subcommittee on Investigations revealed the complex 

structures and intergroup transactions that some multinational 

corporations employ in order to shift profits offshore in an effort to 

avoid U.S. taxes. The investigation illustrated how Apple’s international tax planning techniques have enabled that tax giant to 

dramatically lower its tax bill. One example showed how an Irish 

entity, established by Apple, Inc., received tens of billions of dollars 

of income with no tax residence, and as a result paid no taxes. 

Other major corporations like Microsoft, HP, and Google have also 

been shown to use legal tax-avoidance techniques to shift income 

overseas to lower their U.S. tax liability. 

But as we will hear today, the problem is not isolated to the U.S. 

Jurisdictions throughout the world, particularly European Union 

member nations, are realizing that companies are engaging in complicated structures that often have no economic value or substance 

simply to avoid taxes. The response is anger from businesses that 

compete to citizens who are facing deep cuts in important government programs. 

The challenge of ending massive tax avoidance must be at the 

forefront of any tax-reform effort worth its salt. I believe that will 

be confirmed by today’s testimony. No country can compete with a 

zero percent tax rate. Any tax reform must end the use of loopholes 


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and base-erosion techniques, including addressing how to curtail 

the shifting of jobs and profits offshore. 

Our current Tax Code creates incentives for multinational enterprises to shift money overseas, and with that money goes jobs. The 

days of so-called stateless income and double nontaxation must 

end. We cannot participate in a global race to the bottom that results in taxing jurisdictions being the big losers. Our Tax Code 

must not only promote American competitiveness at home and 

abroad, it must also promote domestic job creation that strengthens 

economic security for workers and businesses here in the U.S. Reform of our international tax rules cannot be done on the backs of 

small businesses, domestic companies, and individual taxpayers. 

So all of us on this side and, I think, throughout the committee 

look forward to hearing from the witnesses and learning more 

about your ideas to reform this area of the law. All of us appreciate 

the time and resources you have spent to help inform this committee on this complex and sometimes opaque area of the tax law. 

This discussion is an important step in reforming our international 

tax system. 

Thank you. 

Chairman CAMP. Thank you, Mr. Levin. 

Now it is my pleasure to welcome our panel of experts, all of 

whom bring a wealth of experience from a variety of perspectives. 

Their experience and insights will be very helpful as our committee 

considers the impact of Federal tax reform on tax havens, base erosion, and profit shifting. 

First, I would like to welcome Pascal Saint-Amans, Director of 

the Centre for Tax Policy and Administration at the Organisation 

for Economic Co-operation and Development based in Paris, 

France. Second, we will hear from Edward Kleinbard, professor of 

law at the University of Southern California Gould School of Law 

in Los Angeles, California, and a former chief of staff at the Joint 

Committee on Taxation. Welcome back to the committee, Professor 

Kleinbard. And finally, we will hear from Paul Oosterhuis, a partner at Skadden Arps Slate Meager & Flom here in Washington, 

D.C., and a widely recognized authority on international tax issues. 

We welcome you back to the committee as well. 

Thank you all, again, for being with us today. The committee has 

received each of your written statements, and they will be made a 

part of the formal hearing record. Each of you will be recognized 

for 5 minutes for your oral remarks. 

Mr. Saint-Amans, we will begin with you. You are recognized for 

5 minutes. 

STATEMENT OF MR. PASCAL SAINT-AMANS, DIRECTOR, CENTRE FOR TAX POLICY AND ADMINISTRATION, 

ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD) 

Mr. SAINT-AMANS. Thank you, Chairman. It is an honor to testify here today as the Director for Tax Policy at the OECD, which 

is an international organization—the U.S. is a permanent member 

of this organization—which includes 34 members overall. 

Tax work at the OECD focuses primarily on eliminating double 

taxation. As you know, when you have cross-border investments, 


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they can be taxed at source, in the country where the operations 

are taking place, but also at residence, where the headquarters of 

the international company is based. As a result you may have tax 

at source and at residence. And this is no good for cross-border investments, which all countries need in a free trade environment to 

foster growth and to foster jobs. And for the case, we have been 

working on eliminating double taxation by providing a Model Tax 

Convention on which countries draw when they negotiate bilateral 

treaties, as the U.S. is doing. 

We also do some economic analysis. And we recently issued reports, trying to see what are the merits or the lack of merits of different taxes. And the corporate income tax is not a progrowth tax. 

What has been recommended from this analysis is that lowering 

the rates and broadening the base would be more favorable to 

growth than having very high rates. We must recognize that the 

U.S. now—after Japan’s recent move to lower the rate—the U.S. 

has the highest rate for corporate income tax in the OECD, which 

is 35 percent, not taking into account the local rates, the State 

rates. 

What has happened over the past few years, I would say 3 to 4 

years, is a growing concern in all OECD countries—and this goes 

beyond OECD countries to include what we call the BRISC— 

Brazil, Russia, India, South Africa, China, and some others—about 

what we now call base erosion and profit shifting. That is why the 

OECD was asked by its member countries to launch this project on 

BEPS to put an end to what countries identify as double nontaxation. 

We have moved from removing double taxation to an environment where the international rules, articulated with domestic legislations, might result in growing double nontaxation, as, Chairman, you have just explained. The OECD has been asked to look 

at the reasons why we have come to that situation. 

These concerns, of course, have been growing because of the crisis—the financial crisis turning into a fiscal crisis, turning into a 

political crisis, in some countries a social crisis—with the growing 

awareness that there is an issue with domestic companies not exposed to international transactions paying an effective tax rate 

which is close to the statutory tax rate, while some other companies exposed to international transactions can reduce their effective 

tax burden to very low rates. I mean, a 3, 4, 5 percent effective tax 

rate for a number of companies. And this is a global issue. It is not 

a U.S. issue as it is portrayed by some in Europe, for instance; it 

is something that you find in all countries, including in European 

countries. 

The OECD project is about trying to put all the countries together to try to identify what type of solutions can be brought to 

this global issue. The solutions are not about any kind of harmonization, because the world is made of tax sovereignties, and every 

country decides on its own sovereignty. But countries cannot ignore 

the spillover effects of what they are doing, or a single country cannot address the whole issue. Otherwise it would put its own businesses at a competitive disadvantage. I think that can be the value 

added of the OECD, to make sure that all countries know what the 

others are doing and may benefit from best practices. And this is 


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why we have issued this report, which is annexed to my written 

testimony, which is a report on base erosion and profit shifting, 

which was issued in February. 

Since February, we have developed an action plan, which will be 

ready and published in July and then reported to the G20 Finance 

Ministers on the 20th of July when they meet. And in the action 

plan we consider a number of areas where actions could be taken, 

meaning developing some guidelines or some models, as the OECD 

does, letting, of course, the countries decide whether they want to 

draw on that or not. Within the actions there will be something on 

controlled foreign companies, which is what you are trying to address in the draft. 

So I will be very happy to answer any questions you may have 

on this action plan. Thank you, Chairman. 

Chairman CAMP. Thank you. 

[The prepared statement of Mr. Saint-Amans follows:] 


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Chairman CAMP. Second, we will hear from Edward Kleinbard, 

professor of law at the University of Southern California. We certainly look forward to hearing your testimony, Mr. Kleinbard. You 

have 5 minutes. 

STATEMENT OF MR. EDWARD KLEINBARD, PROFESSOR OF 

LAW, UNIVERSITY OF SOUTHERN CALIFORNIA GOULD 

SCHOOL OF LAW 

Mr. KLEINBARD. Thank you. 

Chairman Camp, Ranking Member Levin, distinguished Members, multinational firms today engage in large-scale base erosion 

and profit shifting, what I call the generation of stateless income. 

This committee’s international discussion draft was sensitive to the 

problems posed by stateless income strategies, and this hearing 

demonstrates your interest in protecting revenues from the spread 

of what might be called unprotected territoriality. 

But the problems have been underestimated, and stronger antiabuse measures are required. For example, one recent study found 

that 54 percent of U.S. firms’ foreign income is taxed at effective 

rates below 15 percent, and 37 percent of foreign income enjoys tax 

rates below 5 percent. 

My current research project, for example, looks at Starbucks, a 

classic bricks-and-mortar retail operation that deals directly with 

customers at thousands of locations around the world. Yet it appears that Starbucks has successfully reduced its foreign tax liabilities to surprisingly low levels. To put matters bluntly, if Starbucks 

can organize itself as a successful stateless income generator, any 

multinational firm can do so. 

The recent Senate PSI hearing focusing on Apple raises similar 

concerns. To me, the most remarkable aspect of the hearing was 

the baldness of Apple’s tax planning. In effect, in 1980, Apple created a shell company in Ireland, capitalized it, and executed a contract on behalf of itself and this subsidiary in which the subsidiary 

returned to Apple some of the capital ceded to it a moment before 

and thereby purportedly acquired ownership in all of Apple’s intangible assets outside the Americas. My description obviously simplifies the facts, but captures the essence of the story. 

Now, no one likes the current international tax rules, but the debates about a replacement have been marred by some recurring 

myths and misunderstandings. I wish to address just one of these. 

Intuitively it seems sensible to argue that when our multinationals 

employ stateless income technologies to minimize their foreign tax 

liabilities, we should cheer rather than criticize, but this is false. 

In fact, that apparently foreign income often is U.S. income traveling incognito. What’s more, the stream of tax-free foreign income 

encourages U.S. firms to engage in tax arbitrage by leaving all 

their global interest expense in the U.S. parent, where it reduces 

wholly domestic taxable income. 

Further, the prospect of stateless income distorts investment decisions by offering U.S. firms the possibility of realizing supersized 

returns on their foreign investments; what I call tax rents. And finally, promoting our national champions to avoid other countries’ 

taxes leads to the mirror-image response from those other countries 

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national firms are the only winners and every taxing jurisdiction 

the loser. 

While I applaud the committee’s inclusion of antiabuse rules in 

its discussion draft, I am concerned that none of them, including 

option C, will work very well or be administrable. What then 

should we do? Many recommend a territorial system with some 

form of antiabuse constraints, what we now call the hybrid system, 

but I believe there is a simpler alternative that is more resistant 

to tax gaming; that, in fact, is competitive; and it makes economic 

sense: genuine worldwide tax consolidation, just as we do for financial statement purposes, combined with a corporate tax rate 

squarely in the middle of the pack, let us say 25 percent. 

This idea is less wacky than you might think. The economic effects of worldwide consolidation are basically the same as the territorial tax, with a 25 percent worldwide minimum tax as an 

antiabuse measure. True worldwide consolidation is competitive 

with the tax environments that foreign and domestic firms face in 

the countries in which they actually do business. By contrast, current law or, alternatively, unprotected territoriality heavily subsidizes foreign investment at the expense of our own domestic economy. 

Finally, every U.S. multinational firm should be required immediately to publish a worldwide disclosure matrix of its actual tax 

burdens by jurisdiction. Tax transparency rules are not a substitute for substantive international tax reform, but they would enable tax authorities to identify patterns of possibly inappropriate 

income shifting, thereby making better use of limited audit resources. A transparency principle also would awaken the public to 

the massive amounts of international tax avoidance today known 

only to specialists. 

Thank you, Mr. Chairman. 

Chairman CAMP. Well, thank you very much, Mr. Kleinbard. 

[The prepared statement of Mr. Kleinbard follows:] 


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Chairman CAMP. Mr. Oosterhuis, you are recognized for 5 minutes. 

STATEMENT OF MR. PAUL OOSTERHUIS, PARTNER, SKADDEN 

ARPS SLATE MEAGER & FLOM LLP 

Mr. OOSTERHUIS. Thank you. I appreciate the opportunity to 

be here. We have had a lot of catchy phrases and indeed some fairly boisterous hearings on both sides of the Atlantic on this issue 

over the last several months, and it is indeed welcome to have a 

more considered debate and discussion of a topic that is very difficult and very important. 

We are building in tax reform a set of rules that we hope will 

be enacted this year or next year that will replace rules enacted in 

1986 that lived for 27, 28 years, and they replaced rules that were 

enacted in 1962 that lived for 24 years before they were revised. 

So we are planning for the very long run. That means, to my mind, 

we have to be very careful what we do, because we can cause longrun distortions in the economy in our effort to try to fix current 

short-term distortions in international taxation when you are planning something for the run. 

Income taxes are, for most successful companies that are multinationals, probably the largest single non-cost-of-goods expense 

that they have. It is not at all surprising that they devote substantial resources to minimizing that tax globally in the interest of 

their shareholders. They ought to do that. 

We operate and other countries operate under a system of what 

we call arm’s-length pricing. That rewards activities, yes, and it rewards financial risk, financial investments, financial costs. For example, R&D is a major product development cost; if you are bearing the risk of that cost in a particular jurisdiction under those 

principles, that jurisdiction deserves a reward if you are successful. 

We have talked today about many successful companies in the 

other hearings’ focus on Apple and Google. We don’t see much attention spent on Wang or on Cullinet Software—my first software 

company that died; it was a great company back in the 1980s—or 

Atari, or even AOL, or other companies who may well have used 

these strategies, but had them backfire on them because they book 

costs in low-tax jurisdictions, where the deduction wasn’t worth 

very much, rather than booking them in high-tax jurisdictions, 

where their losses at least could be bought by somebody else. 

Governments are joint venture partners of multinational companies. Governments imposing income taxes are joint venture partners with companies. And companies obviously, if they think they 

are going to be successful, prefer to have a joint venture partner 

that is going to take a small share of the profits and a small share 

of the losses. Companies prefer to move their investments and, to 

the extent they need to, their economic activities to lower-tax jurisdictions rather than high-tax jurisdictions. There is nothing surprising about that than under present law. There is nothing evil 

about that under present law. 

The other feature of present law is that arm’s-length pricing is 

not a science. You don’t have a determination of a single price that 

is the right price. Arm’s-length pricing is a range, and in many 

cases it is a very broad range. (If I had time, I would tell you a 


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few stories from practice about how broad that range can be, even 

when it is countries like the U.S. and the U.K. trying to decide the 

right price.) And when there is a broad range of reasonable prices, 

it is not surprising that the companies bias their transfer pricing 

so that the favorable side of the range would end up in a low-tax 

country and the unfavorable side in high-tax countries. And that 

is true whether the company is based in the U.K., or the U.S., or 

France, or Japan or anywhere else in the world. It is a natural outgrowth of the system that we have had for the last 40 years. 

As income has become more a function of valuable intangibles 

and not bricks and mortar and equipment, as the kinds of products 

that get high value have low transportation costs—pills, software, 

things like that—this international tax planning has grown, and 

that is why we see numbers that have grown so much over the last 

few years. 

The pendulum, in my judgment, is at its peak. Governments are 

now waking up to the extent of taxplanning. The IRS woke up to 

it a few years ago and established a new unit in LB&I to centralize 

and expand their transfer pricing enforcement, and I think that, 

from a government’s perspective, holds substantial promise. Other 

countries are now starting to do the same thing. They may be a 

little behind the IRS, but they are starting to do the same thing. 

