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Westlake Legal Group > Corporate Taxes

How Tech Taxes Became the World’s Hottest Economic Debate

Westlake Legal Group merlin_167503248_0b3d5de3-eaf1-4dae-bb5f-6030255d6b5d-facebookJumbo How Tech Taxes Became the World’s Hottest Economic Debate Taxation Tax Shelters Federal Taxes (US) Corporate Taxes Computers and the Internet

WASHINGTON — A growing movement by foreign governments to tax American tech giants that supply internet search, online shopping and social media to their citizens has quickly emerged as the largest global economic battle of 2020.

The fight pits traditional allies against each other, with European countries like France, Italy and Britain clashing with the United States over their plans to impose new taxes on digital services provided by companies like Amazon and Google.

At the core of the debate are fundamental questions about where economic activity in the digital age is generated, where it should be taxed and who should collect that revenue. The potential for large tax dollars has spurred governments across the world to consider new digital taxes and has even inspired lawmakers in some American states, like Maryland and New York, to propose their own levies on digital trade.

This week, national leaders meeting in Davos, Switzerland, brokered a truce between the United States and France, which had planned to move ahead with a digital services tax. Officials in both countries said they would pause what had been an escalating dispute in order to give international negotiators a chance to reach a global tax agreement that could halt a proliferation of digital taxes.

But the meetings, which took place at the World Economic Forum, have also brought new threats of taxation and tariff retaliation and underscored how fragile negotiations remain.

The stakes are high for governments and multinational corporations — even those outside the tech sector. The digital tax negotiations, which are being conducted through the Organization for Economic Cooperation and Development, have become entwined with efforts to reduce attempts by companies to avoid taxes by shifting profits overseas.

Late last year, negotiators at the O.E.C.D., including a delegation from the Trump administration, agreed to a first-step framework that would allow countries to tax certain digital-service providers even if they did not have physical presences inside their borders.

But Treasury Secretary Steven Mnuchin quickly surprised O.E.C.D. officials with a letter requesting a change to the framework, one that would effectively allow some American companies to opt out of those taxes. O.E.C.D. officials pushed back, and negotiators are set to meet again next week in Paris.

The discussions, which are expected to last months, could end with an agreement on a global minimum tax that all multinational companies must pay on their profits, regardless of where the profits are booked. The negotiations could also set a worldwide standard for how much tax companies must remit to certain countries based on their digital activity.

Mr. Mnuchin expressed frustration on Thursday in Davos that a digital sales tax had become such a focus of discussion at the World Economic Forum. Setting a minimum tax for companies around the world, to prevent them from hiding profits in tax havens, will make a much bigger difference, he said.

“From my perspective, that is by far the more important,” he said.

There is a chance the talks could devolve into a “Wild West” array of separate tax regimes on digital activity around the world.

“It’s a big old mess,” said Jennifer McCloskey, vice president for policy at the Information Technology Industry Council, a trade group that represents companies including Apple, Oracle and several other American tech leaders. “But,” she added, “that’s to be expected.”

Companies that operate across borders have long paid taxes where their profits are booked. Calculating that sounds simple enough, but it has grown increasingly complicated in recent decades. To reduce their tax bills, corporations have shifted profits — and in some cases their headquarters — on paper to low-tax countries like Bermuda and Ireland. O.E.C.D. countries like the United States have agreed to measures meant to discourage such shifting.

Such efforts did not resolve some countries’ complaints about Facebook, eBay and other companies that offer online services to their residents but have little or no physical presence within their borders. Those governments, along with leaders of the European Union, say large tech companies are avoiding paying their fair share of taxes.

“They’re looking for new ways to raise revenue,” said Nicole Kaeding, an economist and the vice president of policy promotion at the National Taxpayers Union Foundation, which opposes the digital tax push by countries and states. “These are all wrapped up in the questions of how do we adjust a tax system that is a hundred years old in order to tax the digital economy?”

Kimberly Clausing, an economist at Reed College in Portland, Ore., who specializes in international taxation and has pushed for additional measures to tax corporate profits around the world, said the digital tax effort exposed political and economic tensions in wealthy nations.

“It really lays bare this fiction that economic value is something we can assign to a location,” Ms. Clausing said. “As more and more of the value is intangible, it really creates this opportunity for profit-shifting.”

The proliferation of profitable digital services makes it “really the time” for the international community to revisit the rules of corporate taxation across borders, she said.

The feud between French and American officials has sped up the O.E.C.D. process to rewrite those rules, which has a deadline for completion at the end of this year.

France announced plans last year to impose a 3 percent tax starting Jan. 1 on the revenues that companies earn from providing digital services to French users. The government estimated a windfall of 500 million euros (about $563 million). Similar taxes are under consideration in Britain, Italy, Canada and a host of other wealthy nations.

Those moves have drawn criticism, and tariff threats, from the Trump administration. President Trump has insisted that only the United States may tax American-based companies — even though American multinationals already pay taxes in other countries where they have factories or other physical operations. The president threatened to retaliate against France with American tariffs of up to 100 percent on French wine, cheese, handbags and other goods.

This week, Mr. Mnuchin also threatened tariffs against Italy and Britain if they impose similar taxes.

Despite the acrimony, there are signs of progress. France’s finance minister, Bruno Le Maire, said Wednesday that the United States and France had found a path forward in the O.E.C.D. negotiations to set digital taxes.

The French agreed to suspend collections of their new digital tax, and the United States agreed to hold off on tariffs, giving negotiators at the O.E.C.D. time to strike their deal.

Mr. Le Maire made clear that the digital tax issue was far from resolved, and talks were expected to continue on Thursday.

“We need to address fiscal evasion,” he said. “We have to address the fact that the biggest companies in the world are making huge profits in Europe and everywhere in the world without paying the due level of taxation because they do not have any physical presence — we have to address that question.”

Some observers are skeptical that the process can produce consensus — from some 130 countries — by year’s end.

“Some countries are going to have to give up taxing rights in order to allow other countries to have them. And the question is: Who?” said J. Clark Armitage, a former Internal Revenue Service official and the president of the tax firm Caplin & Drysdale in Washington. “It’s going to be hard to pass something that tracks what they propose.”

Negotiators face intense and competing pressures from large multinational companies. American tech firms are eager for a deal that would prevent multiple countries from imposing a wide variety of taxes on their activities.

“The worst case would be triple, quadruple taxation, because of how the individual taxes are not aligned,” said Jordan Haas, trade director for the Internet Association, another tech trade group in Washington.

Other companies, like the consumer products giant Johnson & Johnson, have urged negotiators to go slow in considering the global minimum tax proposal that the O.E.C.D. is discussing — and that French officials say must be included in any final agreement.

European Union officials are already looking at reviving their own proposal to significantly revamp how the companies are taxed in the 28-nation bloc in the event that the O.E.C.D. discussions fail. On Wednesday, a European Union official said leaders were waiting to see whether Trump administration negotiators engaged more aggressively in the discussions and showed a willingness to work with Congress to carry out any consensus solution that emerged from the talks.

“We’re pleased” with the progress announced in Davos, the official said. “At the same time, we’re skeptical.”

Keith Bradsher contributed reporting from Davos, Switzerland.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Why the Impact of the Trump Taxes Remains Partly Hidden

Westlake Legal Group defaultPromoCrop Why the Impact of the Trump Taxes Remains Partly Hidden Treasury Department Tax Shelters Tax Cuts and Jobs Act (2017) Income Tax Federal Taxes (US) Facebook Inc Corporate Taxes Apple Inc

Armed with legions of lobbyists, companies have been pushing hard — and successfully — to weaken new federal taxes that take aim at overseas tax havens.

Many of them have managed to avoid publicly disclosing how much they owe under the new taxes. Without such figures, it becomes virtually impossible for outsiders to work out how much companies are saving from the watered down tax rules.

In theory, this opacity should not exist. United States securities regulations have long required public companies to disclose even relatively minor tax expenses. Over the past year, this requirement has led to a small number of companies revealing the effect of the new taxes on overseas income.

Yet many others — including some longtime users of tax havens — appear to have found ways around disclosing how the overseas taxes will affect them.

President Trump’s 2017 tax law did not just cut taxes for companies. It also introduced new provisions aimed at discouraging the practice of routing income through countries with ultralow taxes.

One of those was a tax on “global intangible low-taxed income,” known as GILTI, which acts as a minimum tax on certain profits that companies earn abroad. GILTI was expected to hit corporations that appeared to be paying almost no tax on their overseas income.

In 2016, for example, Facebook’s foreign taxes were only 3 percent of its foreign profits. By taxing income that flows through offshore havens, the GILTI initiative was supposed to bring in tens of billions of dollars for the United States Treasury and to partially offset the revenue lost from the 2017 law’s deep tax cuts.

United States securities laws require publicly traded companies to provide detailed explanations of their taxes in their annual reports. Specifically, companies must reveal any individual tax expenses (or benefits) that exceed 5 percent of what is known as their statutory income tax expense.

Say a company had $100 in income. At today’s 21 percent corporate federal income tax rate, its federal income tax expense would be $21. Under the disclosure rule, that company would have to divulge any particular tax expenses that exceeded $1.05 (5 percent of $21).

For companies that were big users of tax havens before the passage of the 2017 law, the GILTI tax was expected to be a significant new expense — and one that would presumably have to be individually disclosed. A small number of companies, including Netflix and Bristol Myers, the pharmaceutical giant, did so in their 2018 annual reports.

But many of the companies that were most likely to face a large bill from the new tax — like Apple, Google, Microsoft and Facebook — have not disclosed how much the GILTI tax took out of their earnings.

The lack of disclosure may be masking the financial impact of how the Trump administration is writing rules governing how the 2017 tax package is enacted. Under pressure from corporate lobbyists, the Treasury Department has allowed multinational companies to partly or completely avoid taxes on certain overseas income.

Tax experts told The New York Times that the impact of those weakened rules, while hard to measure precisely, is likely to exceed $100 billion.

The companies’ silence about what they actually are paying under the GILTI makes it hard to quantify the true costs of the Treasury’s rules.

It’s possible that some companies did not reveal how much the GILTI tax was costing them because, after accounting for tax credits and other factors, the amount fell below the 5 percent threshold. Microsoft said that was the case with its GILTI tax in its 2019 fiscal year.

But other companies appear to have bundled GILTI together with other tax expenses and benefits in a way that makes the cost invisible. Facebook, for example, quantifies “the effect of non-U. S. operations” on its overall tax liability. And Apple provides a number for its taxes on “earnings of foreign subsidiaries.”

The cost of the GILTI tax is most likely lumped into those categories, tax experts said. Over the years, they say, corporate auditors — who have to review and sign off on companies’ financial disclosures — have adopted a loose reading of the tax-disclosure rule, enabling companies to combine items that are not directly related.

Facebook did not respond to a request for comment. Google declined to comment. Apple said in an emailed statement, “Since 2008, Apple’s corporate taxes have totaled over $100 billion. We pay all that we owe according to tax laws wherever we operate.”

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

How Big Companies Won New Tax Breaks From the Trump Administration

The overhaul of the federal tax law in 2017 was the signature legislative achievement of Donald J. Trump’s presidency.

The biggest change to the tax code in three decades, the law slashed taxes for big companies, part of an effort to coax them to invest more in the United States and to discourage them from stashing profits in overseas tax havens.

Corporate executives, major investors and the wealthiest Americans hailed the tax cuts as a once-in-a-generation boon not only to their own fortunes but also to the United States economy.

But big companies wanted more — and, not long after the bill became law in December 2017, the Trump administration began transforming the tax package into a greater windfall for the world’s largest corporations and their shareholders. The tax bills of many big companies have ended up even smaller than what was anticipated when the president signed the bill.

