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Representatives of Organization for Economic Co-operation and Development (OECD) countries are meeting in Washington this week to determine what reforms they should recommend to address offshore corporate tax avoidance. Such recommendations would implement the Action Plan on Base Erosion and Profit Shifting (BEPS), which OECD issued last summer. The plan doesn’t go far enough, but the Obama administration has recently indicated that it is restraining OECD talks from resulting in more fundamental reforms, and the top Republican tax writers in Congress issued a statement on June 2 that seems even more opposed to reform.

As we wrote about the Action Plan last summer,

While the plan does offer strategies that will block some of the corporate tax avoidance that is sapping governments of funds they need to make public investments, the plan fails to call for fundamental change that would result in a simplified, workable international tax system.

Most importantly, the OECD does not call on governments to fundamentally abandon the tax systems that have caused these problems — the “deferral” system in the U.S. and the “territorial” system that many other countries have — but only suggests modest changes. Both tax systems require tax enforcement authorities to accept the pretense that a web of “subsidiary corporations” in different countries are truly different companies, even when they are all completely controlled by a CEO in, say New York or Connecticut or London. This leaves tax enforcement authorities with the impossible task of divining which profits are “earned” by a subsidiary company that is nothing more than a post office box in Bermuda, and which profits are earned by the American or European corporation that controls that Bermuda subsidiary.

In April, we noted that the Obama administration seems to be blocking any more fundamental (more effective) reform and is clinging to the “arms length” principle that supposedly prevents subsidiaries owned by a single U.S. corporation from over-charging and under-charging each other for transactions in ways that make profits disappear from one country and magically reappear in another. As we explained,

But when a company like Apple or Microsoft transfers a patent for a completely new invention to one of its offshore subsidiaries, how can the IRS even know what the market value of that patent would be? And tech companies are not the only problem. The IRS apparently found the arm’s length standard unenforceable against Caterpillar when that company transferred the rights to 85 percent of its profits from selling spare parts to a Swiss subsidiary that had almost nothing to do with the actual business.

This week, just to kill any lingering possibility that the OECD will do some good, Rep. Dave Camp and Senator Orrin Hatch, the Republican chairman of the House Ways and Means Committee and the ranking Republican on the Senate Finance Committee, issued a statement claiming they are “concerned that the BEPS project is now being used as a way for other countries to simply increase taxes on American taxpayers [corporations].”

Of course, major multinational corporations from every country will, in fact, experience a tax increase if the OECD effort is even remotely successful. American corporations are using complex accounting gimmicks to artificially shift profits out of the U.S. and out of other countries into tax havens, countries where they will be taxed very little or not at all. There is no question this is happening. As CTJ recently found, American corporations reported to the IRS in 2010 that their subsidiaries had earned $94 billion in Bermuda, which is obviously impossible because that country had a GDP (output of all goods and services) of just $6 billion that year.

In their statement, Camp and Hatch complain that “When foreign governments – either unilaterally or under the guise of a multilateral framework – abandon long-standing principles that determine taxing jurisdiction in a quest for more revenue, Americans are threatened with an un-level playing field.”

But what exactly have these long-standing principles, like the “arm’s length” standard accomplished? They’ve allowed American corporations to tell the IRS that in 2010 their subsidiaries in the Cayman Islands had profits of $51 billion even though that country had a GDP of just $3 billion. They’ve allowed American corporations to tell the IRS that in 2010 their subsidiaries in the British Virgin Islands had profits of $10 billion even thought that country had a GDP of just $1 billion.

Camp and Hatch have claimed in the past that the solution for our corporate income tax is to essentially adopt a “territorial” tax system that would actually increase the rewards for American corporations that manage to make their U.S. profits appear to be earned in Bermuda, the Cayman Islands, the British Virgin Islands, or any other tax haven. Congress needs to move in the opposite direction, as we have explained in detail.