So we shouldn’t just look at the pendulum at its peak, we should 

look at the longer run, because we are talking about a system that 

we want to enact and to last for 25 years. 

With that, I would be glad to take any questions. 

Chairman CAMP. Thank you very much. 

[The prepared statement of Mr. Oosterhuis follows:] 


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Chairman CAMP. Mr. Saint-Amans, a couple of times in your 

testimony, you mentioned that the base erosion by multinationals 

could actually place small businesses and other purely domestic 

companies at a disadvantage. Could you just expand on that a bit 

for the committee, please? 

Mr. SAINT-AMANS. Thank you, Chairman. 

Indeed, when you look at the effective tax rates of companies, 

which is the effective tax burden that they face, it looks like in 

most of the countries, if not all the countries, the multinationals, 

which are exposed to international transactions and therefore can 

play with the different gaps which are there through transfer pricing rules, tax rules, and domestic legislation, they are exposed to 

a much lower effective tax rate than domestic companies which 

cannot benefit from these international instruments, and therefore 

this gap is quite significant, putting domestic businesses at a competitive disadvantage. And this is a distortion which is not good 

from an economic perspective. 

Chairman CAMP. Thank you. 

Mr. Oosterhuis, is there something unique to the United States? 

Because unlike many other countries, we have such a large segment of our economy in intellectual property. Is there something 

about that—and intangibles—that makes this a more important 

issue for us than for some other countries? 

Mr. OOSTERHUIS. Yes, and I think it makes it a more difficult 

issue. Why Google and Apple and Microsoft are all U.S. companies, 

I can’t tell you. I am delighted that they are. But I can tell you that 

their competition is not just domestic. Apple’s main competitor is 

Samsung. HP has huge competitors in companies like Lenovo and 

Canon. Our pharmaceutical companies’ main competitors are companies like Novartis and Glaxo. Even in the consumer products, 

Procter & Gamble, one of their main competitors is Unilever; Mars 

is Nestle. 

So we are dealing with a lot of U.S. companies that are successful, but a lot of their main competitors are foreign. They operate 

under territorial systems, and they have governments that see 

them as champions. For whatever reason, we don’t see our multinationals as champion in the same way that the U.K. sees Glaxo, 

or that Switzerland sees Nestle, or that China sees Lenovo. Why 

that is, I am not sure. But I think we need to be careful when we 

do things to our multinationals that are quite different than what 

their competitors are having done by their home countries. 

Chairman CAMP. And you have also observed that option C in 

this chairman’s discussion draft that has been out there approaches 

neutrality between the development and manufacture of products 

in the U.S. and those activities that take place abroad. 

Now, can you explain how you think that is the case and what 

kind of behavorial responses we might expect to see from companies if option C were actually enacted into law? 

Mr. OOSTERHUIS. Sure. The advantages of option C, to my 

mind, start from the fundamental point that they differentiate 

products sold into foreign markets from products sold into the U.S. 

market. To the extent we worry about base erosion, to my mind, 

in a territorial world it is largely a concern with respect to products 

being sold in the U.S. market. That is where there could be increVerDate Sep 11 2014 01:29 Feb 07, 2017 Jkt 021122 PO 00000 Frm 00058 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\21122.XXX 21122

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mental base erosion in a territorial system, and, from a revenue 

point of view, you really have to worry about that. 

If you are going to do something like Camp C for products sold 

back to the U.S. and tax foreign affiliates on that income at normal 

rates, which is what Camp C does for the IP profit, the intellectual 

property profit, you may need transition rules, and we can talk 

about that. But that will help any revenue hemorrhaging and will 

help any real base erosion of the U.S. tax base for U.S. products. 

For foreign products, it is quite a different situation, because for 

foreign products, in most of these businesses, they are consumerfacing businesses. And so the country where the products are consumed has a large right to tax that income. You will notice in Europe some of the outrage that has been raised lately, particularly 

in the U.K., has all been focused on inbound companies. Whether 

it is Starbucks or Google or Amazon, it is all inbound companies 

and their income in the market country. 

And what Camp C does is recognize that we have a much lesser 

right, if you will, to assert jurisdiction to collect revenue out of that 

income. And I think that is a very sensible distinction over the long 

run. 

The other thing that Camp C does through the ‘‘carrots,’’ as you 

described it in your opening statement, is to try to come closer to 

neutralizing where you locate your manufacturing plants and other 

similar activities. I think there is more than one way to do that, 

but I think the goal, while you are differentiating between products 

that are sold for foreign markets and products that are sold for the 

U.S. market, if you could try to do measures like Camp C does to 

neutralize where you manufacture those products, I think that 

would be an important goal. And that is what Camp C is trying 

to accomplish. 

Chairman CAMP. All right. Thank you. 

Mr. Levin is recognized. 

Mr. LEVIN. Thank you. 

And, again, welcome. 

I just wanted to say, Mr. Saint-Amans, I am glad you talked 

about effective tax rates, because when we look at the corporate tax 

rate, we really need to look at the effective rate as well as the other 

rate. 

And let me just say, Mr. Oosterhuis, we are proud of American 

corporations. I think we have as much pride as Europeans. And so, 

when we talk about tax policy and we talk about how our companies utilize them, it is not because we are not proud of them. It is 

because we very much want to have a tax system that makes sense 

for all of us. And I hope that isn’t misunderstood. 

I am hopeful that we can have—this is such a useful hearing— 

a lot of discussion among the three of you. So I want to start off, 

and I will—so maybe we can get you talking with each other, 

maybe even arguing a bit. Because this is so important. So I am 

sure my colleagues will pick up and take other pieces of your testimony and have you comment on the others, because we don’t do 

enough of that. 

So I want to read for you, Mr. Kleinbard, a sentence or two sentences from your testimony, Mr. Oosterhuis, and ask Mr. Kleinbard 

to comment. And then maybe one of my colleagues will ask you to 


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56 

comment on his comments, okay? Because I really want to understand it. I think this is critical to our getting at this important 

issue. 

So this is from the last page of your testimony. 

And, Mr. Kleinbard, I will read it to you, though you can see it 

in his testimony. 

Mr. Oosterhuis concludes, ‘‘I would suggest that a corporation’s 

place of residence or the location of its activities or how much foreign tax it pays are not likely to provide useful and certainly not 

complete’’—it is modified a bit—‘‘measures of profit shifting. A 

focus that is geared towards the location of sales and matching of 

income and expenses is far more likely to produce useful measures 

of, and thus productive solutions to, the issue of U.S. profit shifting 

and base erosion.’’ 

So I didn’t tell you I was going to ask this, but, so we have lively 

discussion, if you would analyze that from your perspective. And 

don’t pull any punches, okay? 

Mr. KLEINBARD. Unlike my usual practice. Okay. 

Chairman CAMP. He has never been known to do that. 

Mr. LEVIN. I know that. We know each other well. All of us 

know you. 

Mr. KLEINBARD. There is a lot bundled in those thoughts of 

Paul’s. 

Let me begin by observing that there, at least in my view, is a 

fundamental conflict between the idea of looking to the place of 

sales on the one hand and the policy recommendations that are 

contained in Paul’s testimony on the other. 

In my world view, we ought to end up with knock-down, dragout fights all the time between the country of residence and the 

country of what I call source, or the market country, where things 

are actually sold. That is not what we have today, and that is not, 

I think, what a world in which cost-sharing agreements are given 

primacy would lead to. 

Those lead, in fact, to a siphoning off of revenues neither to the 

home country nor to the source country. That is the point of the 

Apple hearing. It was not that income was being taxed where the 

sales were; income was being taxed nowhere. So there is a natural 

tension. 

The United States is a great generator of intellectual property, 

as Paul identified. And the United States may well want to consider carefully whether moving to a destination-based tax system 

is net a revenue loser or a revenue gain for the United States. 

We are the largest single consumption base in the world, so we 

would pick up revenue from that perspective. We lose revenue from 

the other perspective, because we would treat sales from intellectual property developed in the United States to customers outside 

the United States as having no U.S. tax liability associated with 

it at all. 

So, to my way of thinking, there is this important tension between the sentiment and the actual recommendation. There is a 

very mixed message, I think, as to what is in the best interests of 

the United States. 

And, finally, we should not forget the fact that, although we have 

open capital markets, although we have an open economy, the fact 


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is, the last time I looked at the statistics, 84 percent of U.S. firms 

are owned by U.S. individuals, ultimately. And so there is an identity between U.S. firms and U.S. individuals that is not true in the 

U.K., for example, where the percentage is much, much lower. 

That is why I see taxing the U.S. firm on a worldwide basis as 

a pretty good substitute for taxing U.S. individuals on their share 

of the capital income thereby earned. 

Mr. LEVIN. Thank you. 

Chairman CAMP. All right. Thank you. 

Mr. Brady is recognized. 

Mr. BRADY. Thank you, Mr. Chairman. 

The testimony clearly reveals the need to fix this broken Tax 

Code and make America far more competitive, make our workers 

far more competitive around the world. 

Mr. Oosterhuis, I want to talk to you about a hybrid system. It 

seems like the current system we have today makes it difficult for 

when an American business competes around the world and wins, 

when they attempt to bring those profits home to reinvest in America, they oftentimes find themselves paying a huge premium to do 

that. 

My question is, should we move to a hybrid system, in effect, an 

investment-neutral system where companies that compete around 

the world and make profits, rather than have them stranded, that 

there would be a lower tax rate so they can reinvest in the U.S. 

R&D jobs, in manufacturing plants, in dividends that go to shareholders, middle-class families. That those are all positive things for 

the U.S. economy. 

Can you tell me how you view the current code, and would an 

investment-neutral-type system that would allow those stranded 

profits to flow back to the United States help make us more competitive? 

Mr. OOSTERHUIS. Sure, happy to. 

And you absolutely hit on the point that I think some of the base 

erosion profit split discussion has sidetracked us from keeping a 

focus on, is that the most broken part of the system as it is today 

is the fact that your non-U.S. earnings have to stay, if they are 

low-taxed, have to stay outside the United States and you can’t 

bring them back. We need to eliminate the system that forces companies to leave their earnings offshore. 

Ed in his testimony mentions that in Apple’s case it is not a 

problem because they can borrow $17 billion. Well, not every company is Apple, and, indeed, Apple wasn’t Apple 10 years ago. Most 

companies don’t have the flexibility to do that. 

I do transactions every day, I have two this week, with foreign 

companies and U.S. companies buying or selling assets. The most 

important question is, can I use my offshore cash to buy? And if 

I am going to sell, am I going to get those proceeds offshore or onshore? 

Because cash that is offshore for a U.S. company that would have 

a high tax cost to come back is a wasted asset. It doesn’t help a 

company’s profit-and-loss statement. You can’t pay it out to your 

shareholders. You have to find some effective use for it, and that 

leads people to pay more for assets that they can buy if outside the 

United States. It distorts the economy. As foreign earnings have 


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grown over the last 5 to 10 years, it has become a very large problem, and we need to fix that. 

However, hybrid the system needs to be in order to satisfy baseerosion concerns, that hybrid system will likely be better than what 

we have today with deferral, because the deferral system is really 

causing some serious problems. 

Mr. BRADY. So if we keep the current system worldwide, with 

a complicated set of provisions to try to offset some of that, do you 

think that problem continues to grow—— 

Mr. OOSTERHUIS. Absolutely. 

Mr. BRADY [continuing]. And those investment decisions continue to be distorted in the future? 

Mr. OOSTERHUIS. Absolutely. 

Mr. BRADY. And then, right, a hybrid system could make us 

more competitive? 

Mr. OOSTERHUIS. A system that doesn’t do what Ed proposes, 

in my judgment, which is tax U.S. multinationals at the full statutory rate on their global income, but is truly hybrid with has elements of a territorial system, can be real plus from a competitive 

perspective for our multinationals and can be designed in a way 

that minimizes some of the issues of base erosion and profit shifting that we are talking about today. 

Mr. BRADY. Well, it just seems to me, finishing up, 95 percent 

of the world’s consumers are outside the United States. We want 

our companies competing in every corner of the globe and winning. 

And we want them to have the ability to reinvest those dollars 

back in the United States for our jobs, for our research and development, for our manufacturing, in order for the economy to grow 

stronger. So I think that ought to be a focus of where real reform 

heads. 

Mr. Chairman, thank you. 

Chairman CAMP. Thank you. 

Mr. Rangel is recognized. 

Mr. RANGEL. Thank you, Mr. Chairman. 

And thank all of you for taking the time out to share your views 

with us. 

Mr. Kleinbard, you have a reputation of not pulling punches; everyone agreed on that. And, of course, the great job that you did 

for the Joint Committee was certainly bipartisan, so I expect that 

a lot of that bipartisanship will still be with you. 

When you find complete accord with everyone that has reviewed 

our present tax system that we have to eliminate unfair loopholes 

and broaden the base and reduce corporate taxes and to have our 

firms creating jobs here, and since we have known this and that 

objective appears to be bipartisan in nature, and even to the extent 

that the private sector, in terms of wanting to know how to plan, 

have advocated publicly that we should reform the system, why in 

the world do you find, regardless of which party is in charge, that 

there doesn’t appear to be any sincere movement to make that a 

priority? 

Mr. KLEINBARD. Mr. Rangel, you are asking a political question, and the inner workings of the political system, despite my 

close study for many years, has always been a bit of a mystery to 

me. 


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There ought to be movement. The current system is broken. The 

current international system is crazy. But more important to me 

and, frankly, one of the oddest things to me about much of the debate on corporate tax is that the domestic business tax system is 

broken. 

What we need in the United States is lower statutory rates, a 

broader base, as Mr. Saint-Amans explained, that reduces distortions. The goal should not be to help U.S. firms compete around the 

world. That is just a subsidy by another name. We finally learned 

after 100 years that trade subsidies don’t work, and the same is 

true with tax subsidies. 

What we want is a robust, successful economy for the United 

States of America. And the way to get that is to improve the business tax system and to lower rates and broaden the base. We can’t 

afford to lose revenue, in my view. 

Mr. RANGEL. Is your answer, Professor, that it is a mystery to 

you? 

Mr. KLEINBARD. It is a mystery to me as to why more progress 

has not yet been made, yes, sir. 

Mr. RANGEL. Does anyone else have any type of answer that 

you—because I am under the impression that the power of the multinationals that are enjoying this tremendous tax benefit is overwhelming and that people fear politically of interfering with these 

corporate desires. 

Does anyone have any views on that at all? And I hope I am 

wrong. 

Yes, sir? 

Mr. SAINT-AMANS. I am not sure I will respond exactly to your 

question, but I think what—— 

Mr. RANGEL. No one else is, so—— 

Mr. SAINT-AMANS [continuing]. Governments and businesses 

have in mind is to what we call leveling the playing field—— 

Mr. RANGEL. Yes. 

Mr. SAINT-AMANS [continuing]. Making sure that companies 

from one country are not at a competitive disadvantage with the 

companies of other countries. 