One consequence is that the federal government may collect hundreds of billions of dollars less over the coming decade than previously projected. The budget deficit has jumped more than 50 percent since Mr. Trump took office and is expected to top $1 trillion in 2020, partly as a result of the tax law.

Laws like the 2017 tax cuts are carried out by federal agencies that first must formalize them via rules and regulations. The process of writing the rules, conducted largely out of public view, can determine who wins and who loses.

Starting in early 2018, senior officials in President Trump’s Treasury Department were swarmed by lobbyists seeking to insulate companies from the few parts of the tax law that would have required them to pay more. The crush of meetings was so intense that some top Treasury officials had little time to do their jobs, according to two people familiar with the process.

The lobbyists targeted a pair of major new taxes that were supposed to raise hundreds of billions of dollars from companies that had been avoiding taxes in part by claiming their profits were earned outside the United States.

The blitz was led by a cross section of the world’s largest companies, including Anheuser-Busch, Credit Suisse, General Electric, United Technologies, Barclays, Coca-Cola, Bank of America, UBS, IBM, Kraft Heinz, Kimberly-Clark, News Corporation, Chubb, ConocoPhillips, HSBC and the American International Group.

Thanks in part to the chaotic manner in which the bill was rushed through Congress — a situation that gave the Treasury Department extra latitude to interpret a law that was, by all accounts, sloppily written — the corporate lobbying campaign was a resounding success.

ImageWestlake Legal Group merlin_130895553_4ce98faa-e477-440f-b670-73e9bce61508-articleLarge How Big Companies Won New Tax Breaks From the Trump Administration United States Politics and Government Trump, Donald J Treasury Department Taxation Tax Shelters Tax Cuts and Jobs Act (2017) Tax Credits, Deductions and Exemptions Procter&Gamble Co Mnuchin, Steven T Internal Revenue Service Income Tax General Electric Company Federal Taxes (US) Credit Suisse Group AG Corporate Taxes Anheuser-Busch InBev NV

A section of the Senate bill. Congress gave final approval to the Tax Cuts and Jobs Act on Dec. 20, 2017.Credit…Jon Elswick/Associated Press

Through a series of obscure regulations, the Treasury carved out exceptions to the law that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits, according to a review of the Treasury’s rules, government lobbying records, and interviews with federal policymakers and tax experts. Companies were effectively let off the hook for tens if not hundreds of billions of taxes that they would have been required to pay.

“Treasury is gutting the new law,” said Bret Wells, a tax law professor at the University of Houston. “It is largely the top 1 percent that will disproportionately benefit — the wealthiest people in the world.”

It is the latest example of the benefits of the Republican tax package flowing disproportionately to the richest of the rich. Even a tax break that was supposed to aid poor communities — an initiative called “opportunity zones” — is being used in part to finance high-end developments in affluent neighborhoods, at times benefiting those with ties to the Trump administration.

Of course, companies didn’t get everything they wanted, and Brian Morgenstern, a Treasury spokesman, defended the department’s handling of the tax rules. “No particular taxpayer or group had any undue influence at any time in the process,” he said.

Ever since the birth of the modern federal income tax in 1913, companies have been concocting ways to avoid it.

In the late 1990s, American companies accelerated their efforts to claim that trillions of dollars of profits they earned in high-tax places like the United States, Japan or Germany were actually earned in low- or no-tax places like Luxembourg, Bermuda or Ireland.

Google, Apple, Cisco, Pfizer, Merck, Coca-Cola, Facebook and many others have deployed elaborate techniques that let the companies pay taxes at far less than the 35 percent corporate tax rate in the United States that existed before the 2017 changes. Their playful nicknames — like Double Irish and Dutch Sandwich — made them sound benign.

The Obama administration and lawmakers from both parties have tried to combat this profit shifting, but their efforts mostly stalled.

When President Trump and congressional Republicans assembled an enormous tax-cut package in 2017, they pitched it in part as a grand bargain: Companies would get the deep tax cuts that they had spent years clamoring for, but the law would also represent a long-overdue effort to fight corporate tax avoidance and the shipment of jobs overseas.

“The situation where companies are actually encouraged to move overseas and keep their profits overseas makes no sense,” Senator Rob Portman, an Ohio Republican, said on the Senate floor in November 2017.

Republicans were racing to secure a legislative victory during Mr. Trump’s first year in office — a period marked by the administration’s failure to repeal Obamacare and an embarrassing procession of political blunders. Sweeping tax cuts could give Republicans a jolt of much-needed momentum heading into the 2018 midterm elections.

To speed things along, Republicans used a congressional process known as “budget reconciliation,” which blocked Democrats from filibustering and allowed Republicans to pass the bill with a simple majority. But to qualify for that parliamentary green light, the net cost of the bill — after accounting for different tax cuts and tax increases — had to be less than $1.5 trillion over 10 years.

The bill’s cuts totaled $5.5 trillion. The corporate income tax rate shrank to 21 percent from 35 percent, and companies also won a tax break on the trillions in profits brought home from offshore.

To close the gap between the $5.5 trillion in cuts and the maximum price tag of $1.5 trillion, the package sought to raise new revenue by eliminating deductions and introducing new taxes.

Two of the biggest new taxes were supposed to apply to multinational corporations, and lawmakers bestowed them with easy-to-pronounce acronyms — BEAT and GILTI — that belie their complexity.

BEAT stands for the base erosion and anti-abuse tax. It was aimed largely at foreign companies with major operations in the United States, some of which had for years minimized their United States tax bills by shifting money between American subsidiaries and their foreign parent companies.

Instead of paying taxes in the United States, companies send the profits to countries with lower tax rates.

The BEAT aimed to make that less lucrative. Some payments that companies sent to their foreign affiliates would face a new 10 percent tax.

The other big measure was called GILTI: global intangible low-taxed income.

To reduce the benefit companies reaped by claiming that their profits were earned in tax havens, the law imposed an additional tax of up to 10.5 percent on some offshore earnings.

The Joint Committee on Taxation, the congressional panel that estimates the impacts of tax changes, predicted that the BEAT and GILTI would bring in $262 billion over a decade — roughly enough to fund the Treasury Department, the Environmental Protection Agency and the National Cancer Institute for 10 years.

Sitting in the Oval Office on Dec. 22, 2017, Mr. Trump signed the tax cuts into law. It was — and remains — the president’s most significant legislative achievement.

From the start, the new taxes were pocked with loopholes.

In the BEAT, for example, Senate Republicans hoped to avoid a revolt by large companies. They wrote the law so that any payments an American company made to a foreign affiliate for something that went into a product — as opposed to, say, interest payments on loans — were excluded from the tax.

Let’s say an American pharmaceutical company sells pills in the United States. The pills are manufactured by a subsidiary in Ireland, and the American parent pays the Irish unit for the pills before they are sold to the public. Those payments mean that the company’s profits in the United States, where taxes are relatively high, go down; profits in tax-friendly Ireland go up.

Because such payments to Ireland wouldn’t be taxed, some companies that had been the most aggressive at shifting profits into offshore havens were spared the full brunt of the BEAT.

Other companies, like General Electric, were surprised to be hit by the new tax, thinking it applied only to foreign multinationals, according to Pat Brown, who had been G.E.’s top tax expert.

Mr. Brown, now the head of international tax policy at the accounting and consulting firm PwC, said on a podcast this year that the Trump administration should bridge the gap between expectations about the tax law and how it was playing out in reality. He lobbied the Treasury on behalf of G.E.

“The question,” he said, “is how creative and how expansive is Treasury and the I.R.S. able to be.”

Almost immediately after Mr. Trump signed the bill, companies and their lobbyists — including G.E.’s Mr. Brown — began a full-court pressure campaign to try to shield themselves from the BEAT and GILTI.

The Treasury Department had to figure out how to carry out the hastily written law, which lacked crucial details.

Chip Harter was the Treasury official in charge of writing the rules for the BEAT and GILTI. He had spent decades at PwC and the law firm Baker McKenzie, counseling companies on the same sorts of tax-avoidance arrangements that the new law was supposed to discourage.

Starting in January 2018, he and his colleagues found themselves in nonstop meetings — roughly 10 a week at times — with lobbyists for companies and industry groups.

The Organization for International Investment — a powerful trade group for foreign multinationals like the Swiss food company Nestlé and the Dutch chemical maker LyondellBasell — objected to a Treasury proposal that would have prevented companies from using a complex currency-accounting maneuver to avoid the BEAT.

The group’s lobbyists were from PwC and Baker McKenzie, Mr. Harter’s former firms, according to public lobbying disclosures. One of them, Pam Olson, was the top Treasury tax official in the George W. Bush administration. (Mr. Morgenstern, the Treasury spokesman, said Mr. Harter didn’t meet with PwC while the rules were being written.)

This month, the Treasury issued the final version of some of the BEAT regulations. The Organization for International Investment got what it wanted.

One of the most effective campaigns, with the greatest financial consequence, was led by a small group of large foreign banks, including Credit Suisse and Barclays.

American regulators require international banks to ensure that their United States divisions are financially equipped to absorb big losses in a crisis. To meet those requirements, foreign banks lend the money to their American outposts. Those loans accrue interest. Under the BEAT, the interest that the American units paid to their European parents would often be taxed.

“Foreign banks should not be penalized by the U.S. tax laws for complying” with regulations, said Briget Polichene, chief executive of the Institute of International Bankers, whose members include many of the world’s largest banks.

Banks flooded the Treasury Department with lobbyists and letters.

Late last year, Mr. Harter went to Treasury Secretary Steven Mnuchin and told him about the plan to give the banks a break. Mr. Mnuchin — a longtime banking executive before joining the Trump administration — signed off on the new exemptions, according to a person familiar with the matter.

A few months later, the tax-policy office handed another victory to the foreign banks, ruling that an even wider range of bank payments would be exempted.

Among the lobbyists who successfully pushed the banks’ case in private meetings with senior Treasury officials was Erika Nijenhuis of the law firm Cleary Gottlieb. Her client was the Institute of International Bankers.

In September 2019, Ms. Nijenhuis took off her lobbying hat and joined the Treasury’s Office of Tax Policy, which was still writing the rules governing the tax law.

Some tax experts said that the Treasury had no legal authority to exempt the bank payments from the BEAT; only Congress had that power. The Trump administration created the exception “out of whole cloth,” said Mr. Wells, the University of Houston professor.

Even inside the Treasury, the ruling was controversial. Some officials told Mr. Harter — the senior official in charge of the international rules — that the department lacked the power, according to people familiar with the discussions. Mr. Harter dismissed the objections.

Officials at the Joint Committee on Taxation have calculated that the exemptions for international banks could reduce by up to $50 billion the revenue raised by the BEAT.

Over all, the BEAT is likely to collect “a small fraction” of the $150 billion of new tax revenue that was originally projected by Congress, said Thomas Horst, who advises companies on their overseas tax arrangements. He came to that conclusion after reviewing the tax disclosures in more than 140 annual reports filed by multinationals.

Mr. Morgenstern, the Treasury spokesman, said: “We thoroughly reviewed these issues internally and are fully comfortable that we have the legal authority for the conclusions reached in these regulations.” He said Ms. Nijenhuis was not involved in crafting the BEAT rules.

He also said the Treasury decided that changing the rules for foreign banks was appropriate.

“We were responsive to job creators,” he said.

The lobbying surrounding the GILTI was equally intense — and, once again, large companies won valuable concessions.

Back in 2017, Republicans said the GILTI was meant to prevent companies from avoiding American taxes by moving their intellectual property overseas.

In the pharmaceutical and tech industries in particular, profits are often tied to patents. Companies had sold the rights to their patents to subsidiaries in offshore tax havens. The companies then imposed steep licensing fees on their American units. The sleight-of-hand transactions reduced profits in the United States and left them in places like Bermuda and the British Virgin Islands.

