Taxes are increasingly spreading beyond national and state borders to make more of a global impact, affecting economic activity across the world.
The U.S. Treasury Department has been signing agreements to share information with the tax authorities in other countries about the holdings of U.S. citizens, as well as citizens of other countries. It's all part of an effort to combat offshore tax evasion and implement the Foreign Account Tax Compliance Act, also known as FATCA. Last month, the U.S. signed such an agreement with Switzerland, on the heels of striking similar deals with the United Kingdom, Denmark, Mexico and Ireland (see U.S. Signs Tax Compliance Agreement with Switzerland). The federal government is in talks with more than 50 countries about setting up such intergovernmental agreements.
The effort to combat international tax evasion is one that the Organization for Economic Cooperation and Development has been spearheading for years, with the OECD pressuring countries that have long enjoyed reputations as tax havens into becoming more transparent to outside tax authorities (see Global Governments are Getting Hungrier). While much of the effort to date has focused on individual tax compliance, revenue-starved governments in Europe are increasingly looking to corporate taxpayers to help replenish their coffers, targeting multinationals such as Starbucks, Google and Amazon that use transfer pricing and profit shifting strategies to lower their corporate tax bills.
Europe is also pushing ahead a proposed financial transaction tax that could have a wide-ranging impact on the U.S. markets. Germany and 10 other nations want to impose a tax of 0.1 percent on stock and bond trades, and 0.01 percent on derivatives transactions, hoping to collect an estimated $50 billion a year. Not only would trades in European securities or on the European markets be taxed, but any trades with a European financial institution would also be taxed, forcing the U.S. markets to levy the tax wherever the transaction occurred.
A trio of Democratic senators, Tom Harkin, D-Iowa, Peter DeFazio, D-Ore., and Sheldon Whitehouse, D-R.I., also introduced a bill last week to tax financial transactions at a rate of 3 cents per hundred dollars. Its estimated to generate $352 billion over the next 10 years, but is not expected to pass. However, the European proposal is making progress and could take effect next year.
Efforts at controlling climate change have led to the imposition of carbon taxes by some countries in Europe, such as Denmark, Finland and Sweden, as well as Australia, South Korea and several other countries. China is also considering imposing such a tax. So far, proposals for a carbon tax have made little headway in the U.S. The House managed to pass an energy bill in 2009 that would have set up a cap and trade emissions-trading scheme, but the bill died in the Senate.
Senators Barbara Boxer, D-Calif., and Bernie Sanders, I-Vt., introduced a climate change bill last week that would impose a fee of $20 per ton on polluters, but it would surely face opposition from many business groups. Still, with the Obama administration promising to do more to combat climate change, it may garner support or some of its provisions become part of a larger legislative package.
As governments around the world wrestle with issues such as climate change, low tax revenue and overheated financial markets, the trend toward increasing international cooperation on taxation appears inevitable.