Mr. RANGEL. That is the question, yes. 

Mr. SAINT-AMANS. And what has happened over the past 20 

years, I think, even though it is implicit, is that high-tax countries, 

at least in corporate income tax—and there the U.S. is a high-tax 

country for corporate income tax, as well as a number of European 

countries—they have kept the high tax probably for, I mean, visibility reasons, but they have organized a system where companies 

don’t actually pay the statutory rate in many European countries, 

which are territorial systems, but still they—— 

Mr. RANGEL. Okay. I am sorry to interrupt, but one would 

know, even if your assumption is correct, that is totally unfair to 

the companies that are paying the real tax rates. So that is an expansion of the degree of the problem. 

Mr. Oosterhuis, do you have any views on this? 

Mr. OOSTERHUIS. Well, the one thing I would say, Mr. Rangel, 

is that I think the multinational community is more ready to embrace tax reform, even if it involves some pain for them, than they 

have been in the last 20 years. 


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Mr. RANGEL. They have said that. 

Mr. OOSTERHUIS. And I believe it, because I see what happens 

with CFOs, I see what happens in boardrooms and how the distortions of the current system is causing real problems for our multinationals. 

Mr. RANGEL. So you mean everyone is in agreement that we 

should do it, the corporate world—— 

Mr. OOSTERHUIS. It is certainly not companies that are keeping reform from happening. 

Mr. RANGEL. And, politically, you can’t think of any reason why 

we shouldn’t do it. 

Mr. OOSTERHUIS. Agreed. 

Chairman CAMP. All right, time has expired. 

Mr. RANGEL. Thank you. 

Chairman CAMP. Mr. Tiberi is recognized. 

Mr. TIBERI. Mr. Oosterhuis, you mentioned some American 

worldwide companies and their competitors, mostly being foreign 

competitors. I constantly hear from CFOs of many of those companies that they have trapped cash abroad, whether they are selling 

diapers, widgets, cylinders. Is that a function of our U.S. tax system today? 

Mr. OOSTERHUIS. Absolutely. It is a function of the deferral 

system that requires foreign profits, which are taxed at a lower 

rate than the U.S.—and the U.S. has a very high rate relative to 

most countries—pay the U.S. incremental tax if they are distributed back to the U.S. 

So even your U.K. profits—we are not talking about Irish-Dutchsandwich-type profits—even U.K. profits that are taxed now at 23 

percent, going down to 20 percent, with a 10 percent patent box, 

if a company brings those back, it has a huge tax cost. And it is 

not in your shareholders’ interest that you bear that cost. Therefore, companies leave the money outside of the United States, and 

it is, in that sense, trapped. And that is an economic distortion. 

Mr. TIBERI. So if we went to a pure worldwide system—we don’t 

have that today because of deferral—wouldn’t that also disadvantage those companies, those American worldwide companies that 

are selling diapers abroad, widgets abroad, cylinders abroad? 

Mr. OOSTERHUIS. Going to a worldwide system, of current taxation of non-U.S. government, would be a huge gamble, because we 

would be risking the competitive life of our multinationals. No 

other country does it. 

Ed gave some of the foreign tax rates. When you look at the 

averages these days that are effective, it is more like 17 percent. 

And so, even at a 25 percent U.S. rate, we would be subjecting our 

multinationals to a very large cost that their competitors, whether 

it is Samsung, Lenovo, Glaxo, Novartis, are not bearing. And their 

countries are not interested in forcing them to bear that cost. 

Mr. TIBERI. So theory might be great, but, on the world stage, 

reality is different. And our companies that are selling diapers, 

widgets, and cylinders face a much different reality, right? 

Mr. OOSTERHUIS. Correct. 

Mr. TIBERI. So if we want to be competitive, because having a 

worldwide company in my district or in Mr. Reichert’s district or 

Mr. Ryan’s district, obviously, the best jobs of the company are usuVerDate Sep 11 2014 01:29 Feb 07, 2017 Jkt 021122 PO 00000 Frm 00064 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\21122.XXX 21122

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ally at the headquarters—I know that is true in Columbus, Ohio— 

I have been told by CFOs that our current system that we are 

under, where that trapped cash is abroad and competitors don’t 

have that double taxation, that when you have a merger or an acquisition, even if it is in a U.S. multinational company acquiring 

a foreign company, that for shareholders it is actually to the benefit to invert or move the headquarters to that foreign jurisdiction, 

whether it be Ireland or Belgium or another—— 

Mr. OOSTERHUIS. Right. 

Mr. TIBERI [continuing]. Low-cost jurisdiction that might have 

a different tax system. Do you see that? 

Mr. OOSTERHUIS. We see it fairly frequently. There are definitely transactions that are under consideration all the time involving U.S. companies and foreign companies combining. When you 

look at those transactions with our rules as they exist today, and 

even more so if we had Ed’s proposed consolidated worldwide tax 

system, the only choice those companies have is for that resulting 

parent company to be a non-U.S. company. The difference in global 

tax liability of the complained company can be huge. 

Mr. TIBERI. So we are really today, in reality, not in theory, in 

reality, we are at a disadvantage. 

Mr. OOSTERHUIS. We are causing ourselves a disadvantage by 

the way our system works today. That is right. 

Mr. TIBERI. Do you believe the Camp draft now, on the international side, by lowering that rate, will stop that disadvantage 

and maybe even potentially turn some heads internationally that, 

hey, you know what, not only should we not move but maybe we 

should actually look at the United States? 

Mr. OOSTERHUIS. If you take the Camp proposal with option 

C, a variant of option C, you are certainly moving substantially in 

the right direction. Whether you get all the way there depends on 

the specifics of the base-erosion provision and some other aspects 

of it. But you would certainly move substantially in the right direction. 

Mr. TIBERI. Thank you. 

I yield back my time. 

Chairman CAMP. All right, thank you. 

Mr. McDermott. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. 

I have been sitting on this committee listening to the fact that 

we need to reduce the tax rate to 25 percent on corporations, that 

that would make them competitive worldwide. And now today we 

come and we hear this. And it turns out that really what you want 

to do is bring back this so-called trapped capital back into this 

country. 

Now, unfortunately, I have had the experience of sitting on this 

committee for quite some time, and I was here in 2004 when we 

repatriated. Eight hundred and forty-three companies repatriated, 

$312 billion. They avoided $92 billion worth of taxes. Fifty-eight 

companies accounted for 70 percent of that. They saved $64 billion 

in taxes, and they laid off 600,000 workers. They paid dividends, 

and they bought bad stock. 

Mr. MCDERMOTT. Now, I am trying to figure out, when you tell 

me that Apple and my local company, Starbucks, which we are 


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kind of proud of in Seattle, and a few other places are doing quite 

well but they got this trapped money over there, who is it that benefits from this untrapping? And what are they going to do? What 

benefit will there be to America? 

Starbucks is doing pretty good right now. Apple is doing pretty 

good. All these companies are doing pretty good. 

Mr. OOSTERHUIS. I will start out, Ed. 

To my mind, it is largely their shareholders. I mean, I think with 

most companies—— 

Mr. MCDERMOTT. Oh, so it is the shareholders. 

Mr. OOSTERHUIS. Yeah—— 

Mr. MCDERMOTT. It is not the workers. It is not the—— 

Mr. OOSTERHUIS. That is right. 

Mr. MCDERMOTT [continuing]. Economy of the country. It is 

only the shareholders. Wherever the shareholders—— 

Mr. OOSTERHUIS. I think it is largely the shareholders, yes. 

Mr. MCDERMOTT. Okay. 

Mr. OOSTERHUIS. Because of a lot of that—there are two effects. One would be, if the money comes back, it would be used to 

buy back stock, pay dividends in the first instance that are not 

being paid now. And I think that is healthy. That gets the money 

efficiently invested, and that will help the economy. 

The second aspect is that, today, because of the trapped cash, 

companies have more of an incentive to buy assets that are outside 

the United States than to buy assets inside the United States. It 

has to help us—— 

Mr. MCDERMOTT. Let me just stop you a second. Do you take 

into account at all those 600,000 workers who were displaced by 

that activity? Does that make any difference? 

Mr. OOSTERHUIS. The workers weren’t displaced by the cash 

coming back. 

Mr. MCDERMOTT. Well, why was that part of the process? Why 

did they lay off 600,000 people in the United States when they are 

bringing all that money back here and supposedly investing it 

here? Tell me what that kind of investment looks like. Because if 

you don’t hire workers, I don’t see what the investment is. Maybe 

I don’t—I am not an economist, so I, you know—— 

Mr. OOSTERHUIS. And I am not here to defend the 2004 Act 

provision that basically allowed companies to bring the money back 

and spend money that they were going to spend anyway and then 

do what they wanted to with the incremental money that they 

brought back. That is the way that provision worked. And so, in 

the end, most of the money ended up benefiting shareholders, not 

benefiting workers. 

But that was the way Congress drafted the provision. It is not 

surprising that it worked as it was intended to work. 

Mr. MCDERMOTT. So you would suggest maybe that we should 

put in provisions that would require them to invest it in things 

that produce jobs in this country, would you? 

Mr. OOSTERHUIS. No. I think you should give companies discretion to do with it as they see best for their company. And that 

will give them a level playing field where they use the money or 

they distribute it to their shareholders for them to invest in other 

ventures which may well be in the United States. 


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Mr. MCDERMOTT. So with our own economy, we haven’t done 

anything about poverty in this country. Poverty is about where it 

was. And we have 2 million people less working now than we did 

in 2007. And you don’t think that anything we do in this tax structure should have anything to do with job creation? 

Mr. OOSTERHUIS. I would not recommend enacting a provision 

that is targeted towards job creation. When I was on the Joint 

Committee staff back in the 1970s, when Mr. Rangel was the junior member, we drafted a credit for hiring in 1977. That didn’t 

work very well. And those provisions generally tend not to work 

very well. 

We really are better off setting up neutral rules for businessmen 

to make business decisions. And, hopefully, that kind of transparency and lack of economic distortion will lead to growth in the 

economy. 

Mr. MCDERMOTT. Mr. Kleinbard. 

Mr. KLEINBARD. I agree, actually, with a fair amount of what 

Paul said. Let me just—but a couple of important caveats. First, $100 billion a year is coming back right now. We have $100 billion a year of repatriation today. 

Second, the money is not trapped in the sense that it is excluded 

from the U.S. economy. The money is not buried in a backyard in 

Zug. The money is invested in U.S. banks and in U.S. Government 

bonds. So it is at work in the U.S. economy today. 

Third, the U.S. multinationals that have this trapped cash have 

today the lowest cost of capital that they have ever had in a generation. They are not capital-constrained in any way. 

Finally, where I do agree with Paul is, let the money come back 

as part of reform. Don’t try to micromanage how the money is used. 

It will go for stock buy-backs. But tax the money, not at 5 percent, 

but at a higher rate. And use the tax revenues to fund programs 

that are designed to address joblessness, that are designed to address poverty. 

Chairman CAMP. All right, thank you. Time has expired. 

Mr. Reichert. 

Mr. REICHERT. Thank you, Mr. Chairman. 

Thank the witnesses for being here today. 

I am fortunate enough to come from the same State as Mr. 

McDermott comes from. We have a number of international corporations, as you know, in Washington State that would be affected 

by these erosion proposals. And I have been following this base-erosion issue with a lot of interest, and it is not an easy thing to really 

grab on to if you are not some sort of a tax expert or a tax attorney. 

But it seems to me like the goal here is to create a tax system 

where our companies are able to compete on a level playing field. 

And a couple of the ways that all three of you have mentioned 

today is to lower our tax rate and broaden the base. That is sort 

of a commonsense, I think logical approach which hopefully brings 

money back into the country and creates jobs, I think. But what 

I hear you saying, too, is to let the free market work. Don’t micromanage, is what I have heard from all three of you also. 

So what we all want, I think, Democrats and Republicans, is for 

our corporations to be competitive internationally and to pay the 


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taxes they owe. I mean, we have heard of companies that are not 

paying taxes right now. 

So the testimony today, we have heard U.S. corporations that 

manufacture in foreign affiliates and then they sell the products 

back to the United States. And one of the main goals of the corporate tax reform is to put corporations on a level playing field, as 

I said. 

How do our competitors, such as the U.K., who recently changed 

its international tax rules, handle these types of transactions? 

Mr. SAINT-AMANS. Thank you, Congressman. 

Over the past 10 years, just a fact for you, we have more than 

10 OECD countries which have moved from a worldwide system to 

a territorial system. But at the same time they have, most of 

them—it is not the case of the U.K.—they have strengthened their 

CFC legislations to make sure that you tax territorial but you fight 

the de-localization of profits in low-tax jurisdictions or no-tax jurisdictions. The U.K. recently has lowered its corporate income tax 

but has also changed CFC legislation in a way which is not about 

strengthening it. 

However, overall, the countries, I think, agree; there is a consensus, and it is clear at the OECD when we have discussions with 

all the member countries, that all the countries care about putting 

an end to the divorce between the location of the profit and the location of the activities. 

Today, through the transfer pricing rules, the tax treaty rules, 

which were designed in a different environment, where business 

was not global—you had cross-border investment, but it was not 

completely global—these rules have not kept pace with the way 

business operates. And that is why we have gaps which allow businesses to put the profit in a shell company, where you have absolutely nothing else but funding and ownership with absolutely no 

employees to develop the intangible and the real value of the company. 

And so the project that we are pushing for, which I think is fully 

in line with the reform you are trying to introduce, is to try to put 

an end to this situation which unlevels the playing field between 

companies within one country and also between companies from 

different countries. 

Mr. REICHERT. So we have been talking about option C, which 

we know is not perfect but kind of gets us to that same point; is 

that correct? 

Mr. OOSTERHUIS. Option C does have what I would call a destination focus, in that it taxes offshore manufacturing with respect 

to sales back to the U.S. at the full rate, but lesser so with offshore 

manufacturing for sales abroad. So it does have a destination focus. 

Mr. REICHERT. Right. 

Let me ask one quick question. My time is winding down. 

One of the frequent questions that people have asked me about 

option C is, how do you define what percentage of income is attributable to intangible products? 

Mr. KLEINBARD. This is one of the reasons why I think that 

option C, to sort of paraphrase Mr. Tiberi, have a theoretical merit 

but, as a practical matter, is impossible to administer. You are 

going to ask the IRS and companies to fight for the rest of their 


ralbany on LAP520R082 with HEARINGS
65 

lives about what fraction of total income is attributable to which 

intangible asset. I think that this is a very unfair burden to put 

on the future system. 

Mr. OOSTERHUIS. I would, if I could, disagree with that, although there clearly is some burden. But if we define intangible 

profit as essentially being the excess profit over a routine profit, 

which is what the administration tries do in their excess-profit proposed, that can be a relatively administrable proxy for intangible 

profits because you are taxing the rents that Ed talked about. 

Chairman CAMP. All right. Time has expired. 

Mr. Lewis is recognized. 