But after the law was enacted, large multinationals in industries like consumer products discovered that the GILTI tax applied to them, too. That threatened to cut into their windfalls from the corporate tax rate’s falling to 21 percent from 35 percent.

Lobbyists for Procter & Gamble and other companies turned to lawmakers for help. They asked members of the Senate Finance Committee to tell Treasury officials that they hadn’t intended the GILTI to affect their industries. It was a simple but powerful strategy: Because the Treasury was required to consider congressional intent when writing the tax rules, such explanations could sway the outcome.

Several senators then met with Mr. Mnuchin to discuss the rules.

One lobbyist, Michael Caballero, had been a senior Treasury official in the Obama administration. His clients included Credit Suisse and the industrial conglomerate United Technologies. He met repeatedly with Treasury and White House officials and pushed them to modify the rules so that big companies hit by the GILTI wouldn’t lose certain tax deductions.

In essence, the “high-tax exception” that Mr. Caballero was proposing would allow companies to deduct expenses that they incurred in their overseas operations from their American profits — lowering their United States tax bills.

Other companies jumped on the bandwagon. News Corporation, Liberty Mutual, Anheuser-Busch, Comcast and P.&G. wrote letters or dispatched lobbyists to argue for the high-tax exception.

After months of meetings with lobbyists, the Treasury announced in June 2019 that it was creating a version of the exception that the companies had sought.

Two years after the tax cuts became law, their impact is becoming clear.

Companies continue to shift hundreds of billions of dollars to overseas tax havens, ensuring that huge sums of corporate profits remain out of reach of the United States government.

The Internal Revenue Service is collecting tens of billions of dollars less in corporate taxes than Congress projected, inflating the tax law’s 13-figure price tag.

This month, the Organization for Economic Cooperation and Development calculated that the United States in 2018 experienced the largest drop in tax revenue of any of the group’s 36 member countries. The United States also had by far the largest budget deficit of any of those countries.

In the coming days, the Treasury is likely to complete its last round of rules carrying out the tax cuts. Big companies have spent this fall trying to win more.

In September, Chris D. Trunck, the vice president for tax at Owens Corning, the maker of insulation and roofing materials, wrote to the I.R.S. He pushed the Treasury to tinker with the GILTI rules in a way that would preserve hundreds of millions of dollars of tax benefits that Owens Corning had accumulated from settling claims that it poisoned employees and others with asbestos.

The same month, the underwear manufacturer Hanes sent its own letter to Mr. Mnuchin. The letter, from Bryant Purvis, Hanes’s vice president of global tax, urged Mr. Mnuchin to broaden the high-tax exception so that more companies could take advantage of it.

Otherwise, Mr. Purvis warned, “the GILTI regime will become an impediment to U.S. companies and their ability to not only compete globally as a general matter, but also their ability to remain U.S.-headquartered if they are to maintain the overall fiscal health of their business.”

The implied threat was clear: If the Treasury didn’t further chip away at the new tax, companies like Hanes, based in Winston-Salem, N.C., might have no choice but to move their headquarters overseas.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

How Big Companies Won New Tax Breaks From the Trump Administration

The overhaul of the federal tax law in 2017 was the signature legislative achievement of Donald J. Trump’s presidency.

The biggest change to the tax code in three decades, the law slashed taxes for big companies, part of an effort to coax them to invest more in the United States and to discourage them from stashing profits in overseas tax havens.

Corporate executives, major investors and the wealthiest Americans hailed the tax cuts as a once-in-a-generation boon not only to their own fortunes but also to the United States economy.

But big companies wanted more — and, not long after the bill became law in December 2017, the Trump administration began transforming the tax package into a greater windfall for the world’s largest corporations and their shareholders. The tax bills of many big companies have ended up even smaller than what was anticipated when the president signed the bill.

One consequence is that the federal government may collect hundreds of billions of dollars less over the coming decade than previously projected. The budget deficit has jumped more than 50 percent since Mr. Trump took office and is expected to top $1 trillion in 2020, partly as a result of the tax law.

Laws like the 2017 tax cuts are carried out by federal agencies that first must formalize them via rules and regulations. The process of writing the rules, conducted largely out of public view, can determine who wins and who loses.

Starting in early 2018, senior officials in President Trump’s Treasury Department were swarmed by lobbyists seeking to insulate companies from the few parts of the tax law that would have required them to pay more. The crush of meetings was so intense that some top Treasury officials had little time to do their jobs, according to two people familiar with the process.

The lobbyists targeted a pair of major new taxes that were supposed to raise hundreds of billions of dollars from companies that had been avoiding taxes in part by claiming their profits were earned outside the United States.

The blitz was led by a cross section of the world’s largest companies, including Anheuser-Busch, Credit Suisse, General Electric, United Technologies, Barclays, Coca-Cola, Bank of America, UBS, IBM, Kraft Heinz, Kimberly-Clark, News Corporation, Chubb, ConocoPhillips, HSBC and the American International Group.

Thanks in part to the chaotic manner in which the bill was rushed through Congress — a situation that gave the Treasury Department extra latitude to interpret a law that was, by all accounts, sloppily written — the corporate lobbying campaign was a resounding success.

ImageWestlake Legal Group merlin_130895553_4ce98faa-e477-440f-b670-73e9bce61508-articleLarge How Big Companies Won New Tax Breaks From the Trump Administration United States Politics and Government Trump, Donald J Treasury Department Taxation Tax Shelters Tax Cuts and Jobs Act (2017) Tax Credits, Deductions and Exemptions Procter&Gamble Co Mnuchin, Steven T Internal Revenue Service Income Tax Hanesbrands Inc General Electric Company Federal Taxes (US) Credit Suisse Group AG Corporate Taxes Anheuser-Busch InBev NV

A section of the Senate bill. Congress gave final approval to the Tax Cuts and Jobs Act on Dec. 20, 2017.Credit…Jon Elswick/Associated Press

Through a series of obscure regulations, the Treasury carved out exceptions to the law that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits, according to a review of the Treasury’s rules, government lobbying records, and interviews with federal policymakers and tax experts. Companies were effectively let off the hook for tens if not hundreds of billions of taxes that they would have been required to pay.

“Treasury is gutting the new law,” said Bret Wells, a tax law professor at the University of Houston. “It is largely the top 1 percent that will disproportionately benefit — the wealthiest people in the world.”

It is the latest example of the benefits of the Republican tax package flowing disproportionately to the richest of the rich. Even a tax break that was supposed to aid poor communities — an initiative called “opportunity zones” — is being used in part to finance high-end developments in affluent neighborhoods, at times benefiting those with ties to the Trump administration.

Of course, companies didn’t get everything they wanted, and Brian Morgenstern, a Treasury spokesman, defended the department’s handling of the tax rules. “No particular taxpayer or group had any undue influence at any time in the process,” he said.

Ever since the birth of the modern federal income tax in 1913, companies have been concocting ways to avoid it.

In the late 1990s, American companies accelerated their efforts to claim that trillions of dollars of profits they earned in high-tax places like the United States, Japan or Germany were actually earned in low- or no-tax places like Luxembourg, Bermuda or Ireland.

Google, Apple, Cisco, Pfizer, Merck, Coca-Cola, Facebook and many others have deployed elaborate techniques that let the companies pay taxes at far less than the 35 percent corporate tax rate in the United States that existed before the 2017 changes. Their playful nicknames — like Double Irish and Dutch Sandwich — made them sound benign.

The Obama administration and lawmakers from both parties have tried to combat this profit shifting, but their efforts mostly stalled.

When President Trump and congressional Republicans assembled an enormous tax-cut package in 2017, they pitched it in part as a grand bargain: Companies would get the deep tax cuts that they had spent years clamoring for, but the law would also represent a long-overdue effort to fight corporate tax avoidance and the shipment of jobs overseas.

“The situation where companies are actually encouraged to move overseas and keep their profits overseas makes no sense,” Senator Rob Portman, an Ohio Republican, said on the Senate floor in November 2017.

Republicans were racing to secure a legislative victory during Mr. Trump’s first year in office — a period marked by the administration’s failure to repeal Obamacare and an embarrassing procession of political blunders. Sweeping tax cuts could give Republicans a jolt of much-needed momentum heading into the 2018 midterm elections.

To speed things along, Republicans used a congressional process known as “budget reconciliation,” which blocked Democrats from filibustering and allowed Republicans to pass the bill with a simple majority. But to qualify for that parliamentary green light, the net cost of the bill — after accounting for different tax cuts and tax increases — had to be less than $1.5 trillion over 10 years.

The bill’s cuts totaled $5.5 trillion. The corporate income tax rate shrank to 21 percent from 35 percent, and companies also won a tax break on the trillions in profits brought home from offshore.

To close the gap between the $5.5 trillion in cuts and the maximum price tag of $1.5 trillion, the package sought to raise new revenue by eliminating deductions and introducing new taxes.

Two of the biggest new taxes were supposed to apply to multinational corporations, and lawmakers bestowed them with easy-to-pronounce acronyms — BEAT and GILTI — that belie their complexity.

BEAT stands for the base erosion and anti-abuse tax. It was aimed largely at foreign companies with major operations in the United States, some of which had for years minimized their United States tax bills by shifting money between American subsidiaries and their foreign parent companies.

Instead of paying taxes in the United States, companies send the profits to countries with lower tax rates.

The BEAT aimed to make that less lucrative. Some payments that companies sent to their foreign affiliates would face a new 10 percent tax.

The other big measure was called GILTI: global intangible low-taxed income.

To reduce the benefit companies reaped by claiming that their profits were earned in tax havens, the law imposed an additional tax of up to 10.5 percent on some offshore earnings.

The Joint Committee on Taxation, the congressional panel that estimates the impacts of tax changes, predicted that the BEAT and GILTI would bring in $262 billion over a decade — roughly enough to fund the Treasury Department, the Environmental Protection Agency and the National Cancer Institute for 10 years.

Sitting in the Oval Office on Dec. 22, 2017, Mr. Trump signed the tax cuts into law. It was — and remains — the president’s most significant legislative achievement.

From the start, the new taxes were pocked with loopholes.

In the BEAT, for example, Senate Republicans hoped to avoid a revolt by large companies. They wrote the law so that any payments an American company made to a foreign affiliate for something that went into a product — as opposed to, say, interest payments on loans — were excluded from the tax.

Let’s say an American pharmaceutical company sells pills in the United States. The pills are manufactured by a subsidiary in Ireland, and the American parent pays the Irish unit for the pills before they are sold to the public. Those payments mean that the company’s profits in the United States, where taxes are relatively high, go down; profits in tax-friendly Ireland go up.

Because such payments to Ireland wouldn’t be taxed, some companies that had been the most aggressive at shifting profits into offshore havens were spared the full brunt of the BEAT.

Other companies, like General Electric, were surprised to be hit by the new tax, thinking it applied only to foreign multinationals, according to Pat Brown, who had been G.E.’s top tax expert.

Mr. Brown, now the head of international tax policy at the accounting and consulting firm PwC, said on a podcast this year that the Trump administration should bridge the gap between expectations about the tax law and how it was playing out in reality. He lobbied the Treasury on behalf of G.E.

“The question,” he said, “is how creative and how expansive is Treasury and the I.R.S. able to be.”

Almost immediately after Mr. Trump signed the bill, companies and their lobbyists — including G.E.’s Mr. Brown — began a full-court pressure campaign to try to shield themselves from the BEAT and GILTI.

The Treasury Department had to figure out how to carry out the hastily written law, which lacked crucial details.

Chip Harter was the Treasury official in charge of writing the rules for the BEAT and GILTI. He had spent decades at PwC and the law firm Baker McKenzie, counseling companies on the same sorts of tax-avoidance arrangements that the new law was supposed to discourage.

