Problems relating to Trade and Investment on United States
14. Taxation Systems |
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Issue |
Issue details |
Requests |
Reference |
| (1) High Corporate Income Tax Rate | - By combining the Federal and the State tax Effective Corporate Income Tax (CIT) exceeds 40% in total. | - It is requested that the GOU reduces the CIT rate. | - The U.S. Tax Law |
| (Action) - As of 2012, the maximum U.S. Federal Corporate Income Tax remains unchanged at 35%, while in most States, individual Corporate Income Tax of 5% in average is separately collected. The effective tax rate for Corporate Income Tax amounts to 40% approximately in total of both Federal and State Taxes, the highest level among all OECD Member States. The U.S. tax collection system extends worldwide so that Corporate Income Tax is levied in principle also upon the income gained outside the U.S., while the average Corporate Income Tax in the OECD Member States is reduced to 25%. The tax rate in the amended tax bill now published is aimed at its reduction in line with the average rate in the OECD Member States. - In June 2013, House Ways and Means Committee held Public Hearing on International Tax Levy Rule, Tax Haven, BEPS (Base Erosion and Profit Shifting). The discussions included the method of amending the U.S. domestic tax laws through hike of Corporate Income Tax Rate and Expansion of the Scope of the Taxable Base. - On 30 July 2013, President Obama announced the U.S. Domestic Tax Reform Proposal, reducing Corporate Tax from 35% to 28% and 25% for Domestic Manufacturers. This proposal formed the pillar of his speech in Tennessee. - On 26 February 2014, Chairman Dave Camp of House Committee on Ways & Means released draft legislation ,"Tax Reform Act 2014" that makes a comprehensive amendment of the taxation system, including reduction of the maximum statutory corporate income tax rate to 25% in 5-years. |
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| (2) Varying Tax Levy by each State, County, etc. | - State Income Tax NEXUS (Determination of State Corporate Income Tax) varies in each state. Moreover, the sales tax system varies in each state, county and city. | - It is requested that GOU harmonises state and county taxes. | - State and County/City Tax Laws |
| (Action) - In the U.S., the Federal Taxation System under the Internal Revenue Code and individual State Taxation System run in parallel. In general, each State/Local Autonomous Body provides its own taxation system as regards taxpayer, taxable items, calculation of tax amount, tax rates, etc. |
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| (3) Complex Regulation on Financial Statement | - The GOU compels tax regulations (such as so called FIN 48) Reserve for Uncertain State Tax Positions, which are unprecedented elsewhere internationally. It demands a vast amount of time and financial resources for the account audit. | - It is requested that the GOU repeals FIN 48. | - FASB ASC740-10 |
| (4) Judgement Basis of Under- Capitalization (Not Earnings Stripping Rule) | - Determination of Under-capitalization in the U.S. lacks clarity in certain aspects, because it relies on rulings of old cases, or on aborted legislative drafts, etc., all no longer in force. It necessitates consultation with CPA's each time on issues such as increase in the borrowing amounts, capital fund, etc. | - It is requested that the GOU takes step to numerically identify the tax basis. | |
| (5) Sales Tax (Consumption Tax) Rates | - Member Firm's Subsidiary (MFS) in the U.S. operating manufacture/distribution business finds tax rates are high on brassieres, shorts, girdles, etc. | - It is requested that GOU reduces the tax rates. | |
| (6) Double Taxation Risk from Disharmony in TPTS Rules | - Especially in regard to Transfer Price Taxation System (TPTS), due to disharmony in rules among countries, competent authority's views are diversified. A member firm group faces the risk of double taxation. - It is necessary to consider distribution of profit/loss in regard to invoicing management fees to subsidiary, and transactions among related companies. |
- It is requested that GOU/GOJ: -- thoroughly explore, develop and perfect the world standard TPTS (such as guidelines, etc.), and -- perfect Advance Price Agreement Scheme. |
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| (7) Delayed Enforcement of New Japan/U.S. Tax Treaty (NJUTT) | - In January 2013, both GOU and GOJ signed NJUTT (Amended Protocol of NJUTT, incorporating further reduction of withholding tax on interest income from investment, in light of furthering bilateral exchange of investment and economy). However, U.S. congressional approval remains pending, and it has not yet come into force. | - It is requested that GOU takes step to expedite enforcement of NJUTT. | - Japan/U.S. Tax Treaty |
| (Action) - In January 2013, Protocol Amending the Convention between Japan/USA for Avoidance of Double Taxation was signed. It stipulates among others, (1) Expanded Scope of Tax Exemption on Dividends and Interests in the Withholding Country, (2) Introduction of Arbitration Scheme in Mutual Consultation, and (3) Mutual Assistance Scheme for Collection of Tax Arrears in other country. - On 13 April 2015, President Obama requested the Senate's speedy ratification of the amendment protocol of NJUTT. Premier Abe's official visit to the U.S. was due in two weeks. However, due to the oppositions of the republicans, etc., approval procedures came to a standstill. - On 10 October 2015, The Senate foreign relations committee approved the amendment protocol of NJUTT. |
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| (8) Absence of DOS Scheme | - The scheme excluding charges against dividend received from Overseas' Subsidiary (DOS scheme) does not exist in the U.S., (whereas in Japan, 95% of dividends received from overseas' subsidiary, etc. are deductible from income, with share ownership in excess of 25% and 6-months). | - It is requested that GOU takes step to introduce DOS scheme. | |
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