Mr. LEWIS. Thank you, Mr. Chairman. 

Mr. Kleinbard, my district is home to a large number of corporations. Many of them are multinational and many more that are domestic. I strongly believe, in order for our American companies to 

grow, they must be competitive, both at home and abroad. 

Now, the chairman has stated that he doesn’t want a code that 

would pick winners and losers. In your testimony, you recognize 

there is something of a consensus around the idea of a hybrid system of taxation. If this system was adopted, would both domestic 

corporations and multinational corporations win? Who would lose? 

Mr. KLEINBARD. In my view, corporations, multinational corporations, must come to recognize that in any future system, 

whether it is called worldwide consolidation, whether it is called 

territorial, whether it is called hybrid, any system that accomplishes the policy goals that you all share is going to be one in 

which U.S. multinationals pay a higher tax bill on their foreign income. 

The only question is how much are they going to pay to the 

United States and how much are they going to pay to the countries 

in which they are really doing business. That is going to be a part 

of the revenue. How much is very hard to model, but it is going 

to be some of the revenue that gets you to the lower rate. 

The lower rate is going to be really important because it enables 

the domestic business sector to be competitive in worldwide terms, 

which is what you really want. You want a U.S. environment that 

attracts foreign investments into the United States, and you want 

one in which U.S. firms that are U.S.-owned can, in turn, face tax 

rates that make their environment competitive with those around 

the world. 

Multinational firms will pay a higher tax in the future. Whether 

it is a well-designed hybrid system with an option C that works— 

I have great skepticism about that—or whether it is worldwide, 

they will pay a higher tax to somebody. 

Mr. LEWIS. Well, thank you very much. 

Mr. Chairman, I yield back the remainder of my time to the gentleman from Texas, Mr. Doggett. 

Chairman CAMP. All right. 

Mr. DOGGETT. Mr. Kleinbard, there are millions and millions of 

dollars being spent to convince this Congress that the country will 

live happily ever after if it would just let these multinationals 

bring back their $2 trillion from overseas and do wonderful things, 

fund infrastructure, do other things here in this country. 


ralbany on LAP520R082 with HEARINGS
66 

The last time we did that, as you mentioned, we entitled the bill 

the American Jobs Creation Act, but, as Mr. McDermott indicated, 

we lost 600,000 jobs. 

You have pointed out in your testimony that much of this allegedly locked offshore tax revenue, locked offshore money, is actually 

sitting right here in the United States; it is only a paper transaction away. And that money can be invested in the United States 

in infrastructure or just about anything other than paying dividends, corporate executive raises, and buying back stock, can it 

not? 

Mr. KLEINBARD. That is absolutely right, sir. The money is in 

the U.S. economy, it is at work in the U.S. economy. It is just in 

the one place where corporate executives really, really, really want 

it to be, which is in their—— 

Mr. DOGGETT. In their pockets. 

Mr. KLEINBARD. In their pockets, yes, sir. 

Mr. DOGGETT. Yes, in their pocket and in the pockets of some 

of their shareholders. 

Mr. KLEINBARD. Yes, sir. 

Mr. DOGGETT. But the money can be put to use now. What is 

really offshore is any payment of taxes. 

And the notion that we would let folks get essentially a tax amnesty, pay a nickel on the dollar, without benefiting the United 

States economy as a whole and just enriching those who are already doing pretty well is a notion that strikes me as being very, 

very counterproductive. 

Mr. KLEINBARD. And what is interesting, in addition, is this is 

the only time you will ever confront an efficient tax, in the technical economic sense. Taxing these old earnings does not affect future behavior. So, by putting a reasonable tax on the old earnings, 

you are not incurring any economic-efficiency cost. It would be the 

only time this committee has ever confronted an efficient tax. 

Chairman CAMP. All right. 

Mr. DOGGETT. Thank you very much. 

Thank you, Mr. Lewis. 

Chairman CAMP. Thank you. 

Mr. Gerlach. 

Mr. GERLACH. No questions. Thank you. 

Chairman CAMP. Okay. 

Mr. Buchanan. 

Mr. BUCHANAN. Yeah, I want to thank the chairman for this 

important hearing, and I want to thank our witnesses for taking 

the time today. 

Mr. Kleinbard, you had mentioned this idea, a worldwide tax. I 

don’t want to oversimplify this thing, but I just look at these— 

these tax proposals and bills come up every 25, 30 years. You can 

see how far we have come in the last 25 years. I have done business abroad. I think about maybe we might not get to this for another 25 years. 

But my point is, it seems like, to eliminate the trapped cash and 

all these other issues, isn’t the bottom line really with all this is 

to have a worldwide tax, giving some consideration for territories 

and other things? But it has to be at the right rate. 


ralbany on LAP520R082 with HEARINGS
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I think of Hong Kong. When I was there 20 years ago, they had 

a flat rate, no deductions, minimal deductions, 20 percent. Back 

there a year ago, it was at 16. 

Isn’t really what we are talking about is that, you know, the U.S. 

and the world has changed in the last 20 years. Thinking forward 

another 20, 30 years—we want to be paid on taxes from around the 

world ideally. But it has to be at a number that is competitive and 

makes sense, takes the incentive away from CEOs to work with 

their accountants, outside accountants, creative tax lawyers. 

So I look at this as someone who has done business abroad and 

thinking about this a lot. We need to get to a rate that makes 

sense. And I want you to comment. You have touched on that, but 

I want to go back. Isn’t that really what we are talking about, 

ideally? 

Mr. KLEINBARD. Mr. Buchanan, I would agree absolutely with 

everything that you have said. And to be clear, a worldwide tax 

consolidation, to move to that, part of that would be to deal with 

the trapped cash. Whatever you do, whatever you all decide to do 

for the future, you need to clean up the past. 

Mr. BUCHANAN. We will deal. Let’s make the assumption. I am 

worried about trapped cash in the future. 

Mr. KLEINBARD. Yes. 

Mr. BUCHANAN. We will figure out how to—— 

Mr. KLEINBARD. And the worldwide consolidation, as you say, 

does not have a trapped cash problem because you paid your tax 

on it already. 

Mr. BUCHANAN. Yeah. 

Mr. KLEINBARD. And I agree 100 percent that the only question really is rate. 

Mr. BUCHANAN. And that is the question I want to ask you. 

Mr. KLEINBARD. Right. And that is why I said in any testimony that my proposal only works if you imagine that the U.S. 

rate is squarely in the middle of the pack, ideally even a little bit 

lower than that, so that a U.S. firm can face in every country in 

which it does business a tax rate that is comparable to the domestic rate in those—— 

Mr. BUCHANAN. We have a 35 percent published rate. 

Mr. KLEINBARD. And that is too high. 

Mr. BUCHANAN. We effectively collect whatever, pick a number, 

17 percent. But what do you think that number should be today? 

I am going to put you on the spot. 

Mr. KLEINBARD. That is no problem. Twenty-five percent is, 

you know—my bid is 25 percent. 

Mr. BUCHANAN. Okay. 

Mr. KLEINBARD. And I would point out that there are a couple 

of countries, like the U.K., that are a little bit lower, others a little 

bit higher. 

Mr. BUCHANAN. Personally, I think that is high. I know that 

is where we want to go as a committee, but—— 

Mr. KLEINBARD. We can negotiate. 

Mr. BUCHANAN. Yeah. 

Mr. Oosterhuis, I want to get your thoughts on this. I think, at 

the end of the day, the way we eliminate this stuff going forward, 

we have to have a rate that makes sense, that takes the incentive 


ralbany on LAP520R082 with HEARINGS
68 

away from corporations that do business worldwide, but what is 

your thought on that? 

And then I want to put you on the spot. What should that rate 

be today so we don’t have to game the system, somewhat game the 

system? 

Mr. OOSTERHUIS. There is no question in my mind that 25 percent is definitely too high and risks the competitiveness of our companies over the long run. 

Rates have come down in foreign countries since the study that 

Ed referred to, and many countries have patent boxes now that actually lower their rates from their statutory rates. The U.K. is implementing a 10 percent patent box. We are also facing more competition from Asian companies that are taxed at lower rates in 

their countries, as well as having their own territorial systems. 

What rate would work? I think there are two aspects of that. One 

is, what is the rate? I mean, I would say for foreign income—for 

U.S. income, obviously we have to talk about maybe a 25 percent 

rate—— 

Mr. BUCHANAN. Yeah. 

Mr. OOSTERHUIS [continuing]. Because that affects a huge 

amount of our tax bank. For foreign taxes, if we are going to eliminate deferral and have a current tax, like KFC does, but at a lower 

rate, I would say somewhere between 10 and 15 percent. But I 

would also say you would need to make sure you give a credit on 

an overall basis for the foreign taxes that companies are paying. 

If you do that, then you will increase many companies,’ the most 

successful U.S. companies,’ taxes on their foreign income. You 

won’t increase it on many companies that are not successful—— 

Mr. BUCHANAN. Let me add, just because my time is expiring, 

I think at the 25 percent rate—I don’t want to take anything away 

from the committee or anything, but I think the bottom line, we 

will be back here again talking about the same things in the next 

5 to 10 years. Because we are moving aggressively—95 percent of 

the marketplace is outside the U.S. We have to recognize that. 

That is the future. And we need to get to a rate that makes sense, 

and I think it is a lot lower than 25 percent to eliminate the gaming. 

And I yield back. 

Chairman CAMP. Thank you. Time has expired. And the chairman thanks the gentleman from Florida for not taking anything 

away from the committee. 

Mr. Neal is recognized. 

Mr. NEAL. Well, I hope my questions will add value to the conversation. Thank you, Mr. Chairman. 

Professor Kleinbard, you have spoken of your concern with stateless income, income earned abroad that isn’t taxed anywhere. So 

let me discuss with you, I want to ask you about something equally 

troubling, which is the stripping of U.S.-based income into tax havens to avoid U.S. tax. 

As you know, for the past several years, I have introduced legislation to address a competitive imbalance in the domestic property 

casualty insurance market that favors foreign companies over their 

domestic competitors. I am not trying to hide the fact it is conVerDate Sep 11 2014 01:29 Feb 07, 2017 Jkt 021122 PO 00000 Frm 00072 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\21122.XXX 21122

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stituent-driven. In fact, the legislation was developed working with 

your staff while you were the chief of staff at JCT. 

A loophole in the current tax system allows foreign companies to 

strip their income overseas and avoid U.S. tax merely by reinsuring 

their U.S. written policies with affiliates located in tax havens. As 

you wrote in the last law review article, this provides them with, 

quote, ‘‘the ability to invest ‘long-tail’ P&C reserves in a tax-free 

environment.’’ 

The ability to strip their earnings overseas and avoid U.S. tax on 

their investment income provides them with a significant advantage over their domestic competitors. Should our system favor foreign companies over domestic companies in serving the U.S. market, or should we restore a competitive balance by addressing this 

loophole? 

Mr. KLEINBARD. You know, Mr. Neal, just because it is a constituent issue doesn’t mean that you are not right. And, you know, 

in this case—— 

Mr. NEAL. I just think I don’t want anybody to be confused 

about—— 

Mr. KLEINBARD. There is a policy problem here. 

Mr. NEAL. There is a policy problem. 

Mr. KLEINBARD. And the policy problem is, I think, unique to 

insurance. And the problem is that reinsurance is a kind of way of 

doing business in the United States without getting your fingerprints on the United States, so that you are treated as not doing 

business in the United States. 

Reinsurance is a very interesting business. It is typically done by 

a long-term contract called a treaty. There is a season where everybody descends—literally, everyone goes to Bermuda for a 2-week 

period to negotiate their reinsurance treaties. 

So it is possible to take on a great deal of insurance risk with 

respect to the United States without getting your fingerprints all 

over the U.S. tax system and being treated as doing business here 

in the United States by virtue of the unique nature of reinsurance. 

And so I do think there is a policy problem there that could fairly 

be addressed. 

Mr. NEAL. Okay. 

I am pleased you raised the issue of Bermuda because Members 

of the Committee that have been here for a long time, you know 

I tackled that issue back in the early 1990s and had some success. 

But the former chairman of the committee resisted the idea of 

making the provision retroactive that we offered, and we were able 

to shut it down, only to discover that on the island of Bermuda 

today there are still plenty of companies that insist that they are 

a Bermuda-based company without economic substance. 

It is a real issue. 

Mr. KLEINBARD. Yes, sir. I believe it—I agree. And it is unique 

to reinsurance because of this whole idea of the reinsurance treaty 

and the very short time period in which the treaties are negotiated 

enables U.S. risk to be taken on by firms without being technically 

treated as doing business in the United States. 

Mr. NEAL. Right. 

And I had some success in leading the charge here on FATCA, 

as well. But I want to, based on what you have just said, Professor 


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Kleinbard—I recently talked to Tom Barthold and his team at JCT 

about a difference between tax avoidance and tax evasion. 

As the former head of JCT, would you talk to me a bit about the 

differences between these two concepts? 

Mr. KLEINBARD. Yeah. I am obviously going to talk in my capacity as a professor of law. I have nothing special to say about 

JCT and its work in this respect. 

When it comes to corporate tax, when we talk about the kind of 

issues we are confronting today, I like to think of things in terms 

of a continuum of aggressiveness of behavior rather than avoidance 

and evasion. I, frankly, don’t find those terms as helpful. 

The basic problem is that, anytime you have fact-intensive 

issues, there is a mismatch between the corporate taxpayer and the 

tax authority. The corporate taxpayer can muster more resources, 

knows itself better, obviously, and can put more energy into a case. 

And so the systems that, unless they are very simple—this is one 

of the reasons I like worldwide tax consolidation—unless the system is very simple, you are always going to have a mismatch in 

the energies that are brought to bear on a question between an aggressive firm and the IRS. That rewards aggressiveness in behavior. And, as I say, I think of it as a continuum, but I think the 

right word is ‘‘aggressiveness’’ and how aggressive is a firm. 

Today, firms really are, you know, self-reporting agencies. We 

rely very heavily on corporations to get it right in the first instance. You don’t want a system that encourages more and more 

aggressive behavior. 

Chairman CAMP. All right. Thank you. 

Mr. NEAL. Thank you, Mr. Chairman. 

Chairman CAMP. Thank you. 

Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman. 

And thank you to our witnesses for sharing your insights and expertise. 

We know that the world economy and global economy is very diverse, and manufacturing might be very different from, say, agriculture, which I represent. 

Could you perhaps share your perspective on how the current 

U.S. tax system affects American agricultural producers internationally and what the effects of changes proposed in the chairman’s discussion draft would be on those? 

Mr. KLEINBARD. You know, I was in private practice for a long 

time, but I didn’t have any direct experience with agricultural exporters. 

But I think the fundamental point is they ought to be concerned 

with rate, and anything that gets to a lower domestic rate is going 

to be in their long-term interests. And I think we have a consensus 

among the three of us that the U.S. statutory rate today is too 

high, and domestic business, including export business, is disadvantaged. 

Mr. SMITH. Thank you. 