Starting in January 2018, he and his colleagues found themselves in nonstop meetings — roughly 10 a week at times — with lobbyists for companies and industry groups.

The Organization for International Investment — a powerful trade group for foreign multinationals like the Swiss food company Nestlé and the Dutch chemical maker LyondellBasell — objected to a Treasury proposal that would have prevented companies from using a complex currency-accounting maneuver to avoid the BEAT.

The group’s lobbyists were from PwC and Baker McKenzie, Mr. Harter’s former firms, according to public lobbying disclosures. One of them, Pam Olson, was the top Treasury tax official in the George W. Bush administration. (Mr. Morgenstern, the Treasury spokesman, said Mr. Harter didn’t meet with PwC while the rules were being written.)

This month, the Treasury issued the final version of some of the BEAT regulations. The Organization for International Investment got what it wanted.

One of the most effective campaigns, with the greatest financial consequence, was led by a small group of large foreign banks, including Credit Suisse and Barclays.

American regulators require international banks to ensure that their United States divisions are financially equipped to absorb big losses in a crisis. To meet those requirements, foreign banks lend the money to their American outposts. Those loans accrue interest. Under the BEAT, the interest that the American units paid to their European parents would often be taxed.

“Foreign banks should not be penalized by the U.S. tax laws for complying” with regulations, said Briget Polichene, chief executive of the Institute of International Bankers, whose members include many of the world’s largest banks.

Banks flooded the Treasury Department with lobbyists and letters.

Late last year, Mr. Harter went to Treasury Secretary Steven Mnuchin and told him about the plan to give the banks a break. Mr. Mnuchin — a longtime banking executive before joining the Trump administration — signed off on the new exemptions, according to a person familiar with the matter.

A few months later, the tax-policy office handed another victory to the foreign banks, ruling that an even wider range of bank payments would be exempted.

Among the lobbyists who successfully pushed the banks’ case in private meetings with senior Treasury officials was Erika Nijenhuis of the law firm Cleary Gottlieb. Her client was the Institute of International Bankers.

In September 2019, Ms. Nijenhuis took off her lobbying hat and joined the Treasury’s Office of Tax Policy, which was still writing the rules governing the tax law.

Some tax experts said that the Treasury had no legal authority to exempt the bank payments from the BEAT; only Congress had that power. The Trump administration created the exception “out of whole cloth,” said Mr. Wells, the University of Houston professor.

Even inside the Treasury, the ruling was controversial. Some officials told Mr. Harter — the senior official in charge of the international rules — that the department lacked the power, according to people familiar with the discussions. Mr. Harter dismissed the objections.

Officials at the Joint Committee on Taxation have calculated that the exemptions for international banks could reduce by up to $50 billion the revenue raised by the BEAT.

Over all, the BEAT is likely to collect “a small fraction” of the $150 billion of new tax revenue that was originally projected by Congress, said Thomas Horst, who advises companies on their overseas tax arrangements. He came to that conclusion after reviewing the tax disclosures in more than 140 annual reports filed by multinationals.

Mr. Morgenstern, the Treasury spokesman, said: “We thoroughly reviewed these issues internally and are fully comfortable that we have the legal authority for the conclusions reached in these regulations.” He said Ms. Nijenhuis was not involved in crafting the BEAT rules.

He also said the Treasury decided that changing the rules for foreign banks was appropriate.

“We were responsive to job creators,” he said.

The lobbying surrounding the GILTI was equally intense — and, once again, large companies won valuable concessions.

Back in 2017, Republicans said the GILTI was meant to prevent companies from avoiding American taxes by moving their intellectual property overseas.

In the pharmaceutical and tech industries in particular, profits are often tied to patents. Companies had sold the rights to their patents to subsidiaries in offshore tax havens. The companies then imposed steep licensing fees on their American units. The sleight-of-hand transactions reduced profits in the United States and left them in places like Bermuda and the British Virgin Islands.

But after the law was enacted, large multinationals in industries like consumer products discovered that the GILTI tax applied to them, too. That threatened to cut into their windfalls from the corporate tax rate’s falling to 21 percent from 35 percent.

Lobbyists for Procter & Gamble and other companies turned to lawmakers for help. They asked members of the Senate Finance Committee to tell Treasury officials that they hadn’t intended the GILTI to affect their industries. It was a simple but powerful strategy: Because the Treasury was required to consider congressional intent when writing the tax rules, such explanations could sway the outcome.

Several senators then met with Mr. Mnuchin to discuss the rules.

One lobbyist, Michael Caballero, had been a senior Treasury official in the Obama administration. His clients included Credit Suisse and the industrial conglomerate United Technologies. He met repeatedly with Treasury and White House officials and pushed them to modify the rules so that big companies hit by the GILTI wouldn’t lose certain tax deductions.

In essence, the “high-tax exception” that Mr. Caballero was proposing would allow companies to deduct expenses that they incurred in their overseas operations from their American profits — lowering their United States tax bills.

Other companies jumped on the bandwagon. News Corporation, Liberty Mutual, Anheuser-Busch, Comcast and P.&G. wrote letters or dispatched lobbyists to argue for the high-tax exception.

After months of meetings with lobbyists, the Treasury announced in June 2019 that it was creating a version of the exception that the companies had sought.

Two years after the tax cuts became law, their impact is becoming clear.

Companies continue to shift hundreds of billions of dollars to overseas tax havens, ensuring that huge sums of corporate profits remain out of reach of the United States government.

The Internal Revenue Service is collecting tens of billions of dollars less in corporate taxes than Congress projected, inflating the tax law’s 13-figure price tag.

This month, the Organization for Economic Cooperation and Development calculated that the United States in 2018 experienced the largest drop in tax revenue of any of the group’s 36 member countries. The United States also had by far the largest budget deficit of any of those countries.

In the coming days, the Treasury is likely to complete its last round of rules carrying out the tax cuts. Big companies have spent this fall trying to win more.

In September, Chris D. Trunck, the vice president for tax at Owens Corning, the maker of insulation and roofing materials, wrote to the I.R.S. He pushed the Treasury to tinker with the GILTI rules in a way that would preserve hundreds of millions of dollars of tax benefits that Owens Corning had accumulated from settling claims that it poisoned employees and others with asbestos.

The same month, the underwear manufacturer Hanes sent its own letter to Mr. Mnuchin. The letter, from Bryant Purvis, Hanes’s vice president of global tax, urged Mr. Mnuchin to broaden the high-tax exception so that more companies could take advantage of it.

Otherwise, Mr. Purvis warned, “the GILTI regime will become an impediment to U.S. companies and their ability to not only compete globally as a general matter, but also their ability to remain U.S.-headquartered if they are to maintain the overall fiscal health of their business.”

The implied threat was clear: If the Treasury didn’t further chip away at the new tax, companies like Hanes, based in Winston-Salem, N.C., might have no choice but to move their headquarters overseas.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

How Big Companies Won New Tax Breaks From the Trump Administration

The overhaul of the federal tax law in 2017 was the signature legislative achievement of Donald J. Trump’s presidency.

The biggest change to the tax code in three decades, the law slashed taxes for big companies, part of an effort to coax them to invest more in the United States and to discourage them from stashing profits in overseas tax havens.

Corporate executives, major investors and the wealthiest Americans hailed the tax cuts as a once-in-a-generation boon not only to their own fortunes but also to the United States economy.

But big companies wanted more — and, not long after the bill became law in December 2017, the Trump administration began transforming the tax package into a greater windfall for the world’s largest corporations and their shareholders. The tax bills of many big companies have ended up even smaller than what was anticipated when the president signed the bill.

One consequence is that the federal government may collect hundreds of billions of dollars less over the coming decade than previously projected. The budget deficit has jumped more than 50 percent since Mr. Trump took office and is expected to top $1 trillion in 2020, partly as a result of the tax law.

Laws like the 2017 tax cuts are carried out by federal agencies that first must formalize them via rules and regulations. The process of writing the rules, conducted largely out of public view, can determine who wins and who loses.

Starting in early 2018, senior officials in President Trump’s Treasury Department were swarmed by lobbyists seeking to insulate companies from the few parts of the tax law that would have required them to pay more. The crush of meetings was so intense that some top Treasury officials had little time to do their jobs, according to two people familiar with the process.

The lobbyists targeted a pair of major new taxes that were supposed to raise hundreds of billions of dollars from companies that had been avoiding taxes in part by claiming their profits were earned outside the United States.

The blitz was led by a cross section of the world’s largest companies, including Anheuser-Busch, Credit Suisse, General Electric, United Technologies, Barclays, Coca-Cola, Bank of America, UBS, IBM, Kraft Heinz, Kimberly-Clark, News Corporation, Chubb, ConocoPhillips, HSBC and the American International Group.

Thanks in part to the chaotic manner in which the bill was rushed through Congress — a situation that gave the Treasury Department extra latitude to interpret a law that was, by all accounts, sloppily written — the corporate lobbying campaign was a resounding success.

ImageWestlake Legal Group merlin_130895553_4ce98faa-e477-440f-b670-73e9bce61508-articleLarge How Big Companies Won New Tax Breaks From the Trump Administration United States Politics and Government Trump, Donald J Treasury Department Taxation Tax Shelters Tax Cuts and Jobs Act (2017) Tax Credits, Deductions and Exemptions Procter&Gamble Co Mnuchin, Steven T Internal Revenue Service Income Tax Hanesbrands Inc General Electric Company Federal Taxes (US) Credit Suisse Group AG Corporate Taxes Anheuser-Busch InBev NV

A section of the Senate bill. Congress gave final approval to the Tax Cuts and Jobs Act on Dec. 20, 2017.Credit…Jon Elswick/Associated Press

Through a series of obscure regulations, the Treasury carved out exceptions to the law that mean many leading American and foreign companies will owe little or nothing in new taxes on offshore profits, according to a review of the Treasury’s rules, government lobbying records, and interviews with federal policymakers and tax experts. Companies were effectively let off the hook for tens if not hundreds of billions of taxes that they would have been required to pay.

“Treasury is gutting the new law,” said Bret Wells, a tax law professor at the University of Houston. “It is largely the top 1 percent that will disproportionately benefit — the wealthiest people in the world.”

It is the latest example of the benefits of the Republican tax package flowing disproportionately to the richest of the rich. Even a tax break that was supposed to aid poor communities — an initiative called “opportunity zones” — is being used in part to finance high-end developments in affluent neighborhoods, at times benefiting those with ties to the Trump administration.

Of course, companies didn’t get everything they wanted, and Brian Morgenstern, a Treasury spokesman, defended the department’s handling of the tax rules. “No particular taxpayer or group had any undue influence at any time in the process,” he said.

Ever since the birth of the modern federal income tax in 1913, companies have been concocting ways to avoid it.

In the late 1990s, American companies accelerated their efforts to claim that trillions of dollars of profits they earned in high-tax places like the United States, Japan or Germany were actually earned in low- or no-tax places like Luxembourg, Bermuda or Ireland.

Google, Apple, Cisco, Pfizer, Merck, Coca-Cola, Facebook and many others have deployed elaborate techniques that let the companies pay taxes at far less than the 35 percent corporate tax rate in the United States that existed before the 2017 changes. Their playful nicknames — like Double Irish and Dutch Sandwich — made them sound benign.

The Obama administration and lawmakers from both parties have tried to combat this profit shifting, but their efforts mostly stalled.

When President Trump and congressional Republicans assembled an enormous tax-cut package in 2017, they pitched it in part as a grand bargain: Companies would get the deep tax cuts that they had spent years clamoring for, but the law would also represent a long-overdue effort to fight corporate tax avoidance and the shipment of jobs overseas.

“The situation where companies are actually encouraged to move overseas and keep their profits overseas makes no sense,” Senator Rob Portman, an Ohio Republican, said on the Senate floor in November 2017.