Mr. OOSTERHUIS. Yeah, I would agree with Ed on that. I 

think, you know, we do have agricultural companies that are global. I seriously doubt that any of them would be accused of base erosion, because their products are commodities, and so transfer pricVerDate Sep 11 2014 01:29 Feb 07, 2017 Jkt 021122 PO 00000 Frm 00074 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\21122.XXX 21122

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ing works relatively well in that world. But they do engage in tax 

planning, like other U.S. multinationals do and as they should. 

And so I think, for some of those companies, the kinds of reforms 

that we are talking about today that would be a hybrid system of 

exemption and current taxation and get rid of the potential 

trapped-cash problem would be a constructive reform for those 

companies, as well. 

Mr. SMITH. Okay. Thank you. 

Any others wish to comment? 

As well, what would you say is the experience of other countries 

who pursued repatriation alongside a shift away from worldwide to 

territorial, hybrid, or another system? 

Mr. SAINT-AMANS. I am not sure that other countries have 

been in the same situation as the U.S. I think it is a very typical 

U.S. situation because of the articulation of the very high rate, the 

check the box, and all the very U.S.-specific features. So, to my 

knowledge, it has not arisen in other countries in the same terms. 

Mr. SMITH. Okay. 

Anyone else? 

Mr. OOSTERHUIS. Well, I can speak somewhat, at least, for the 

U.K. I mean, I think the U.K. has not only lowered their corporate 

tax rates and gone to territorial, but they actually limited their 

CFC rules in terms of their application to U.K. multinationals with 

respect to their non-U.K. income. And I think that has been a 

healthy thing for their multinationals. 

And now the U.K. is a jurisdiction that is attracting companies. 

I mean, when we have a U.S. company that is combining with a 

non-U.S. company and the CEOs ask, where do we put the headquarters of this company, the U.K. is at the top of the list. 

Mr. SMITH. Uh-huh. 

Mr. KLEINBARD. Yeah, just with respect to trapped cash, we 

really need to distinguish the past and future. In the future, there 

will be no trapped cash. Whatever this committee does will not replicate the bizarreness of the current system in that respect. So the 

problem with trapped cash is entirely a problem with respect to the 

past. 

And there, again, we have to remember, the reason why we have 

$2 trillion of trapped cash is that firms are hoist by their own petard. They have been so successful at stateless income generation, 

they have so much income that has been taxed at 5 percent or less 

effective rates, those aren’t competitive rates. There are no countries in which firms actually do business that have 5 percent rates. 

Those are the results of aggressive tax planning. And that success at achieving extremely low effective tax rates creates the problem and explains the $2 trillion. 

Again, this is the only time, I believe, that this committee, at 

least in my lifetime, will ever confront an efficient tax, a tax that 

is efficient. It is efficient in the sense that it does not have any adverse behavioral consequences. There is no reason why the old cash 

should come back at preferential rates. The old cash should come 

back at a sufficient rate to pay for reform, because going forward 

you will have moved into a new system with completely different 

behavioral consequences. 

Mr. SMITH. Thank you. 


ralbany on LAP520R082 with HEARINGS
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And I yield back. 

Chairman CAMP. Thank you. 

Mr. Becerra. 

Mr. BECERRA. Thank you, Mr. Chairman. 

And thank you to all of you. 

And, Mr. Kleinbard, great to see you here. I hope you don’t penalize us for our weather here. I know you are going to head back 

to sunny southern California, and I plan to join you soon. But just 

wait a minute, the weather will change. 

A couple of quick points. 

First, Mr. Kleinbard, I think you mentioned that, while I think 

there is full agreement throughout the room here that the system 

for taxation for all of our business community, whether foreign or 

domestic, has problems. 

Can you focus a bit on the domestic issue that we have with our 

corporate tax system, or business tax system—not just corporations, for all our businesses? 

Mr. KLEINBARD. Yes. I think we have two structural issues in 

the United States. The first is that the U.S. is the only large economy where a large fraction of its business income is outside the 

corporate sector. That is unique to the United States. More than 

half of our income now, business income, is earned by unincorporated businesses. Some are small, but some are also very large. 

Second, we have the worst of all worlds; we have a high statutory rate with sort of middle-of-the-pack effective rates of what we 

actually collect. Those statutory rates leads to all sorts of tax avoidance behavior, tax planning work that people, you know, like in my 

former life, Paul—you know, we should all be put out of business. 

And, at the margin, it distorts marginal decision-making. 

So it is really important to get a lower rate. That makes the 

U.S.—corporate rate. That gets the U.S. economy to be more efficient. It leads to a better allocation of resources, and it leads to 

more investment in the United States. And, again, it is not just 

U.S. people investing in the United States. It also makes the U.S. 

a more attractive environment for foreign investment to come into 

the United States. 

Mr. BECERRA. And most of the discussion we have had today 

deals with our treatment of foreign-earned income by corporations. 

Mr. KLEINBARD. That is right, sir. 

Mr. BECERRA. But if I recall correctly a statistic from the Small 

Business Administration, 99 percent—actually, 99.7 percent, I believe they say, of all employer firms in this country are small businesses that are unlikely to be corporations, or at least corporations 

that do business abroad and have a large percentage of their income coming from foreign activities. 

Mr. KLEINBARD. The second part is almost certainly true. The 

first part is going to pose a very interesting question. When you 

lower the corporate rate, when you clean up the corporate preferences and create a more attractive business environment, what 

will unincorporated businesses do? 

Mr. BECERRA. Right. So 99.7 percent of all the companies, of 

our firms in America really aren’t going to benefit directly, immediately, from something we do with the foreign-earned income. 

They may ultimately and indirectly; I think there is no doubt about 


ralbany on LAP520R082 with HEARINGS
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that. Because what affects AT&T or some multinational company 

will obviously affect those small firms that do business with AT&T. 

But when we talk about the taxation of foreign-earned income, 

we are essentially not talking to about 99.7 percent of the companies and firms that are here in the U.S. And I think we have to 

recognize that they have a great interest in having a workable tax 

system, as well. And so we have to recall that all those businesses 

today that are hiring Americans are likely not part of the conversation we are having with regard to foreign-earned income. 

Can I move to another subject, and that is this whole issue between worldwide versus territorial rates for the treatment of foreign-earned income. I always am amused by those who talk about 

us accepting the territorial treatment of foreign-earned income. But 

folks put the period after talking about the territorial rate that a 

country uses for treatment of that income by those companies 

based in those countries. 

I am wondering if those who advocate for territorial tax rates for 

multinationals would argue that the U.S. should adopt the rest of 

the tax system or regime used by those countries that have a territorial rate. And so I did a quick little Googling with looking at 

Wikipedia. 

And, Mr. Oosterhuis, to respond to some of the companies that 

you mentioned, you mentioned Nestle. I got Nestle, Novartis, 

Glaxo, Lenovo, Samsung. 

Glaxo is based in the U.K. Their tax revenue as a percentage of 

GDP is 34.3 percent. They are collecting more tax revenue than we 

are. The U.S., the OECD looks at us as having 24 percent. 

So the U.K. collects more in taxation than the U.S. does. If we 

go to a territorial rate, which reduces rates for companies, someone 

is going to have to make up for that. And what the U.K. does is 

they make up for it with income taxes, national insurance, VAT 

tax. And I am wondering if—— 

Chairman CAMP. All right. 

Mr. BECERRA [continuing]. We would be prepared to accept all 

those other tax regimes along with a territorial rate, when we talk 

about a territorial rate. 

So that is food for thought. Maybe at some point, Mr. Chairman, 

we will have an opportunity to discuss that. 

Chairman CAMP. Time has expired. 

Mr. BECERRA. Yield back. 

Chairman CAMP. Ms. Jenkins. 

Ms. JENKINS. Thank you, Mr. Chairman. 

Thank you all for being here. 

The OECD report calls for a renewed focus on risk allocation. According to the report, the transfer pricing guidelines are perceived 

by some as putting too much emphasis on legal structures, for example, in contractual risk allocations rather than on the underlying economic reality. 

Some have proposed moving away from the principle that risk 

may be allocated among entities by contract and towards the principle that significant people and functions are determinative in allocating profits. 

One potential downside is allowing countries to recharacterize 

transactions based on some sort of economic substance claim and, 


ralbany on LAP520R082 with HEARINGS
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as a result, could very well create an incentive to move people and 

jobs offshore to low-tax jurisdictions. 

So for all of you, in your view, are there specific areas where the 

current guidelines produce undesirable results from a policy perspective? And do the current OECD transfer pricing guidelines 

place too much emphasis on contractual risk allocations rather 

than the underlying reality of an economically integrated group? 

Mr. Saint-Amans. 

Mr. SAINT-AMANS. Thank you, madam. 

In the area of high-risk activities or highly mobile activities or 

intangibles—and we all know that the value now is—I mean, the 

value chain, the value is in the intangibles. The transfer pricing 

guidelines can be put at jeopardy or are failing in a number of circumstances. 

And it can be serious, because what businesses need is security. 

I mean, they need to know—they need certainty. They need to 

know what the tax regime will be. And if a number of countries depart from the international consensus there, the risk we face is 

that they will take their own measures, they will take their own 

interpretation, and this will be chaos for business. 

So what we are trying to do is to recognize the difficulties of the 

arm’s-length principle, which too much relies on some legal arrangements in the activities you have precisely described, to tackle 

this and make sure that if you have in a very low-tax jurisdiction 

two men and a dog to deal with all the intangibles of a highly sophisticated multinational, whether American or European or from 

Asia, this would not work. And all the profits cannot be located 

without regard to where the intangible has been developed. 

So this is part of the action plan that we are developing. But, 

again, this is to protect the consensus and to keep the certainty for 

all the players, tax administrations but also companies. 

Ms. JENKINS. Thank you. 

Mr. KLEINBARD. I do think that a fundamental problem with 

current concepts of transfer pricing and of the exploitation of intangibles is the empty formalism that we allow to drive results. This 

is how we get to stateless income. It is by treating as real contracts 

between a company and a subsidiary, where that subsidiary is 

nothing but the alter ego, in practical economic terms, of the parent itself. 

Looking forward, the OECD discussion draft changes the calculus. It says, if you want to be treated as the owner of an intangible, you really have to have independent business substance, you 

have to be the one that does the R&D, the subsidiary does, itself. 

And I think that is the right answer. 

I appreciate the concern that that means that tens of thousands 

of high-priced engineers will now move to the Cayman Islands, but 

I also appreciate that, in reality, that won’t happen. You know, I 

spent years trying to get securities traders to move across the river 

to New Jersey. I couldn’t get that to happen. 

Mr. CROWLEY. Thank God. 

Sorry, Mr. Chairman. 

Mr. KLEINBARD. With all respect to New Jersey. It is just how 

they work. 

So the problem is a very serious one. 


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We actually have in the code, in 954(h), we have today a rule 

that requires that. Oddly enough, it is for banking income. And 

banking income is not the source of all the problems that we talk 

about, because the rules require the human carrying-out of all the 

relevant human activities by the CFC itself. 

Mr. OOSTERHUIS. Could I—— 

Chairman CAMP. Just briefly. 

Mr. OOSTERHUIS. Yes. 

I disagree with Ed on a portion of this. If we are not going to 

recognize where expenses are incurred, then we are moving away 

from arm’s-length pricing, and we should just be candid about that. 

Because, in the real business world, who is bearing expenses is one 

of the most important determinants of who gets the income. 

And, yes, from a group point of view, that fact that one entity 

is bearing it at the Irish tax rate rather than another entity is 

bearing it at the U.S. tax rate and it is being deducted in one country versus another, that from a group point of view doesn’t matter 

that much, but from a country point of view it does. 

If we want to move away from that, what we are moving to is 

what you might call a factor apportionment system, where you are 

allocating the income based on factors. And if you have the income 

allocable to where the jobs are, you are going to have some of those 

jobs move over a 20-year period when you have this in place. That 

is just going to happen. It may not happen overnight. You are not 

going to pick up 80,000 engineers and move them overnight. It is 

not going to be a giant sucking sound. But it will happen. And you 

have to be careful. 

And that is why in my paper I suggest, if we want to move away 

from arms-length pricing, that we move towards more of a destination-based income tax, where the intangible value is allocated to 

where the sales are, because the sales are not movable. The sales 

are the least movable aspect of economic activity. 

Chairman CAMP. All right. Thank you. 

Mr. Doggett. 

Mr. DOGGETT. Thank you very much, Mr. Chairman. 

And thanks to our witnesses. 

I certainly take the same pride other Members do in the creativity and product development and the success of large American 

companies. We have many of them with major operations in central 

Texas, and we are glad to have them there. 

But I think we can applaud and encourage that success without 

maintaining a view that, because they are successful and they are 

big names, they are entitled to special treatment in the Tax Code 

not accorded to other businesses and individuals. 

The real question today about all of the fine print and complicated discussion that we have had is whether or not small businesses and individuals ought to bear a greater part of the tax burden so that some of these large, brand-name multinationals can 

pay less. 

I like a good cup of Starbucks just like the next person, but I also 

enjoy my coffee when I get a chorizo plate at Joe’s Bakery or when 

I have a breakfast taco at Patty’s Taco House in San Antonio or 

when I go by and pick up my cleaning at Estrada Cleaners. And 


ralbany on LAP520R082 with HEARINGS
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those companies, those small businesses, they don’t get the kind of 

tax breaks that are available for these multinationals. 

And a system that accords General Electric a lower tax rate than 

the people that clean up the corporate board room at General Electric I think is really offensive. What we have here is massive tax 

abuse, outrageous tax abuse by large, multinational companies. 

And I think the second major question before us today, amidst 

all the minutia, is whether or not we want a Tax Code that encourages the export of American jobs overseas. If we have a system that 

says to a company that is looking to invest in either San Antonio, 

Texas, or South Africa or Europe or Asia that if they invest abroad 

they will pay nothing on the earnings from that investment but if 

they invest here they will pay 20, 25 percent, even 10 or 15 percent, the incentive is to encourage the export of those jobs overseas. 

And I think another question before the committee is whether 

the problem is just with the laws or with the companies, as was 

suggested in the opening remarks. As if the two didn’t have something to do with one another. 

Thirty companies have paid more to their lobbyists than to the 

United States Treasury in taxes. And I think they made a pretty 

thoughtful investment, because when you look at this Tax Code, it 

didn’t just come down on tablets. It was the result of the determined lobbying efforts by some of the same companies that are 

here today asking for tax reform to make our system more complex 

if it helped them to maintain the minuscule level of taxes that they 

were already paying. 

Indeed, this committee and the Senate Finance Committee, if 

anything, facilitated, enabled, and created that Tax Code. And but 

for the work of the Permanent Subcommittee on Investigations 

under Chairman Carl Levin and some impressive investigative 

journalism from several journalists, we would not even know about 

the extent of the abuse that is occurring in America today and 

shifting that burden to individuals. 

Mr. Kleinbard, as I listened to Mr. Oosterhuis, or really read his 

testimony, I got the impression that if we had more cost-sharing 

agreements, like the one Apple has, that we would be better off. 

As I understood the testimony before the Senate Investigations 

Subcommittee, Apple developed, I guess with the research and development tax credit, products here that it assigned 60 percent of 

the rights to Irish companies. And on $74 billion of income, it assigned that to the Irish subsidiary, with profits taxed at less than 

1 percent. 

Do we need more cost-sharing agreements like that? 

Mr. KLEINBARD. Paul and I obviously part company quite dramatically on this point. I do not see cost-sharing agreements as a 

solution. I see them as a core part of the problem. 

Again, when you look at the international tax questions, there 

really should be a tug of war in your mind between the United 

States as the residence country, as the place where, say, intangibles are primarily created for a U.S. firm on the one hand, and the 

market country on the other, where those intangibles are exploited, 

where the products are sold. Who gets how much; it is a tug of war. 

What the cost-sharing agreements as currently practiced do is siphon money off between the two legitimate claimants, between the 


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home country and the market country, to nowhere. That is why I 

called it stateless income. That is what Apple demonstrates. That 

is not income that reflects doing business in Ireland or anywhere 

else. The income that is being taxed under the cost-sharing agreement at essentially close to zero rates is income that has been 

syphoned off either from the United States, which I think is the 

case in that particular example, or from the market country. 

So, unless you radically change how cost-sharing agreements 

work, along the lines of what the OECD has actually proposed, 

which is to require a firm, before it could even claim that it is part 

of a cost-sharing agreement, to do all of the work, as opposed to 

just contract right back to the U.S. parent to do the work, it is a 

meaningless operation. It is a subsidiary that purports to take on 

risk. 

That is no risk-shifting. The parent ultimately bears all the risk 

because it owns the subsidiary. There is no risk-shifting going on, 

there is no independent decision-making going on, and there is no 

independent ability to act going on. 

Mr. TIBERI [presiding]. The gentleman’s time has expired. 

Mr. DOGGETT. Thank you. 

Mr. TIBERI. Mr. Marchant is recognized for 5 minutes. 

Mr. MARCHANT. Thank you, Mr. Chairman. 

A question for Mr. Saint-Amans: Can you describe to us the 

trends in the OECD countries on corporate tax rates since the U.S. 

lowered the corporate tax rate as a part of its last big tax reform 

in 1986? 

Mr. SAINT-AMANS. Thank you, sir. 

Indeed, the U.S. and the U.K. in the mid-1980s started the trend 

of reducing corporate income tax rates. And this trend has been 

pursued by almost all OECD countries except the U.S., which now 

has the highest rate. The average rate in the OECD is around 24 

percent for corporate income tax. The U.S. is at 35, plus the State 

taxes, so the average is around 39 percent in the U.S. 

There is a distinction between small, open economies and bigger, 

less open economies, and usually the rates in bigger economies will 

be higher than in the small, open economies. If you take Germany, 

you are at around 30 percent. France is at 34 percent. But, still, 

the trend has been to reduce the rates in all OECD countries. And 

Japan, which was quite high, higher than the U.S., has recently, 

last year, changed its rate to reduce it. 

Mr. MARCHANT. And of the OECD countries that have the 

lower rates, do all of them have a VAT tax, as well? Or is the U.S. 

the only—— 

Mr. SAINT-AMANS. The U.S. is the only OECD member country 

not having a VAT system. 

Mr. MARCHANT. So if you take the complete tax picture into account in each of these countries, is there still a very large gap between the actual tax bill of the companies versus just simply the 

corporate tax bill? 

Mr. SAINT-AMANS. This would assume that VAT is borne by 

companies, where, from an economic perspective, it is more borne 

by the ultimate taxpayers, who are the consumers. So I am not 

sure we can bundle both corporate income tax and VAT. 


ralbany on LAP520R082 with HEARINGS
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Mr. MARCHANT. Okay. So any comparisons throwing the VAT 

in distorts that whole equation, in your view. 

Mr. SAINT-AMANS. Indeed. 

Mr. MARCHANT. The U.S. worldwide system taxes U.S. taxbased companies on the profit of their foreign subsidiaries. Most of 

our major trading partners exempt that kind of income. 

If the U.S. converted to a pure worldwide system, wouldn’t that 

provide a tax incentive for foreign companies to buy U.S. companies? 

And that is a question for all the panel. 

Mr. SAINT-AMANS. I can start by providing the following response. 

You have no pure system, or it is quite exceptional. I mean, Hong 

Kong, which was referred to earlier, has a pure territorial system, 

but it is quite exceptional. But in most of the European countries 

or Asian countries, Korea, Japan, when they have a territorial system, it is a territorial system with teeth, which means that you will 

be taxing some of the profits made offshore when they are taxed 

at a very low rate. 

And when you have a worldwide system, as you have here in the 

U.S., you have exceptions, which allows, actually, companies not to 

pay their taxes because of deferral or because of other mechanisms 

not to pay. 

So you have hybridity almost everywhere, and so you have no 

such thing as a pure system. So what matters, I think, is the way 

you will design either of the systems you can opt for. 

Mr. MARCHANT. Mr. Oosterhuis. 

Mr. OOSTERHUIS. But it is absolutely true that if we went to 

a worldwide system—and, indeed, today, with our deferral system, 

compared to the system in countries like the U.K., like the Netherlands, like Switzerland, when deals are thinking about being done, 

when companies are thinking about combining, and they are incorporated in different countries, it is rare for them to think of using 

a U.S. company as a parent. And that is because it would subject 

the earnings of the non-U.S. company to the U.S. tax regime, overlaid on their own tax regime. And that would clearly be a detriment to the synergies that the transaction is intending to accomplish. 

Mr. MARCHANT. Mr. Kleinbard. 

Mr. KLEINBARD. The problem is, what Paul said about current 

law and current business practice is true, but the question is, how 

will people behave in the new regime? If you have a worldwide tax 

consolidation with a low rate, then the incentive to be not the U.S. 

corporation would dissipate. So we really have to project forward 

to a different regime to answer that question appropriately. 

Mr. TIBERI. The gentleman’s time has expired. 

Mr. Blumenauer is recognized for 5 minutes. 

Mr. BLUMENAUER. Thank you. 

Mr. Kleinbard, I would like to explore one element here. We have 

had reference to how individual countries would like to have tax 

advantage for their own enterprises, a little home field advantage, 

or maybe a lot of home field advantage, with patent box or whatever. 


ralbany on LAP520R082 with HEARINGS
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But I wondered if you could just take a step back and help us 

visualize, what would be the dynamic for countries across the 

board if we could have some mechanism that agreed to a 20 percent rate, a 25 percent rate, a uniform rate? Is it conceivable that 

the top 10 economies of the world, where most of the business is 

being transacted right now, that they would end up substantially 

ahead? 

Mr. KLEINBARD. A couple quick thoughts. 

For 100 years or so, we had this problem in the world of trade, 

where countries tried to get a leg up through trade subsidies. And, 

finally, countries wised up, and we have GATT today, the General 

Agreement on Trades and Tariffs, and countries act together. Ultimately, what is going on right now, I think, in countries like the 

U.K. is, in effect, a trade war being conducted through the guise 

of the tax system. And that is unhealthy. 

But the truth is that, if you look at the OECD data, corporate 

rates from major economies, in fact, converge towards a point, and 

that point is in the neighborhood of 24 or 25 percent. So European 

countries, in particular, have gigantic revenue problems, they have 

deficits, they have all the same problems the United States does in 

that respect but more so. A 24 or 25 percent rate is more or less 

the norm, without the formality of a GATT-type process. 

And that, I think, is a much healthier environment for everyone 

to be in, is the comparable rates across the board, and then firms 

make their decisions based on pure business considerations. 

Mr. BLUMENAUER. But the issue that I am wrestling with, everybody ought to be concerned about income that doesn’t have a 

home, that simply there is no tax liability. And as you pointed out, 

if Starbucks can figure out a way to do this, anybody can. Although 

Starbucks found a way to classify pouring coffee as being manufacturing, and they ended up getting a $88 million tax break in 2005. 

But isn’t everybody going to be facing this, ultimately? That, unless we reach some sort of accord, people are going to gravitate, because they can, putting aside the morality of it, or if they have a 

fiduciary responsibility, they are going to do it if they make a substantial amount of money. 

Mr. KLEINBARD. Yes. And that is what the OECD is all about. 

I mean, the OECD is the best organization today to try to get the 

consensus on the kind of issues you are concerned with. 

Mr. BLUMENAUER. Well, is there a way to formalize some of 

this, in your judgment, in the context of treaty negotiations moving 

forward? 

Mr. KLEINBARD. Yes, absolutely. We have exactly that experience in the trade area with GATT, with the General Agreement on 

Trades and Tariffs. So we have experience in this area. 

Mr. SAINT-AMANS. If I may, shortly, one of the challenges in 

the tax area is that tax is at the core of sovereignty. And this cannot be overcome anywhere, and so be it. 

And so what we are trying to do as the OECD is to get the countries to speak to each other so that they respect their sovereignty, 

but there is some form of leveling the playing field on the one 

hand, and on the other hand limiting the frictions in terms of double taxation, but also limiting the gaps in terms of double nontaxation. 


ralbany on LAP520R082 with HEARINGS
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And that is why we bring all these countries, which are sovereign 

at the end of the day—they will decide for themselves, but they 

cannot ignore the spillover effects on the others. And bringing them 

together is a way to limit such risks. 

Mr. BLUMENAUER. Thank you very much. 

Thank you, Mr. Chairman. I hope that this is the beginning of 

a series of hearings, that we can do a deeper dive on this. I have 

enjoyed the informal operations that we had with the working 

groups, but I think there is value to the committee to continue this. 

And I hope this is the first of several. 

Mr. TIBERI. Thank you. 

Mr. Reed is recognized for 5 minutes. 

Mr. REED. Thank you, Mr. Chairman. 

And, to the panel, I really do appreciate your input and information on this. 

And I heard at least some unanimous kind of positions that were 

being taken, and one is that we need to do something, that maintaining the status quo doesn’t work. And that is good. 

I also kind of got a sense of, when we were talking in response 

to my colleague from Washington, Mr. McDermott, that when we 

looked at the repatriation holiday history—and one of the lessons 

I am taking away from that, having not been here, was that, if you 

do it on a temporary basis, you are going to get different behavioral 

outcomes as opposed to if you do it on a permanent basis. 

Mr. REED. So I think I got a sense that there is a broad agreement to do it on a permanent basis versus a temporary basis. 

The one thing that I am very interested in exploring a little in 

detail with you is, I firmly believe in the innovation economy, but 

I also believe that we can have a manufacturing renaissance here 

in America again. I am the eternal optimist, and I believe it can 

happen, though. And so we will continue to work for it. 

So as we look at option C from the chairman, Mr. Oosterhuis, I 

would be interested in, how do you see option C promoting manufacturing in America? And give us some input on that, and then 

we will—— 

Mr. OOSTERHUIS. Sure. 

Mr. REED [continuing]. Maybe open it up to other portions of the 

panel. 

Mr. OOSTERHUIS. What option C does is, by providing a lower 

tax rate on the intellectual-property element of value in exported 

products, option C allows exported products then to bear an aggregate tax rate that is similar to foreign-manufactured products. So 

it levels the playing field between U.S. and foreign manufacturing. 

Now, it does it by giving a deduction for a portion of the IP profit. There are other ways you can do that, I think, and there may 

be some ways that would raise fewer trade concerns than what 

Camp option C has. 

But the point is that Camp option C says, we are not going to 

go to a 25 percent tax rate on the foreign manufacturing for foreign 

markets because that has a serious competitive impact on U.S. 

companies. And, instead, given that, if we are going to tax at a 

lower rate, then we want to also the reduce the tax on exports so 

that U.S. factories can compete with offshore manufacturing. And 


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that would be an improvement over the situation that we have 

today. 

Mr. REED. Mr. Saint-Amans, do you agree or disagree with Mr. 

Oosterhuis’ assessment on that? And if so, why or why not? 

Mr. SAINT-AMANS. It is hard for me to meddle in the domestic 

debates between the options. So I don’t really have a comment, except the general comment that you have no pure system such as 

a worldwide system or a territorial system. 

So it is up to the U.S. to decide which one you would like to take, 

knowing that intangibles clearly are where the value now is located 

in the value chain, and many countries are introducing patent 

boxes. That is just a fact that I can bring to you, the U.K. being 

the latest one having introduced such a patent box. The Netherlands has done so recently. Switzerland has a plan to do this. 

It doesn’t mean that it is the right way to follow because it has 

some implications also in terms of tax competition. Within Europe, 

there is a debate on whether a patent box is a right thing to do 

also. 

But I have no personal nor official view to share here with you. 

Mr. REED. Well, I appreciate you dodging that one. 

Mr. Kleinbard. 

Mr. KLEINBARD. You know, we do have today an incentive for 

manufacturing in Section 199. We do have a special tax rate for domestic manufacturing. 

You know, I would love to see a renaissance of domestic manufacturing. That is why I think reducing the tax rate to 25 percent 

for the broader base is really an urgent priority. It will bring foreign investment into the United States, among other things, which 

we tend to forget about. 

But I don’t like trying to pick winners or losers. And I don’t think 

that the tax system should be designed with the premise that we 

are going to subsidize in some way one sector of the economy as 

opposed to another. Let’s get an efficient tax and get tax out of the 

business of businesspeople and let them get about their business. 

Mr. REED. Well, and I appreciate that input. So we have another general sense of agreement. Lowering the rate will bring that 

opportunity for manufacturing here in America. 

And I see my time is expiring, so I guess, with that, I will yield 

back, Mr. Chairman. 

Mr. TIBERI. The gentleman from Wisconsin, Mr. Kind, is recognized for 5 minutes. 

Mr. KIND. Thank you, Mr. Chairman. 

This has been a very enlightening hearing. I want to thank our 

witnesses for your insightful testimony today. 

Mr. Kleinbard, just picking up on the last point, because I do 

share my friend’s focus on domestic manufacturing—and this is 

true for all the panelists who want to weigh in on it. 

I am assuming that, implicitly, because you haven’t addressed it 

in your written testimony or even today, that there should be no 

distinction between tradeable and nontradeable jobs when it comes 

to comprehensive tax reform or the impact on the domestic manufacturing base? 

Mr. KLEINBARD. I start from the premise that we want to have 

a neutral business environment in which firms face a consistent 


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tax rate and then let business go at it. So I don’t make any distinction between the two. 

Mr. KIND. Well, let me ask you this, then. Obviously, any formal 

revenue collection system is meant to basically fund the basic government functions. And the reason this is so hard is we are trying 

to avoid blowing another hole in our budget deficit. So the goal of 

trying to reduce the rates and simplify and broaden the base has 

to be paid for. And that is what is so difficult, and why we don’t 

have a plan on paper. 