Republicans were racing to secure a legislative victory during Mr. Trump’s first year in office — a period marked by the administration’s failure to repeal Obamacare and an embarrassing procession of political blunders. Sweeping tax cuts could give Republicans a jolt of much-needed momentum heading into the 2018 midterm elections.

To speed things along, Republicans used a congressional process known as “budget reconciliation,” which blocked Democrats from filibustering and allowed Republicans to pass the bill with a simple majority. But to qualify for that parliamentary green light, the net cost of the bill — after accounting for different tax cuts and tax increases — had to be less than $1.5 trillion over 10 years.

The bill’s cuts totaled $5.5 trillion. The corporate income tax rate shrank to 21 percent from 35 percent, and companies also won a tax break on the trillions in profits brought home from offshore.

To close the gap between the $5.5 trillion in cuts and the maximum price tag of $1.5 trillion, the package sought to raise new revenue by eliminating deductions and introducing new taxes.

Two of the biggest new taxes were supposed to apply to multinational corporations, and lawmakers bestowed them with easy-to-pronounce acronyms — BEAT and GILTI — that belie their complexity.

BEAT stands for the base erosion and anti-abuse tax. It was aimed largely at foreign companies with major operations in the United States, some of which had for years minimized their United States tax bills by shifting money between American subsidiaries and their foreign parent companies.

Instead of paying taxes in the United States, companies send the profits to countries with lower tax rates.

The BEAT aimed to make that less lucrative. Some payments that companies sent to their foreign affiliates would face a new 10 percent tax.

The other big measure was called GILTI: global intangible low-taxed income.

To reduce the benefit companies reaped by claiming that their profits were earned in tax havens, the law imposed an additional tax of up to 10.5 percent on some offshore earnings.

The Joint Committee on Taxation, the congressional panel that estimates the impacts of tax changes, predicted that the BEAT and GILTI would bring in $262 billion over a decade — roughly enough to fund the Treasury Department, the Environmental Protection Agency and the National Cancer Institute for 10 years.

Sitting in the Oval Office on Dec. 22, 2017, Mr. Trump signed the tax cuts into law. It was — and remains — the president’s most significant legislative achievement.

From the start, the new taxes were pocked with loopholes.

In the BEAT, for example, Senate Republicans hoped to avoid a revolt by large companies. They wrote the law so that any payments an American company made to a foreign affiliate for something that went into a product — as opposed to, say, interest payments on loans — were excluded from the tax.

Let’s say an American pharmaceutical company sells pills in the United States. The pills are manufactured by a subsidiary in Ireland, and the American parent pays the Irish unit for the pills before they are sold to the public. Those payments mean that the company’s profits in the United States, where taxes are relatively high, go down; profits in tax-friendly Ireland go up.

Because such payments to Ireland wouldn’t be taxed, some companies that had been the most aggressive at shifting profits into offshore havens were spared the full brunt of the BEAT.

Other companies, like General Electric, were surprised to be hit by the new tax, thinking it applied only to foreign multinationals, according to Pat Brown, who had been G.E.’s top tax expert.

Mr. Brown, now the head of international tax policy at the accounting and consulting firm PwC, said on a podcast this year that the Trump administration should bridge the gap between expectations about the tax law and how it was playing out in reality. He lobbied the Treasury on behalf of G.E.

“The question,” he said, “is how creative and how expansive is Treasury and the I.R.S. able to be.”

Almost immediately after Mr. Trump signed the bill, companies and their lobbyists — including G.E.’s Mr. Brown — began a full-court pressure campaign to try to shield themselves from the BEAT and GILTI.

The Treasury Department had to figure out how to carry out the hastily written law, which lacked crucial details.

Chip Harter was the Treasury official in charge of writing the rules for the BEAT and GILTI. He had spent decades at PwC and the law firm Baker McKenzie, counseling companies on the same sorts of tax-avoidance arrangements that the new law was supposed to discourage.

Starting in January 2018, he and his colleagues found themselves in nonstop meetings — roughly 10 a week at times — with lobbyists for companies and industry groups.

The Organization for International Investment — a powerful trade group for foreign multinationals like the Swiss food company Nestlé and the Dutch chemical maker LyondellBasell — objected to a Treasury proposal that would have prevented companies from using a complex currency-accounting maneuver to avoid the BEAT.

The group’s lobbyists were from PwC and Baker McKenzie, Mr. Harter’s former firms, according to public lobbying disclosures. One of them, Pam Olson, was the top Treasury tax official in the George W. Bush administration. (Mr. Morgenstern, the Treasury spokesman, said Mr. Harter didn’t meet with PwC while the rules were being written.)

This month, the Treasury issued the final version of some of the BEAT regulations. The Organization for International Investment got what it wanted.

One of the most effective campaigns, with the greatest financial consequence, was led by a small group of large foreign banks, including Credit Suisse and Barclays.

American regulators require international banks to ensure that their United States divisions are financially equipped to absorb big losses in a crisis. To meet those requirements, foreign banks lend the money to their American outposts. Those loans accrue interest. Under the BEAT, the interest that the American units paid to their European parents would often be taxed.

“Foreign banks should not be penalized by the U.S. tax laws for complying” with regulations, said Briget Polichene, chief executive of the Institute of International Bankers, whose members include many of the world’s largest banks.

Banks flooded the Treasury Department with lobbyists and letters.

Late last year, Mr. Harter went to Treasury Secretary Steven Mnuchin and told him about the plan to give the banks a break. Mr. Mnuchin — a longtime banking executive before joining the Trump administration — signed off on the new exemptions, according to a person familiar with the matter.

A few months later, the tax-policy office handed another victory to the foreign banks, ruling that an even wider range of bank payments would be exempted.

Among the lobbyists who successfully pushed the banks’ case in private meetings with senior Treasury officials was Erika Nijenhuis of the law firm Cleary Gottlieb. Her client was the Institute of International Bankers.

In September 2019, Ms. Nijenhuis took off her lobbying hat and joined the Treasury’s Office of Tax Policy, which was still writing the rules governing the tax law.

Some tax experts said that the Treasury had no legal authority to exempt the bank payments from the BEAT; only Congress had that power. The Trump administration created the exception “out of whole cloth,” said Mr. Wells, the University of Houston professor.

Even inside the Treasury, the ruling was controversial. Some officials told Mr. Harter — the senior official in charge of the international rules — that the department lacked the power, according to people familiar with the discussions. Mr. Harter dismissed the objections.

Officials at the Joint Committee on Taxation have calculated that the exemptions for international banks could reduce by up to $50 billion the revenue raised by the BEAT.

Over all, the BEAT is likely to collect “a small fraction” of the $150 billion of new tax revenue that was originally projected by Congress, said Thomas Horst, who advises companies on their overseas tax arrangements. He came to that conclusion after reviewing the tax disclosures in more than 140 annual reports filed by multinationals.

Mr. Morgenstern, the Treasury spokesman, said: “We thoroughly reviewed these issues internally and are fully comfortable that we have the legal authority for the conclusions reached in these regulations.” He said Ms. Nijenhuis was not involved in crafting the BEAT rules.

He also said the Treasury decided that changing the rules for foreign banks was appropriate.

“We were responsive to job creators,” he said.

The lobbying surrounding the GILTI was equally intense — and, once again, large companies won valuable concessions.

Back in 2017, Republicans said the GILTI was meant to prevent companies from avoiding American taxes by moving their intellectual property overseas.

In the pharmaceutical and tech industries in particular, profits are often tied to patents. Companies had sold the rights to their patents to subsidiaries in offshore tax havens. The companies then imposed steep licensing fees on their American units. The sleight-of-hand transactions reduced profits in the United States and left them in places like Bermuda and the British Virgin Islands.

But after the law was enacted, large multinationals in industries like consumer products discovered that the GILTI tax applied to them, too. That threatened to cut into their windfalls from the corporate tax rate’s falling to 21 percent from 35 percent.

Lobbyists for Procter & Gamble and other companies turned to lawmakers for help. They asked members of the Senate Finance Committee to tell Treasury officials that they hadn’t intended the GILTI to affect their industries. It was a simple but powerful strategy: Because the Treasury was required to consider congressional intent when writing the tax rules, such explanations could sway the outcome.

Several senators then met with Mr. Mnuchin to discuss the rules.

One lobbyist, Michael Caballero, had been a senior Treasury official in the Obama administration. His clients included Credit Suisse and the industrial conglomerate United Technologies. He met repeatedly with Treasury and White House officials and pushed them to modify the rules so that big companies hit by the GILTI wouldn’t lose certain tax deductions.

In essence, the “high-tax exception” that Mr. Caballero was proposing would allow companies to deduct expenses that they incurred in their overseas operations from their American profits — lowering their United States tax bills.

Other companies jumped on the bandwagon. News Corporation, Liberty Mutual, Anheuser-Busch, Comcast and P.&G. wrote letters or dispatched lobbyists to argue for the high-tax exception.

After months of meetings with lobbyists, the Treasury announced in June 2019 that it was creating a version of the exception that the companies had sought.

Two years after the tax cuts became law, their impact is becoming clear.

Companies continue to shift hundreds of billions of dollars to overseas tax havens, ensuring that huge sums of corporate profits remain out of reach of the United States government.

The Internal Revenue Service is collecting tens of billions of dollars less in corporate taxes than Congress projected, inflating the tax law’s 13-figure price tag.

This month, the Organization for Economic Cooperation and Development calculated that the United States in 2018 experienced the largest drop in tax revenue of any of the group’s 36 member countries. The United States also had by far the largest budget deficit of any of those countries.

In the coming days, the Treasury is likely to complete its last round of rules carrying out the tax cuts. Big companies have spent this fall trying to win more.

In September, Chris D. Trunck, the vice president for tax at Owens Corning, the maker of insulation and roofing materials, wrote to the I.R.S. He pushed the Treasury to tinker with the GILTI rules in a way that would preserve hundreds of millions of dollars of tax benefits that Owens Corning had accumulated from settling claims that it poisoned employees and others with asbestos.

The same month, the underwear manufacturer Hanes sent its own letter to Mr. Mnuchin. The letter, from Bryant Purvis, Hanes’s vice president of global tax, urged Mr. Mnuchin to broaden the high-tax exception so that more companies could take advantage of it.

Otherwise, Mr. Purvis warned, “the GILTI regime will become an impediment to U.S. companies and their ability to not only compete globally as a general matter, but also their ability to remain U.S.-headquartered if they are to maintain the overall fiscal health of their business.”

The implied threat was clear: If the Treasury didn’t further chip away at the new tax, companies like Hanes, based in Winston-Salem, N.C., might have no choice but to move their headquarters overseas.

Real Estate, and Personal Injury Lawyers. Contact us at: https://westlakelegal.com 

Purdue Pharma’s Payments to Sacklers Soared Amid Opioid Crisis

Westlake Legal Group 16SACKLER1-facebookJumbo Purdue Pharma’s Payments to Sacklers Soared Amid Opioid Crisis your-feed-healthcare Suits and Litigation (Civil) Sackler family Purdue Pharma Pain-Relieving Drugs Opioids and Opiates Corporate Taxes Bankruptcies

As scrutiny of Purdue Pharma’s role in the opioid epidemic intensified during the past dozen years, its owners, members of the Sackler family, withdrew more than $10 billion from the company, distributing it among trusts and overseas holding companies, according to a new audit commissioned by Purdue.

The amount is more than eight times what the family took out of the company in the 13 years after OxyContin, its signature product, was approved in 1995. The audit is likely to renew questions about how much the Sacklers should pay to resolve more than 2,800 lawsuits that seek to hold Purdue accountable for the opioid crisis.