And here is my concern. And I have been wrestling with this in 

regards to the territoriality and the impact in that, is we always 

seem to be playing catch-up internationally, with the OECD nations, what they have done in the last decade or so in lowering 

their corporate tax rate. But they have been in a unique position 

of being able to dial up their VAT in response to a reduction in revenue on the corporate side. We don’t have that option. And so we 

are going to have to look at expenditures within the Tax Code in 

order to eliminate, in order to pay for the reduction somewhere 

else. 

And many of those expenditures, on the C side especially, have 

a direct impact on domestic manufacturing. The 199, Mr. 

Kleinbard, you just cited, depreciation, R&D—those are the big 

ones. And so, if we are going to get to a 25 level, chances are we 

are going to have to go after them. 

Mr. KLEINBARD. Yes, sir. I think that that is correct, Mr. Kind. 

Mr. KIND. Yeah. And do you think we have been operating 

somewhat in a vacuum by ignoring the VAT system that exists in 

virtually every other OECD nation? 

Mr. Saint-Amans, I have noticed that their ability to reduce the 

corporate rate has also been coupled with their ability to dial up 

the VAT too. 

Mr. SAINT-AMANS. Thank you, sir. 

I am not sure I would venture on the area of VAT, which is quite 

controversial, I understand, in this country. 

However, I would like to draw your attention to the fact that, in 

spite of having reduced the rates of corporate income tax over the 

past 20 years, OECD member countries have seen the contribution 

of corporate income tax to the overall revenue increasing. So it 

doesn’t—— 

Mr. KIND. Is that based on the corporate rate or all the taxes? 

Mr. SAINT-AMANS. On the corporate rate. I mean, the corporate income tax contribution to the overall revenue has increased 

instead of diminishing, which results in some saying there is no 

base erosion and profit-shifting; look, the rates have reduced, but 

the contribution has augmented. Actually, it should have augmented further if you take into account the profitability of companies. 

And, of course, you have cycles there. Following the crisis in 

2008, you had a decrease. But, overall, you can find a tax policy 

reform which will be neutral or which can even bring more money 

to the revenue. So decoupling it from the—— 

Mr. KIND. And how much of that do you attribute to the teeth 

that they put into the territorial system that they have moved to? 


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Mr. SAINT-AMANS. That is quite hard to interpret, so I 

wouldn’t get into the details. 

Mr. KIND. Okay. 

Mr. SAINT-AMANS. But I think it is worth looking at it. The 

data is available to you, of course. This is official from the OECD. 

Mr. KIND. Right. 

Well, I just think, you know—and, again, I would be interested 

in following up with you—that we do need to be somewhat careful 

in regards to the incentives that already exist for domestic manufacturing in the country, since those are the big ones that we are 

really going to have to wrestle with if we are going to be able to 

lower the rate to a level that makes us competitive globally. 

And I think these companies are going to have to do their calculation, whether they can live with a simplified lower rate without 

the current expenditures that they are able to take advantage of. 

And I think right now, when we are trying to create more jobs domestically, I think there are important distinctions to be made between the tradeable and nontradeable jobs that we see going on in 

the global economy. 

Mr. KLEINBARD. Mr. Kind, one thing to sort of keep in mind 

here is that the United States is, in 2012, the lowest-taxed country 

in the OECD. There is capacity in our economy to raise more tax. 

But, also, when you think about taxes and burdens on individuals and burdens on businesses, you have to remember how does 

the government spend the money. And other countries raise more 

tax, but they then spend that money in much more progressive 

ways. 

Mr. KIND. Well, and, again, that is one of the great elephants 

in the room here, is we do as a Nation have the obligation of financing the world’s largest, most effective military that does provide a relatively stable and peaceful global market for companies 

to do business. No other nation is willing to step up to assume that 

obligation, so we have to wrestle with that obligation, too. 

Thank you. 

Mr. TIBERI. The gentleman from Indiana is recognized for 5 

minutes, Mr. Young. 

Mr. YOUNG. Thank you, Mr. Chairman. 

I thank all our panelists for being here today, offering your 

thoughts. It has certainly been a thought-provoking conversation 

with some divergent views on different things, and I think that is 

helpful in a public forum here. 

Mr. Saint-Amans, I have also appreciated your very much understandable efforts to try and avoid making much international news 

in your current capacity. 

You know, one of the benefits to being of lower rank within this 

committee is that I have an opportunity to sometimes respond to 

some earlier comments that were made and get clarifications, and 

I would like to do that. 

First, it will just be a comment. There was earlier a statement 

made with respect to small businesses, saying that there seemed 

to be a desire among some to have small businesses pay more so 

that multinationals could pay less in this effort. And, certainly, I 

don’t share that. And for those that have those concerns, I think 

it is really important that in this country, in the interest of comVerDate Sep 11 2014 01:29 Feb 07, 2017 Jkt 021122 PO 00000 Frm 00087 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\21122.XXX 21122

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petitiveness internationally and domestically, we reform not just 

the corporate code but also the individual code. 

But, secondly, I would like to talk about an exchange that was 

earlier made—I think, Mr. Kleinbard, it was directed towards 

you—related to the benefits of repatriating profits. I think it is actually, again, thought-provoking that so much of those moneys that 

have not been repatriated are essentially already in the economy 

and benefiting American corporations, in the form of purchasing 

shares or being available for investment in a banking system or 

whatnot. 

And was that an accurate characterization of your position? Very 

briefly, please. 

Mr. KLEINBARD. Yes, in respect to the cash. In respect to the 

liquid—— 

Mr. YOUNG. That is right. 

Mr. KLEINBARD [continuing]. Permanently reinvested earnings, 

yes, sir. 

Mr. YOUNG. So then if I could get another perspective, Mr. 

Oosterhuis, are there not benefits to having more liquidity, not just 

in terms of sort of abstract economic liberty terms, but are there 

some economic benefits to having that money repatriated and, 

thus, allowing those who hold the funds to have greater flexibility 

to start new businesses, expand existing businesses, spend the 

money domestically, invest in capital equipment, thus leading to 

higher personal incomes? Is that something that you can speak to, 

sir? 

Mr. OOSTERHUIS. Well, yeah, I absolutely can speak to it. And 

I do think it is, as I have said before, quite beneficial for repatriation to be able to take place. I don’t want to overstate it. It is true, 

money is in bank accounts that are largely in U.S. dollar accounts. 

Of course, our banks are not lending now, we know, so that money 

is just sitting on deposit with the Federal Reserve, offsetting some 

of their asset purchases. So it is not clear to me it is really helping 

the economy in any significant sense today. 

But the important thing is that it distorts corporate behavior. I 

see it all the time. Companies don’t like to have excess cash on 

their balance sheet. They want to put it to productive use. Cash 

does not generate earnings. Cash generates very, very small earnings for them. What generates earnings for them are real assets. 

And so, because the cash is abroad and they don’t want to pay 

the tax to bring it back, they bias their investments towards foreign assets. That is just a reality of the system. It makes perfect 

sense. If you had to pay a 25 percent tax to buy something in the 

United States and didn’t have to pay the 25 percent tax to buy 

something in Europe, of course you would buy something in Europe. 

Mr. YOUNG. All right. I am going to try and tease this out further. I do want to be fair on this. It is an interesting exchange. 

Mr. Kleinbard. 

Mr. KLEINBARD. And I agree with what Paul just said. 

Mr. YOUNG. Okay. So in terms of growth of our economy, we 

would see a benefit to further repatriation here. It is not a net-neutral issue. We want to make reforms within the code here that will 

lead to a greater repatriation because that will grow the economy. 


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I think that was confusing, in terms of the earlier testimony and 

some of the statements that were made. 

You know, in my remaining time here—I have 30 seconds left— 

I think I will just yield it back and look forward to speaking with 

some of you offline. Thanks so much for being here. 

Mr. TIBERI. Mr. Davis is recognized for 5 minutes. 

Mr. DAVIS. Thank you very much, Mr. Chairman. 

And let me thank you gentlemen for the insights that you have 

conveyed. It has been a very interesting and productive, I think, 

discussion. 

In the last few weeks, we have heard a great deal about Apple 

and its taxes and not taxes, what it has paid and what it should 

have paid and should not have paid. 

I note in your testimony, Mr. Oosterhuis, you argue, essentially, 

that a company’s profits should be thought to occur where its sales 

are. Apple’s main activity is research and development. The actual 

manufacture of its product is outsourced, and 95 percent of the research and development takes place in the United States. 

Mr. Kleinbard, it seems that the business activity that is generating Apple’s profits, even on offshore sales, is largely in the U.S. 

and that those profits would not be possible if not for the patent 

protection, educated workforce, infrastructure, and other public investments made possible by U.S. taxpayers. Would you agree? 

Mr. KLEINBARD. I would. 

And what you are saying, Mr. Davis, is consistent with the point 

that I have been trying to emphasize, that we should conceptualize 

all this as a tug of war between the home country on the one hand 

and the market country on the other. The Apple case is a powerful 

case for why some tax revenues belong in the home country, not 

in the destination country. 

Mr. DAVIS. Mr. Oosterhuis. 

Mr. OOSTERHUIS. Yes. Two points on that. 

First of all, Apple is a company that spends about 3 percent of 

their revenues on R&D. That is relatively low. Apple is a company 

that has become fabulously successful because they had ideas that 

captured consumers. And a lot of that has to do with the consumerfacing side of the business, not the R&D side of the business. 

They were able to capture products that not only sold at premium prices but that led to annuities of income when people 

bought movies, they bought books, they buy records. They buy all 

kinds of things that Apple gets a piece of. That is a terrific business model that they built. That requires real value in the countries where the customers are, because it is the customers that are 

paying those premium prices. 

If Samsung had done what Apple had done and was shipping its 

smartphones into the United States and charging premium prices, 

you know that the IRS would be saying the bulk of the value 

should be in the United States, even if the phones were invented 

in Korea. And that is the reality of it. There is tension between the 

two. 

My point in saying that the bulk of the profits should be in the 

market country is that that is the least mobile way to allocate the 

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tortion of people moving jobs and moving activities around the 

world for tax purposes. 

Mr. DAVIS. Then let me move on a bit, if I might. And let me 

just—it is hard for me to reconcile the notion—and I certainly hear 

the argument, but I also note that you argue that the U.S. should 

not be too concerned if a company like Apple seems to be avoiding 

taxes that it ought to pay to foreign governments on its foreign 

profits. 

But once we recognize that much of the profits that Apple characterizes as ‘‘foreign’’ are really U.S. profits, because all the research and development that created those products took place in 

the United States, then I think that avoidance of foreign taxes becomes a problem. 

Now, Mr. Kleinbard, you indicated that in your testimony. And 

I guess my question becomes, do you think the United States has 

a bit of self-interest in helping to protect the tax base of foreign 

countries? 

Mr. KLEINBARD. I actually do, once we understand that foreign 

countries means the market countries. What we want to get to is 

the tug of war. The United States will win its fair share of those 

tugs of war. 

What we don’t want is a case like Apple, where the income is not 

being taxed either in the market country or in the source country. 

That is the fundamental problem that the Apple case demonstrates, is that the income has escaped tax everywhere. 

Now, I think that income, in this case, is more appropriately 

taxed in the United States. I don’t think that Apple is in the business, like maybe a Nike, of having different shoe models in every 

country. They are selling the same iPhones everywhere in the 

world. It is the same global platform. For that reason, I think the 

profits are in the U.S. 

Other cases, you know, may be different. But we will win our fair 

share of the tug of war. What we have to get out of is the idea that 

we will allowing the siphoning off of cash to nowhere. 

Mr. DAVIS. Thank you, Mr. Chairman. I yield back. 

Mr. TIBERI. The gentleman’s time has expired. 

Mr. Renacci is recognized for 5 minutes. 

Mr. RENACCI. Thank you, Mr. Chairman. 

And I want to thank the witnesses, too. It is interesting, as Mr. 

Young said, being here at the end and listening to all the conversation. You get to kind of go back and re-discuss some of the issues. 

You know, I still question this trapped issue. Mr. Kleinbard, you 

had indicated—and I know Mr. Young brought this up—that these 

earnings aren’t trapped. They are coming back; they are in bank 

accounts. 

Mr. Oosterhuis, you were saying—I think you disagree with that, 

though. I want to just—can you—— 

Mr. OOSTERHUIS. Actually, I think Ed and I agree that there 

are much more productive uses of that cash than sitting in bank 

accounts. And so if companies could bring the money back and 

have tax-neutral decisions on whether to invest it and where to invest it, that would be an improvement. 

Mr. RENACCI. Because it is not being used by the company to 

put back into the business here in the United States, correct? 


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Mr. OOSTERHUIS. Or anywhere. Yeah. 

Mr. KLEINBARD. Well, right. My point is that the cash, the 

very large sums, perhaps as much as a trillion dollars, is in the 

U.S. economy, but it is not optimally allocated. 

And where Paul and I agree is that there is an incentive to use 

that cash to make foreign acquisitions. I think of Microsoft Skype, 

for example, as a perfect example, when Microsoft bought Skype. 

Mr. OOSTERHUIS. HP Autonomy. 

Mr. KLEINBARD. Or HP Autonomy. Well, I was trying to think 

of a more successful example. 

Mr. RENACCI. The other thing that I thought was kind of interesting, I know one of my colleagues talked about the deferral is a 

tax break that causes companies to ship jobs overseas. 

I am a CPA; I have had to look at tax consequences of many 

businesses. My question would be, is this really a tax break, or is 

this just something that is really part of an outdated Tax Code? 

Mr. OOSTERHUIS. I think it is the latter. It grew up from the 

1920s practice of taxing companies that were incorporated in the 

United States and not taxing companies that are not incorporated 

in the United States, without regard to who owns the shares of 

those companies. It wasn’t intended as a tax break. 

Mr. KLEINBARD. I think of it as a thing. And, you know, when 

I was at JCT, one of the things I tried to do was to change how 

we scored that as a tax expenditure and say, no, it is not a tax expenditure, it is just a thing, it is just a structural way we have chosen to do our international tax system. 

The right question is, what should the international tax system 

be? Whether you call this a break or you call it an outdated norm 

is unimportant. It is just a thing. It has economic consequences. We 

can do better than the current thing. 

Mr. RENACCI. Mr. Kleinbard, you said a 25 percent rate across 

the board is something that you believe in. 

Mr. KLEINBARD. And it is right at the OECD norm. The OECD 

average is about, what, 24? Twenty-four. 

Mr. RENACCI. Mr. Oosterhuis, where do you see that? 

Mr. OOSTERHUIS. No, I think that is definitely too high. 

First of all, as I have said before, the statutory rates aren’t the 

complete answer because of the incentives that are built into the 

systems in foreign countries to reduce those rates. The U.K. patent 

box at a 10 percent rate is a classic example. Their corporate rate 

will be going down to 20 percent, but they will have a 10 percent 

box. So the effective rate will be substantially lower for high-intangible-value companies. 