The family has offered to contribute at least $3 billion in cash as part of a settlement to resolve thousands of lawsuits brought by state and local governments against Purdue. But 24 states, led by Massachusetts and New York, have refused to sign onto the agreement, arguing that the Sacklers should pay more.

The new report, a 350-page forensic accounting prepared by Alix Partners, a consulting firm that Purdue has hired to help guide the company through Chapter 11 restructuring, was filed in bankruptcy court in White Plains, N.Y., Monday evening.

Ultimately, it does not answer a key question for investigators — how much the Sacklers are actually worth and where their money is located.

But the report does detail checks and disbursements that Purdue made to the family in the years after the company’s guilty plea in 2007 to federal charges that it deceptively marketed OxyContin as nonaddictive. It could be used to support allegations as to whether the Sacklers intentionally withdrew large annual sums to shield the money from litigation as legal pressures mounted.

The audit notes that in the first dozen years that OxyContin was approved — from 1995 through 2007 — Purdue’s payouts to the Sacklers totaled just $1.32 billion; from 2008 through 2017, the period of intense scrutiny by the auditors, the payments totaled $10.7 billion.

By 2017, the Sacklers had voted to stop taking cash payments and so Purdue ended the practice.

The report also shows that nearly half the amount sent to the Sacklers was designated to pay taxes, suggesting that less than half the Sackler distributions might actually be available in cash. During the years covered by the audit, the report says, Purdue paid $4.1 billion to the Sacklers, $1.6 billion to their affiliated companies and $4.6 billion for taxes.

The auditors reported that they did not know how much cash distributed to the Sacklers was actually used to pay taxes. The payments were often directed to trusts based in countries known as tax havens, like Luxembourg and the British Virgin Islands, the records show.

A lawyer for some of the Sacklers, Daniel S. Connolly, said in a statement that the family had used the $10.7 billion appropriately and legally. “This filing reflects the fact that more than half was paid in taxes and reinvested in businesses that will be sold as part of the proposed settlement, ” the statement said.

Mr. Connolly said about 90 percent of the tax distributions did go toward tax payments.

Some tax bills were paid on the Sackler family’s behalf. Purdue directed nearly $2.3 billion to the United States treasury for the Sacklers, and also made payments to a number of states, including nearly $97 million to New Jersey.

The Sacklers have said they will submit a report early next year to the bankruptcy court containing further information about their finances. But unlike this filing, it is expected to be confidential.

The Alix Partners report also offers a rare glimpse into other aspects of the financial relationship between Purdue and the Sackler heirs, who, over the years, have served as the company’s senior executives and board members. In addition to the cash disbursements, it details additional expenses the company covered for family members, including $17 million for their legal fees from 2018 to part of this year, as lawsuits escalated against family members. In that time, one law firm, Debevoise and Plimpton, billed $11.4 million for representing one branch of the family.

By early 2019, by mutual agreement, Purdue stopped paying the Sacklers’ legal bills.

The report shows that Purdue also paid comparatively modest salaries to some of the Sacklers, including several members of younger generations who worked as summer interns for the company.

It also describes how, over the last 18 months, as the Sacklers left Purdue’s board and stopped taking distributions, the new executive team sought to distance the company from the family, as it readied Purdue for restructuring. The executives asked family members to reimburse the company for $313 million in loans and $1 million in expenses, including $477,351 in cellphone bills, which the family did.

Some states are investigating the legality and structure of the Sackler transfers from Purdue, and the company is reviewing those transactions. Oregon noted in a lawsuit filed in May that though the Sacklers typically voted to receive annual percentages of sales ranging from 4 percent to 15 percent, by 2007 it jumped to 25 percent and, in 2008, to 65 percent.

This report lands just ahead of a bankruptcy court hearing on Thursday about the Purdue restructuring, the centerpiece of which has been an dispute over the company’s settlement offer. For their part, the Sacklers, who have agreed to relinquish ownership and control of Purdue, would pay $3 billion over seven years, as well as much of the proceeds of the sale of their other companies that manufacture opioids internationally.

As part of the settlement, the company’s new board said it intends to reposition the company as a public beneficiary trust, donating addiction treatment drugs and paying plaintiffs. The trust would keep manufacturing a suite of medicines, including OxyContin, whose patents begin to expire in several years.

A sticking point in negotiations has been the status of the state lawsuits against the Sacklers. The litigation has been stayed against Purdue itself, because it is in bankruptcy. But the Sacklers themselves have not filed for bankruptcy, and two dozen states want to keep pursuing them, to determine their real worth and where their money is.

The family wields a powerful stick: If the lawsuits against them continue, they could withdraw the settlement offer.

The report itself walks something of a tightrope. It could eventually serve as evidence for Purdue to use against the family that has controlled it since the 1950s. As part of the company’s financial obligations in bankruptcy, Purdue must determine whether the Sacklers paid themselves legally or siphoned off the company’s considerable opioid proceeds in anticipation of lawsuits.

In a statement, Josephine Martin, a Purdue spokeswoman, ticked off steps the company had taken in the last 18 months to discontinue promoting opioid painkillers, by eliminating its sales forces, no longer marketing OxyContin to doctors, submitting to outside oversight and offering $200 million in emergency opioid relief.

“Purdue sees today’s filing as part of its ongoing effort to position itself as a public benefit company for the benefit of the American public,” the statement said.

While the audit provides a range of detail, it leaves many questions unanswered. The money flowing to the Sacklers soared after the company’s 2007 felony plea, peaking at $1.7 billion in 2009, with about $720 million of that earmarked for tax payments that year. The most common recipients were Rosebay Medical and Beacon Co., holding companies controlled by the two wings of the Sackler family.

One set of a dozen transactions in July 2017 was illustrative of the complex way Purdue moved money around. Purdue transferred equal amounts through a series of companies before $980,000 was deposited into Beacon and another $980,000 into Rosebay. Both then transferred the money into another company before directing it into the Japanese division of Mundipharma, a Sackler company that sells opioids and other drugs abroad. At the same time as the transfers through Rosebay and Beacon, another $17.6 million was sent more directly by Purdue into the same Japanese unit of Mundipharma.

The report did not explain the rationale for the series of transactions.

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Biden Proposes Smaller Tax Increases Than Rivals Do

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WASHINGTON — The Democratic presidential candidate Joseph R. Biden Jr. would raise taxes on high earners and corporations by at least $3.4 trillion over the course of a decade if elected, his campaign said Wednesday, releasing a set of plans that are far less aggressive than his more liberal rivals’.

Mr. Biden would raise a much smaller amount of tax revenue from the wealthiest Americans and businesses than his rivals Senators Bernie Sanders of Vermont and Elizabeth Warren of Massachusetts, who have each proposed wealth taxes on the assets of billionaires and some multimillionaires, along with corporate tax increases.

The gulf in tax proposals mirrors the candidates’ divide on plans for new government spending. Ms. Warren and Mr. Sanders want to spend trillions of dollars more per year on new federal programs, including Medicare for All and student debt relief, than Mr. Biden has suggested.

Ms. Warren has proposed about $30 trillion in new tax revenues to pay for her spending plans. Mr. Sanders has said his health care plan alone will cost $30 trillion. Mayor Pete Buttigieg of the South Bend, Ind., who has emerged as one of Mr. Biden’s main rivals in wooing moderate Democrats, has proposed nearly $7 trillion in new taxes, according to his campaign.

It remains possible that Mr. Biden could propose additional spending plans and other new taxes to help pay for them. But his tax increases are already more than double the amount that the last Democratic presidential nominee, Hillary Clinton, proposed in the 2016 campaign.

While less aggressive than his rivals’, Mr. Biden’s proposals reflect a growing focus among Democrats to reduce economic inequality through higher tax and spending programs.

Mr. Biden would use the tax revenues to fund new spending on higher education, infrastructure, health care and carbon emissions reduction.

The list of proposals he released Wednesday shields more Americans from tax increases than Ms. Warren’s or Mr. Sanders’s would, and it tweaks — rather than scraps entirely — President Trump’s tax cuts for corporations.

Mr. Biden has cast his plans as both progressive and achievable, a contrast the campaign sought to underscore with the details it released. They include revenue projections that are more conservative than some of his opponents’.

For example, Mr. Biden projects raising less than $2 trillion over a decade from all of his corporate tax increases combined. Ms. Warren forecasts she can raise more than $2 trillion solely by cracking down on companies that underpay their American tax liability.

Mr. Biden “is committed to being transparent with the American people about the smart and effective ways he’d pay for the bold changes he’s proposing,” said his policy director, Stef Feldman. “He believes that being forthright with voters about how plans would be financed is critical to building the public support necessary to beat Donald Trump, help more Democrats win up and down the ballot, and then pass legislation through Congress.”

Some high-earners — those who make around $450,000 a year — would pay lower tax rates under Mr. Biden’s plan than they did during the Obama administration, when Mr. Biden was vice president. That is a deliberate choice by Mr. Biden: He proposes returning the top income tax bracket to 39.6 percent, after Mr. Trump’s 2017 tax law cut it to 37 percent.

But Mr. Biden would only subject individuals’ income above $510,000 to that top rate. Before the Trump tax cuts, the top rate started at just under $420,000 for individuals.

Mr. Biden would also repeal a limitation that the Trump tax law placed on the deduction of state and local taxes from federal taxes. The law capped the so-called SALT deduction at $10,000 for individuals or households, a change that raised taxes on some higher-earning taxpayers in high-tax and predominantly Democratic states like California, New York and New Jersey.

Corporations would also be subject to a lower rate under Mr. Biden’s plan than they were before the passage of Mr. Trump’s tax cuts. The 2017 cuts reduced the corporate rate to 21 percent from a high of 35 percent. Mr. Biden would raise it to 28 percent — the same rate Mr. Obama proposed in a tax overhaul plan he was unable to push through as president.

Mr. Biden would unambiguously raise taxes on millionaires, and not just by lifting the top rate. He would raise the tax rate on capital gains — the proceeds from the sale of a stock, vacation home or other investment asset — to 39.6 percent from 23.8 percent, for taxpayers earning more than $1 million a year. He would also limit those taxpayers’ itemized deductions and eliminate an inflation adjustment at death that reduces capital gains liabilities for wealthy heirs.

Mr. Biden would raise additional tax revenues from multinational corporations whose effective tax rates are below the 21 percent corporate rate by enacting measures aimed at discouraging companies from shifting profits overseas. The proposals target companies like Amazon and Apple that report little or no federal tax liability.

They include a type of alternative minimum tax of 15 percent on companies’ total revenues worldwide, with credit given for taxes paid in foreign countries. A similar, but not identical, proposal from Ms. Warren would tax companies on the difference between their foreign taxes paid and her proposed American corporate rate of 35 percent.

Another of Mr. Biden’s plans would double the rate of a new minimum tax of sorts, which was established by Mr. Trump’s tax law and which applies to certain income from multinationals.

Thomas Kaplan contributed reporting from Ames, Iowa.

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French Wine Could Face 100% Tariffs as Trump Confronts France Over Tech Taxes

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WASHINGTON — The Trump administration said on Monday that a new French tax that hit American technology companies discriminated against the United States, a declaration that could lead to retaliatory tariffs of as high as 100 percent on French wines.

It could also jeopardize international efforts to negotiate a truce on so-called digital taxes.

The announcement from the Office of the United States Trade Representative ended a monthslong investigation into the French tax, which hits companies like Facebook and Google even though they have little physical presence in France. The investigation concluded that the tax “discriminates against U.S. companies, is inconsistent with prevailing principles of international tax policy and is unusually burdensome for affected U.S. companies.”

It recommended tariffs as high as 100 percent on certain French imports valued at $2.4 billion, including cheese, wine and handbags.

The administration suggested it could open similar investigations into digital taxes proposed by Italy, Austria and Turkey.

The finding does not immediately impose tariffs on French products such as wine, which was already hit with a 25 percent tariff in October in a separate dispute, but it allows the president to impose them if and when he chooses. It could also upend an effort led by the Organization for Economic Cooperation and Development to unite 135 countries around a shared system of taxing technology companies and other multinational corporations, which leaders had hoped would come together in 2020.

An escalation of tensions between France and the United States would complicate any resolution to those negotiations.

The French government approved a new “digital service tax” this year on online economic activity, which would hit large American tech companies widely frequented by French citizens. French leaders have expressed concern that their government has not been able to capture revenue from companies that sell or advertise online in France, a concern that is shared by a growing number of countries, including Britain and India.

President Trump’s trade representative responded to the French tax by opening the investigation into whether it unfairly targeted American companies. In July, the president threatened to impose tariffs on French wine as a response to the new tax.

But in August, French and American leaders reached a 90-day agreement to pause the dispute and allow multinational negotiations to proceed on an ambitious global agreement on taxes that would extend well beyond technology companies.

Those talks, which include an array of countries and multinational corporations, are making progress, said Bart le Blanc, an Amsterdam-based partner and tax adviser at the Norton Rose Fulbright law firm. But such an agreement would require countries like France to scrap their individual digital taxes, he said.

“There seems to be room for everybody to agree to this proposal,” Mr. le Blanc said, “if everything falls into place.”

While past administrations have treated European leaders as close economic allies, the Trump administration has taken a more adversarial approach. Mr. Trump has accused the Europeans of manipulating their currency and the terms of trade to export more goods to the United States than they import from it. He has threatened a variety of tariffs to block European goods from American markets.

In October, his administration slapped tariffs on French aircraft, wine and cheese and a range of other European products after the World Trade Organization gave the United States permission to impose levies on up to $7.5 billion of European exports annually. That decision was part of a long-running trade case about subsidies provided to the European plane maker Airbus.

On Monday, the World Trade Organization issued another ruling saying that Europe’s efforts to reform its subsidies had been insufficient and that its aid to Airbus still ran afoul of global trade rules. In a statement, the Office of the United States Trade Representative said it was starting a process to assess whether to increase its tariff rates or place levies on new European products.

The Trump administration has also considered other types of tariffs that do not have the approval of the World Trade Organization. Mr. Trump threatened to tax European cars, but chose to let a Nov. 13 deadline to impose those tariffs lapse last month.

Some in the administration have discussed opening a new investigation into European trade practices, under a legal authority known as Section 301 of the Trade Act of 1974, that could allow Mr. Trump to levy more tariffs, people familiar with the discussions said. That is the same sort of investigation that the administration conducted in the case of the French digital tax.

But there is no concrete sign that the administration has begun those machinations yet.

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How FedEx Cut Its Tax Bill to $0

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WASHINGTON — In the 2017 fiscal year, FedEx owed more than $1.5 billion in taxes. The next year, it owed nothing. What changed was the Trump administration’s tax cut — for which the company had lobbied hard.

The public face of its lobbying effort, which included a tax proposal of its own, was FedEx’s founder and chief executive, Frederick Smith, who repeatedly took to the airwaves to champion the power of tax cuts. “If you make the United States a better place to invest, there is no question in my mind that we would see a renaissance of capital investment,” he said on an August 2017 radio show hosted by Larry Kudlow, who is now chairman of the National Economic Council.

Four months later, President Trump signed into law the $1.5 trillion tax cut that became his signature legislative achievement. FedEx reaped big savings, bringing its effective tax rate from 34 percent in fiscal year 2017 to less than zero in fiscal year 2018, meaning that, overall, the government technically owed it money. But it did not increase investment in new equipment and other assets in the fiscal year that followed, as Mr. Smith said businesses like his would.

Nearly two years after the tax law passed, the windfall to corporations like FedEx is becoming clear. A New York Times analysis of data compiled by Capital IQ shows no statistically meaningful relationship between the size of the tax cut that companies and industries received and the investments they made. If anything, the companies that received the biggest tax cuts increased their capital investment by less, on average, than companies that got smaller cuts.

FedEx’s financial filings show that the law has so far saved it at least $1.6 billion. Its financial filings show it owed no taxes in the 2018 fiscal year overall. Company officials said FedEx paid $2 billion in total federal income taxes over the past 10 years.

As for capital investments, the company spent less in the 2018 fiscal year than it had projected in December 2017, before the tax law passed. It spent even less in 2019. Much of its savings have gone to reward shareholders: FedEx spent more than $2 billion on stock buybacks and dividend increases in the 2019 fiscal year, up from $1.6 billion in 2018, and more than double the amount the company spent on buybacks and dividends in fiscal year 2017.

A spokesman said it was unfair to judge the effect of the tax cuts on investment by looking at year-to-year changes in the company’s capital spending plans.

“FedEx invested billions in capital items eligible for accelerated depreciation and made large contributions to our employee pension plans,” the company said in a statement. “These factors have temporarily lowered our federal income tax, which was the law’s intention to help grow G.D.P., create jobs and increase wages.”

FedEx’s use of its tax savings is representative of corporate America. Companies have already saved upward of $100 billion more on their taxes than analysts predicted when the law was passed. Companies that make up the S&P 500 index had an average effective tax rate of 18.1 percent in 2018, down from 25.9 percent in 2016, according to an analysis of securities filings. More than 200 of those companies saw their effective tax rates fall by 10 points or more. Nearly three dozen, including FedEx, saw their tax rates fall to zero or reported that tax authorities owed them money.

From the first quarter of 2018, when the law fully took effect, companies have spent nearly three times as much on additional dividends and stock buybacks, which boost a company’s stock price and market value, than on increased investment.

The law cut the corporate rate to 21 percent from 35 percent, and allowed companies to deduct the full cost of new equipment investments in the year that they make them. Those cuts stimulated the American economy in 2018, helping to push economic growth to 2.5 percent for the year and fueling a boost in hiring. Business investment rose at an 8.8 percent rate in the first quarter of 2018, and was nearly as strong in the second quarter.

But the impact dwindled quickly.

In the summer, the economy grew at just 1.9 percent and business investment fell 3 percent, including a 15.3 percent plunge in spending on factories and offices. Over the spring, companies spent less on new investments, after adjusting for inflation, than they had in the winter.

Overall business investment during Mr. Trump’s tenure has now grown more slowly since the tax cuts were passed than before.

Some conservative economists and business leaders say the effects of the tax cuts were undercut by uncertainty from Mr. Trump’s trade war, which is slowing global growth and prompting companies to freeze projects. Other economists say the fizzle is predictable because high tax rates were not holding back investment.

“It did provide a short-term boost, but it wasn’t the big response that many people expected,” said Aparna Mathur, an economist at the conservative American Enterprise Institute, who recently concluded that the 2017 law has not meaningfully changed investment patterns in America.

Mr. Smith, 75, a former Marine who built FedEx from a small package delivery service into a global logistics giant, was no stranger to pressing for lower taxes. He tried, without success, to get President Barack Obama to cut the corporate rate. But with Mr. Trump’s ascension, the corporate chief began a one-man campaign to convince Washington that now was the moment. He met with the president-elect at Trump Tower on Nov. 17, just days after the election, and appeared alongside the president at official events.

In a conference call with analysts the month after Mr. Trump’s election, Alan Graf, FedEx’s chief financial officer, called the prospect of a 20 percent corporate tax rate “a mighty fine Christmas gift.”

Mr. Smith teamed up with his competitor, David Abney, the chairman and chief executive of UPS, to push for a tax overhaul, including jointly writing an op-ed in The Wall Street Journal.

“Fred and I even jointly had some meetings about this with key people, and we were both pushing pretty hard,” Mr. Abney said in a recent interview.

FedEx spent $10 million on lobbying in 2017, in line with previous spending, with much of it focused on tax issues, according to federal records. Its team pushed hard to shape the bill behind the scenes, meeting regularly with House and Senate committee staff who were writing the provisions.

Mr. Smith met with Mr. Trump and Vice President Mike Pence in February 2017, and on May 26 he spoke on the phone with Steven Mnuchin, the Treasury secretary, according to Mr. Mnuchin’s public calendar.

Eight months after Congress passed the law, Mr. Trump celebrated the tax cuts by hosting Mr. Smith and other business leaders at a dinner at his Bedminster, N.J., golf club. He singled out Mr. Smith several times, bantering with him about a term paper that Mr. Smith had written while a student at Yale. The paper formed the basis for the creation of FedEx.

The next week, Mr. Smith boasted of his company’s influence on the law in the company’s annual report, which noted that FedEx is “investing more than $4.2 billion in our people and our network as a result of the tax act.”

FedEx increased the size of its work force by around 4 percent in its 2018 fiscal year and around 7 percent in its 2019 fiscal year.

The company also accelerated previously scheduled wage increases for hourly employees by six months. It gave performance-based pay to other managers and said it would invest $1.5 billion over seven years in its Indianapolis shipping hub. The company also bought 24 Boeing freight jets for $6.6 billion, a purchase officials say would not have happened without tax cuts.

But the company ended its 2018 fiscal year having spent $240 million less on capital investments than it predicted it would in December 2017, shortly before the tax cuts passed. The company’s capital spending declined by nearly $175 million in fiscal 2019.

This year, the company cut back employee bonuses and has offered buyouts in an effort to reduce labor costs in the face of slowing global growth. The company has also added to its pension fund, a move that carried the benefit of reducing its tax liability even further.

FedEx reduced its tax liability in part by taking advantage of a provision in the law that allowed companies to immediately deduct the value of any capital investments they make in a given year. But its biggest gains were from the cut in the corporate rate. FedEx had been carrying a large amount of future tax liabilities on its balance sheet — and when the corporate rate fell to 21 percent, those liabilities shrank too.

“Something like $1.5 billion in future taxes that they had promised to pay, just vanished,” said Matthew Gardner, an analyst at the liberal Institute on Taxation and Economic Policy in Washington. “The obvious question is whether you can draw any line, any connection between the tax breaks they’re getting, ostensibly designed to encourage capital expenditures, and what they’re actually doing. And it’s just impossible to know.”

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Why Is a Secretive Billionaire Buying Up the Cayman Islands?

One humid Tuesday in July, I summited the highest point on Grand Cayman, an eight-story dump known affectionately by the locals as Mount Trashmore. From the top of the foul mound — a collection of almost every piece of garbage discarded on the island since it went all-in on financial services in the 1960s — I imagined I could just make out the enshrouded beach estate of the secretive investor Kenneth Dart.

I had been on Grand Cayman for more than a week, but I was no closer to speaking with him than when I first arrived. The heir to a famously private foam-container dynasty and a reclusive businessman in his own right, Mr. Dart apparently hasn’t spoken to the press since 1993. Though he has lived on Grand Cayman for 25 years and is widely believed to be the biggest private landholder on the archipelago, almost nobody I interviewed was sure if they had seen him. Residents compared him to Batman, Howard Hughes, a Bond villain and both Warren and Jimmy Buffett.

Mr. Dart lives on Seven Mile Beach, in an old hotel — the entire hotel — once known as the West Indian Club. He acquired the property in 1994 after renouncing his United States citizenship, a tax dodge so audacious it inspired federal legislation. Though Cayman was initially a refuge for the financier, Mr. Dart, who is thought to be 64, has taken to his adopted home with zeal. With his fortune and his company, Dart Enterprises, he has increasingly come to define the islands’ future.

In 2007, he opened a major development, a sprawling mix of retail and entertainment venues called Camana Bay, and began amassing a portfolio of high-end properties. His list now includes the Ritz-Carlton, the Yacht Club and a new Kimpton resort. In February, his group proposed a $1.5 billion “iconic skyscraper” that would rival the Eiffel Tower and the Burj Khalifa of Dubai.