Second, that doesn’t say anything about what Ed calls his stateless income or third-country earnings. There are always going to be 

some third-country earnings, whether it is in Samsung’s system or 

in Glaxo’s system or in Novartis’ system. They are going to have 

that. So their effective tax rates—and those are the companies U.S. 

companies compete with—their effective rates will be lower than 

their local statutory rates by that reason, as well. 

So if we are taxing U.S. companies at 25 percent, when those 

companies have—I mean, Lenovo’s tax rate is under 20 percent, for 

example. Why should we give our companies that kind of competitive disadvantage? 


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If we are going to tax worldwide income, it needs to be at a low 

enough rate that it basically approximates the amount of foreign 

tax they will, in fact, pay. And that is between a 10 and 15 percent 

rate, in my judgment. 

Mr. RENACCI. It is interesting, I know my time is running out, 

but the one thing I think everybody agrees to is we have to simplify this and we have to bring the rate down. And whether it is 

25, 10, 15, it has to come down. 

So I appreciate your comments. Thank you. 

I yield back. 

Mr. TIBERI. Ms. Sa ́nchez is recognized for 5 minutes. 

Ms. SA ́ NCHEZ. Thank you, Mr. Chairman. 

And I want to thank our witnesses for being with us today. 

Mr. Chairman, as you know, I recently sent both you and the 

ranking member a letter urging that the bipartisan task force’s— 

that that process continued to the next logical step, which is trying 

to construct some policy. Because I think we need to and can get 

concrete bipartisan tax reform proposals on paper. And if we are 

serious about a bipartisan comprehensive tax reform, I think the 

task force working groups are a way to keep that process moving. 

And if we can do that, I think we can put together a fairer and 

simpler Tax Code that provides the long-term certainty that businesses crave and makes America more competitive in our global 

economy. 

Our hearing topic today arises from the fact that our current 

laws make it perfectly legal for huge multinational corporations to 

avoid paying taxes on mind-boggling sums of money. And while our 

statutory corporate rate may be the highest of any country in the 

OECD, the U.S. has the second-lowest corporate taxes as a percentage of GDP of all the OECD countries. 

Companies with the resources to transfer profits and jobs abroad 

have an unfair advantage over truly domestic companies that do 

their research here, provide good-paying jobs here, and manufacture products in the U.S. And I think that leveling that playing 

field is long overdue. 

Throughout the task force process, our manufacturing group 

heard over and over again from domestic manufacturers that foreign governments aggressively offer research and development incentives and packages to try to lure them, their company’s research 

and intellectual property overseas. We would love to keep those innovative, high-paying jobs and the IP that goes with them in this 

country, preferably in southern California. 

But I want to take my time to focus on domestic businesses, specifically manufacturers, who, as Mr. Kleinbard noted before the 

Senate Finance Committee in 2011, are the truly disadvantaged actors in our current system because they can’t engage in those baseerosion activities that multinational corporations can. 

So my question is directed to Mr. Kleinbard. 

If we can close offshore loopholes and get this money back into 

our economy, what kinds of changes could we make to incentivize 

domestic manufacturing growth for companies that invest in hightech R&D and manufacturing here in the U.S.? 

Mr. KLEINBARD. Two quick thoughts. 


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Whatever system you go to, if it is well-designed, U.S. multinationals are going to pay more tax, and the only question is, will 

they pay it to the United States or will they pay it to foreign countries? So their tax burdens will go up. What choice can there be, 

when their tax burdens on their foreign income today are measured 

in single digits? 

The question of domestic manufacturing is a very difficult one 

because, frankly, I am skeptical of the utility of tax expenditures 

in the form of R&D credits and the like. They are very expensive 

subsidies, and they are often poorly targeted subsidies because they 

go to firms that would behave in exactly the same way without the 

subsidy. So that is just money wasted by government. 

I would use all the revenue you can raise to lower the rate to 

whatever it is. Twenty-five is my opening bid. If you guys can come 

in at 22, more power to you. Whatever it is, that is the way to go. 

The subsidies are just extremely expensive, because they go to people who don’t need them in the end. 

Ms. SA ́ NCHEZ. A follow-up question on that: Do you prefer 

things like Section 199, which actually ties incentives to wages for 

workers? 

Mr. KLEINBARD. You know, I am not a fan of any of these programs, honestly. 199, as you all lived it, became a broader and 

broader concept as to what was included. Movies suddenly came in. 

Pouring coffee suddenly came in. The subsidy grew and grew and 

grew by virtue of the nature of the political process. 

I think it is the wrong direction. You know, the right direction— 

and, you know, Mr. Ryan said this yesterday. We are drowning in 

tax expenditures. Let’s not figure out which subsidies we should 

add. 199 distorts decisions as to what is covered, what is not covered, you know, wages as opposed to investment in capital equipment that might lead to higher incomes in the future. 

The tax system ought not to be in the business of trying to steer 

the economy. We ought to do what we can to have a low, consistent 

business rate and declare a victory and let business take care of 

business. 

Ms. SA ́ NCHEZ. Thank you. 

I yield back. 

Chairman CAMP [presiding]. Thank you. 

I will go to Mr. Pascrell now. 

Mr. PASCRELL. Thank you, Mr. Chairman. 

The issue of the big, multinational corporations like Apple reducing the tax bill into the teens by shifting their profits to offshore 

havens has been in the news lately. And we are all concerned, as 

we should be. I believe that this is an ‘‘alert’’ sign, that issue, to 

all of our attempts to reform the Tax Code. I believe it is very significant, more so than we think. 

We are coming out of one of the worst economic crises in our Nation’s history. Many Americans are playing by the rules, most 

Americans, and are still struggling to get by. That is not a question. That is data. 

When you see what happened after the Second World War up to 

1973, in terms of productivity and return, when we still believed 

in sharing of wealth. And then what has happened from 1973–1974 

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tivity increased, and folks were participating less in the sharing of 

it. 

So we have gone from a stakeholder society to a shareholder society. There are no two ways about it. That is the data. That is what 

it shows. 

And then we look over at corporate America, and we see these 

big companies, these big conglomerates, as we call them—whatever 

name we choose. And they are worthwhile in this society; that is 

not the question. Big accounting departments changing, bending, 

exploiting the Tax Code—average person doesn’t have all of these 

folks at his fingertips to do these things—to make sure they are 

contributing as little as possible. 

We are talking here, time after time, Mr. Chairman, we talk here 

about how we are going to help corporate America. We have very 

few meetings about how our Tax Code can help the poor, unless I 

missed any meetings I didn’t know about. 

Chairman CAMP. Well, we did have a working group on exactly 

that subject, including 10 others. 

Mr. PASCRELL. I think it is un-American, Mr. Chairman, if I 

can use those terms. I think that is a good word to describe it. So 

we need to fix it. 

So let me ask you, Mr. Kleinbard, this question. Corporate taxes 

once made up about a quarter of Federal revenues, many moons 

ago. In fact, to the 1950s that was the case. Now it is down to 

below 10 percent today. That didn’t just happen. I mean, somebody 

didn’t just wake up some morning and say, we had better start 

changing this and moving things around. This government, our 

Government of the United States, a representative government, 

changed the rules. 

Many corporations are now calling for further reductions in the 

corporate tax and a shift to a so-called territorial system in order 

to keep this competitive. 

Do you believe—you, personally—that this is possible to do in a 

revenue-neutral way? Will a shift to such a system lead to an increase or a reduction in the amount of corporate tax collected? 

And if corporate tax collections go down, what are the Federal 

Government’s other sources of revenue that will go up to compensate? Who pays for them? 

Mr. KLEINBARD. This is a very important question. 

And for the historical pattern, we have to keep in mind that the 

United States embarked on a unique path of disincorporating business. So, today, more than half of business income is simply not in 

corporate form, but it is still in the U.S. tax system. It is taxed 

through the individual system, because we have gone on this 

unique path to disincorporate business in America. So that explains some of the data. 

My belief is—well, the JCT estimates will be what they are. And 

I think the tax rate has to be driven by that. There is a great deal 

by way of business tax expenditures that make no sense to me. You 

know, this is not the Soviet Union, we don’t engage in Soviet 5-year 

plans for the economy. So we should get the United States of America, the government, out of the business of subsidizing individual 

companies or industries. That brings a lot of revenue onto the table 

to buy down the rate. 


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And, again, although it may not be generally appreciated, if you 

do a sensible job in this committee, whatever you end up doing, 

multinationals are going to pay more tax. The only question is, how 

much of that does the U.S. grab as opposed to foreign market countries? And, you know, that will be a very interesting question, very 

interesting to see how JCT scores it. 

Finally, you have the $2 trillion pot of old earnings. And I keep 

emphasizing, this is the only time that this committee will ever be 

confronted with the opportunity to have an efficient tax. You can 

tax those old earnings in the transition to the new system. They 

rate higher than 5 percent and are sufficient to help fund the revenue costs of moving to the new system. 

Under no circumstances do I contemplate moving to a corporate 

system that is a net revenue loser. 

Chairman CAMP. All right, thank you. 

Mr. PASCRELL. Thank you. 

Thank you, Mr. Chairman. 

Chairman CAMP. And for our final Member to question this 

morning, Mr. Kelly. 

Mr. KELLY. Thank you, Mr. Chairman. 

And thank you all for staying so long. 

I am interested in a couple different things. We certainly have 

a lot we can talk about. 

But there is an old saying I remember that goes something like, 

build a better mousetrap, and the world will beat a path to your 

door. That is accredited to Waldo Ralph Emerson. But what he 

really said, if a man has good corn or wood or boards or pigs to 

sell or can make a better chair or knife, crucibles or church organs 

than anybody else, you will find a broad, hard-beaten road to his 

house, though it be in the woods. 

Now, we are talking about tax strategies here. Now, you all understand it because you do it every day, but for the average American, the average American, who relies on us to do the right thing 

for them and talk to people like you to come to an answer to this, 

a code that is 75,000 pages, that American companies and individuals preparing their taxes spend $168 billion—that is with a ‘‘B’’— 

to do the preparation, and almost 7 billion hours, gosh, do you 

think that is a little difficult? 

So my question to you, as we talk about all this—it doesn’t matter to me how we get there, but if our goal, our stated goal, is progrowth tax reform—because what we are talking about, we need 

the extra revenues. Where would you get them? Who pays taxes? 

Mr. OOSTERHUIS. People. 

Mr. KELLY. People. 

Mr. OOSTERHUIS. People pay taxes. 

Mr. KELLY. People who work. What kind of companies pay 

taxes? Only profitable companies. 

So if we create a Tax Code that is so complicated that drives 

them offshore and then say, these are bad folks, they are not patriots, they are willing to take their business offshore—it is not that 

they are unpatriotic, it is just that they are not stupid. 

We have created a system—and I have a lot of people I represent 

back home that are in the host business; it means they have bars. 


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You can keep customers out of your bar by raising the cover 

charge. And I am suggesting that is what we have done. 

Now, if we are looking for revenue and if we are looking for success and we are looking for profits, then wouldn’t the idea be a government that is actually an advocate for your success and not an 

adversary? Would that be a little better model? 

Now, we talk about international Tax Code. Why would we want 

to do this? This strategy is a huge part of every business’s and 

every individual’s life. My gosh, you have to look at it. And you 

have to hire somebody else do it because it is too complicated. And 

the real fear is not that you are going to pay too much; it is that 

you are going to make a mistake, and somehow you are going to 

come under greater scrutiny. 

Anyplace else in the world that makes it tougher than in the 

United States? You know the international boundaries. 

Mr. KLEINBARD. I have never done research on the individual 

compliance—— 

Mr. KELLY. No, but you talk to companies all the time. Tell me 

why companies—tell me why we are no longer one of the best 

places to start a business. 

Mr. KLEINBARD. Well, first of all, you know, I am now an academic—— 

Mr. KELLY. Not to be disrespectful, the reason is it is too hard. 

Mr. KLEINBARD. Well, I don’t agree with the premise of the 

question, that we are not one of the great places. 

Mr. KELLY. Well, I am only going by the rankings. We are way 

down. 

Mr. KLEINBARD. Well, the rankings—you know, there are a lot 

of interesting opinion polls. I don’t think—— 

Mr. KELLY. No, no, I am not talking about opinion polls. I am 

talking about hard facts. I am talking about batting averages. I am 

talking about completion yards after the catch. This is a tough 

place to start a business in. 

Mr. KLEINBARD. It is legendarily—— 

Mr. KELLY. And the government is too—— 

Mr. KLEINBARD. That is simply false. 

Mr. KELLY. It is not false. 

Mr. KLEINBARD. It is simply false. This is the easiest country 

in the world in which to get—— 

Mr. KELLY. Then why are they not flocking here? Why are they 

going to Ireland? Why are they doing other things? 

Mr. KLEINBARD. Because no country can compete with zero. 

That is simply the problem. 

Mr. KELLY. I get it. I get it. 

Mr. KLEINBARD. The problem is that we have allowed a system 

in which companies are able to reduce their tax rates to zero or to 

single digits. That is not a rate that any actual economy operates 

under—not the U.K., not Germany, not France, not the United 

States. 

Mr. KELLY. I get you. I get you. But it still comes down to, does 

it not, it comes down to usually people do business where it is easiest to do business. 

Mr. KLEINBARD. Again, it is easy to start a business in this 

country. You don’t have—— 


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Mr. KELLY. Mr. Kleinbard, have you ever started a business? 

Mr. KLEINBARD. My wife did. 

Mr. KELLY. Sir, just a yes or no. 

Mr. KLEINBARD. I was a partner in a large—— 

Mr. KELLY. Okay. 

Mr. KLEINBARD [continuing]. Business. 

Mr. KELLY. All right. Well, me, too. 

Mr. KLEINBARD. My wife started a business. 

Mr. KELLY. I do own a business. I am going to tell you right 

now, it has become so difficult, so heavily taxed, and so heavily regulated, we are not the premier place to start. People are going elsewhere. Why? 

This is this greatest market in the world. It is a global economy, 

Mr. Buchanan said. Shouldn’t we be looking at establishing a Tax 

Code that is a pro-growth Tax Code that allows people to look at 

us and not just participate in the global economy but dominate the 

global economy? 

My goodness, with all the natural resources we have, with all the 

advantages we have, I would hate to be sitting there with a tin cup 

looking for other people to help us. We don’t need to. We have been 

endowed by God with the greatest assets in the world at any time 

in the history of the human race, and we can’t get out of our own 

way. We have gamed ourselves. 

So I appreciate you being here. 

Mr. Oosterhuis, I would have liked to get to you because I really 

admire what you said and understand it. 

And, Mr. Saint-Amans, thank you for being here. 

Mr. Chairman, I yield back. 

Chairman CAMP. Well, thank you. 

And I want to thank our witnesses. This is a very important 

hearing, and I very much appreciate the quality of your testimony 

this morning. And I want to thank you for the contributions you 

have made to this issue. 

And, with that, this hearing is adjourned. 

[Whereupon, at 12:40 p.m., the committee was adjourned.] 

Æ 


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