As a place to conduct business, Cayman’s appeal is obvious. The country, a British Overseas Territory, levies no income or corporate taxes, and, since the 1960s, it has become one of the world’s most sophisticated banking centers. While Cayman was once a shady place to stash illicit cash — a reputation cemented by the 1991 John Grisham novel “The Firm” and a subsequent Tom Cruise thriller — it has long since moved aggressively upmarket, courting institutional investors, private equity and trading firms seeking to minimize taxes and bureaucracy. As of 2016, according to one analysis, it domiciled 60 percent of global hedge fund assets.

But for his base of operations, Mr. Dart has chosen an existentially vulnerable piece of land. At 76 square miles, Grand Cayman is roughly the size of Brooklyn and is, on average, only seven feet above sea level. In 2004, Ivan, a Category 5 hurricane, submerged most of the island. The damage was valued at close to $3 billion. Bodies buried in beach cemeteries floated out to sea. Animals escaped their enclosures, and, to this day, rewilded chickens roam the islands.

ImageWestlake Legal Group merlin_162867393_68d51d81-bf9b-48b0-b332-03ff9a434f13-articleLarge Why Is a Secretive Billionaire Buying Up the Cayman Islands? Tax Shelters Hurricanes and Tropical Storms High Net Worth Individuals Global Warming Dart, Kenneth B Corporate Taxes Cayman Islands Banking and Financial Institutions

Seven Mile Beach.CreditCarter Johnston for The New York Times

“Problem is, even if hurricanes don’t get any more prevalent, they’ll get stronger,” said James Whittaker, a Caymanian who is a former banker and regulator turned clean energy entrepreneur. “If sea-level rise is a foot, well, that means that a Category 1 now is going to do the same damage that a Category 4 used to do.” Even if Cayman built enough infrastructure to survive the rising water, he added, “The problem is insurance. You’ll never be able to insure the country anymore.”

As I stood atop Mount Trashmore, looking out at the crystalline water, I wondered what Mr. Dart thought about the country’s vulnerability to rising seas. Or if, like me, he had quickly fallen into a tropical reverie — a feeling that nothing could possibly go wrong on this exclusive stretch of paradise. Would a wildly successful investor like him buy up so much of a country that was really doomed to disappear?

Until the 1960s, when the first banking laws were put in place to attract international capital, the Cayman Islands was a backwater, with an economy dependent on seamen who would send their remittances back home. When a Cambridge-trained lawyer named William Walker arrived in 1963, he described the place as having “cows wandering through Georgetown, only one bank, only one paved road, and no telephones.” The population was just over 8,000, and the mangrove-covered island was swarming with mosquitoes.

The banks moved in first, then the accounting and law firms. Seven Mile Beach, previously undeveloped, became an international tourist attraction for both divers and money managers. By the end of the 1990s, the jurisdiction had established itself firmly as a leading global banking center, and today financial services accounts for over half of its economy.

Proponents of the Cayman business model argue that its benefits accrue to all of the islands’ citizens, who can boast of having one of the highest gross domestic products per capita in the world. Foreign capital, much of it in the form of duties and fees, helps fund schools and infrastructure. Regulations direct employers to give special consideration to Caymanians for jobs and require that Caymanians own shares in local businesses. But many islanders complain of a two-tiered system. Caymanians get jobs, but are then passed over for promotions. The best-paid positions often go to highly educated expatriates, who make up just under half the resident population of about 66,000.

“They say this is a trickle-down economy,” said Roy Bodden, a historian of the Cayman Islands and former member of the Legislative Assembly. “So, here’s my argument. Why should it be a trickle for us? Why aren’t we holding the cup?” Mr. Bodden has been a vocal critic of the islands’ unchecked development and what he sees as the disenfranchisement of the island population. “You talk about the American dream, well, we had a Caymanian dream,” he said. The way he told the story, the elites had sold the country out.

When Kenneth Dart relocated to Grand Cayman, his secretiveness and colorful business dealings aroused local suspicion. In 1993, his home in Sarasota, Fla., burned to the ground in an arson that was never fully explained. After Mr. Dart renounced his ties to America a few months later, he moved first to Belize, whose government in 1995 proposed to the State Department a Belizean consulate in Sarasota, where Mr. Dart and his family could live, presumably tax-free. The idea was never seriously considered, and Mr. Dart settled on Grand Cayman.

It is a closely guarded secret how much of the three-island territory — Little Cayman and Cayman Brac hover just to the northeast of the big island — Mr. Dart and his subsidiaries own. Many islanders take it for granted that he is the biggest private landholder on the islands, and some suspect he owns more land than the government. (A spokeswoman for Dart Enterprises said the company would not comment on its investment decisions.)

After the 2008 financial crisis, the Cayman economy contracted. But Mr. Dart picked up the slack. In addition to resorts, office buildings and residential properties, his company began planning and building major municipal infrastructure projects like tunnels and roads, reinvigorating long-held concerns on Grand Cayman that Mr. Dart and his subsidiaries controlled too much of the island. A 2015 audit of the government’s land management scolded ministers for allowing Dart subsidiaries such free rein.

Some speculate Mr. Dart is private because he fears for his safety. As the scion of a Michigan family business, Dart Container, that has long dominated the polystyrene foam market (it also makes plastic Solo cups and other iconic food service products), Mr. Dart was born into a significant fortune. But he also had a talent for trading, making lucrative investments over the decades in financial firms, biotech companies, Russian public vouchers and steeply discounted sovereign debt in Greece and Argentina, among many other companies and countries. Some investments made him enemies. His yacht was armored to withstand torpedo fire, one of his two brothers, Tom, told Bloomberg News in 1995. When he first moved to the islands, he could be seen flanked by bodyguards.

In 2014, Mr. Dart stepped down as president of his family’s container business and has, according to comments made in 2015 by the Dart Enterprises chief executive, Mark VanDevelde, become more focused on real-estate development and conservation. He also oversees an extensive nursery on the island, where he collects native and endemic trees and plants.

According to materials shared or published by Dart Enterprises, the company has invested more than $1.5 billion in the Cayman Islands, with another $1 billion in the development pipeline. This does not include the estimated price tag for the skyscraper. Bloomberg puts Mr. Dart’s net worth at $5.8 billion. “They’ll tell you they have ‘patient capital,’” Mr. Whittaker said. “That’s the word they like to use. Which means ‘I’m going to throw two, three billion dollars in the ground and my kids or my grandkids will reap the rewards once it gets built.’”

Mr. Dart’s vision for Cayman is comprehensive. In a 2018 video presented at the local Chamber of Commerce, his company outlined a building program that would connect the white sands of Seven Mile Beach to a protected bay known as the North Sound, incorporating extensive landscaped pedestrian parks and revamped roadways — in effect, designing a whole town. It would include major new residential developments and offices, in addition to yet another five-star resort on a stretch of beach that abuts the billionaire’s residence.

The plans reminded me of a game of Monopoly — if a player purchased all of the fanciest properties and packed them with houses and hotels for money managers. When I went to the island, I made an effort to book one of the few Seven Mile Beach hotels that Mr. Dart doesn’t own; halfway through my stay, I read an announcement in the local paper that he had bought it.

Improbably enough, Mr. Dart’s most audacious investment involves Mount Trashmore. Haphazardly established in the 1960s, the massive garbage pile was never trenched or lined, and no one knows what might be leaking from the dump into the ground. Parts of the mountain sometimes spontaneously combust, requiring evacuation of local businesses and a nearby Dart-developed private school. Since Mr. Dart started building on Grand Cayman, the dump has been an obstacle, impeding new development. His company has proposed to cap Mount Trashmore and build a new waste-to-energy facility to dispose of future garbage, which it would manage for the next 25 years, at an estimated cost of nearly half a billion dollars.

The arrangement — the heir to a disposable-cup fortune offering to clean up an entire country’s garbage — seemed remarkable to me, but the Caymanians I spoke with didn’t bat an eye. Except when the stink wafted down the mountain; then they batted their eyes a lot, because they were watering.

For three weeks before arriving on the island, I corresponded with a Dart company spokeswoman, who made it cordially clear that an interview with Mr. Dart was a non-starter. At one point, she offered to consider written questions and present them to Dart executives. I asked what Mr. Dart saw from a real-estate perspective in Cayman. “Not everyone who moves to a place they love invests in it so heavily,” I wrote. I also asked about the dump and the risks of global warming. As far as I knew, Mr. Dart was neither a climate skeptic nor a denier, and yet he continued to acquire significant parcels of a country that was, topographically speaking, one of the most vulnerable on earth.

Nick Robson, the founder of the Cayman Institute, a nonprofit organization that has advocated better long-term planning on the island, says Cayman is nowhere near prepared for rising seas and extreme weather. We met on the terrace at a Westin resort, which, like many developments on Seven Mile Beach, is on an elevated concrete slab. The United Nations Intergovernmental Panel on Climate Change, he said, predicted that sea levels would rise by roughly one meter by the end of the century.

Some people minimize the risk, he said: “‘Well, O.K., that’s three-and-a-quarter feet. Oh, no big thing.’ Sorry, we’re seven feet above sea level, for the most part. That’s halfway up! When you model a hurricane with storm surge, you can have 15 feet of storm surge, and then you’re looking at 18½ feet above normal sea level.” (None of the many elected officials I contacted would agree to be interviewed on the record, but Suzette Ebanks, the chief information officer, sent a three-page response to written questions that highlighted several initiatives, including “environmental impact assessments for major capital projects” and a focus on transitioning to renewable energy.)

Mr. Robson said he also worried that Cayman’s economic reliance on financial services wasn’t sustainable. “It’s almost a post-colonial dispensation,” he said, describing the sometimes uneasy relationship that has always existed between Cayman, Britain and the international community.

After the 2008 financial crisis, the political will to reform systems that facilitate tax avoidance reached a high. In 2010, the United States passed the Foreign Account Tax Compliance Act, which requires foreign financial institutions to identify American citizens who are account holders and report that to the Treasury. Since 2013, the Organization for Economic Cooperation and Development has been creating an international framework that aims to reduce corporate tax avoidance, particularly for large multinational and Internet-based firms.

Meanwhile, Britain has promised to adopt a set of stringent European Union policies designed to combat money laundering and terrorism. If fully implemented, protectorates like Cayman would be expected to create public registers of company owners and provide access to the names of the beneficiaries of trusts. The registers could be accessible not only to law enforcement but also to those with “legitimate interest,” including investigative journalists and nongovernmental organizations. “What’s in the wind now is potentially existential for the financial services industry in Cayman,” said Alex Cobham, chief executive of the Tax Justice Network, a watchdog group. “I think it does start to look like it could be a perfect storm for Cayman.”

If the colonial period was Cayman’s opening act, and financial services its middle, it seemed to me that Mr. Dart was quietly preparing for Cayman’s possible finale: as an upscale tax domicile and tourist attraction for the global ultra-wealthy who could afford to come and go from an existentially imperiled island.

Justin Howe, a Dart group executive vice president, talked up the proposed skyscraper’s benefits at a recent economic forum. “We’re looking to bring in more high net worth, ultrahigh net worth, potentially even more billionaires,” he said during a question-and-answer session. “They take virtually nothing out of the economy and they put massive amounts into the economy, so we think that’s what a five-, five-plus-star resort has the potential to do.”

The plan is to build the tower set back from Seven Mile Beach, in the middle of the Camana Bay development. Whatever might happen with international tax legislation or volatile financial markets, the building would be a hedge of sorts, positioned to bring in capital and withstand the rising ocean.

“Is everything he does great? I won’t say everything he does is great,” Mr. Whittaker said of Mr. Dart, after showing me a map of Hurricane Ivan’s devastation. “I think in overall net benefit, yes, he’s been a net benefit to the island. We need to get one or two more like him, and we’ll be insulated from world shocks.”

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