KPMG Survey Shows U.S. Execs Want New Approach To Taxing Overseas Earnings, But Gloomy Over Timely Action On Issue

NEW YORK, Dec. 7, 2011 /PRNewswire/ -- Reflecting the business community's concerns over the pace of corporate tax reform, a new survey by KPMG's Tax Governance Institute (TGI) reveals that although almost half of senior executives favor changing how corporate income earned outside the United States is taxed, they don't expect any real progress on that issue or corporate tax reform overall until after the 2012 Presidential election.

The KPMG survey of some 1200 business leaders, conducted following the release of a recent Congressional proposal on overhauling international tax law, revealed that 49 percent of respondents said they favor a territorial system of international taxation, under which almost all foreign income of U.S. multinational companies would be taxed where earned and could be brought back to the United States without incurring additional tax.

KPMG Tax Principal Hank Gutman, director of TGI and former chief of staff of the U.S. Congressional Joint Committee on Taxation, said:  "The survey results reiterate what many multinational companies have been advocating for some time -- a move toward a system of international taxation that matches the approach of most other countries and ends the residual U.S. taxation of active business income earned outside the United States."

Widespread Skepticism

The KPMG survey was conducted on the heels of a comprehensive proposal from the House Ways & Means Committee chairman, which called for a move to a territorial system that protects 95 percent of corporate profits attributable to offshore active business activity from U.S. taxation.

The survey also revealed overall skepticism both about fast action on the issue of taxing business income earned outside the United States and on corporate tax reform in general. 

In fact, according to the survey, most respondents (61 percent) predicted it would take two years before the United States would adopt a territorial system, and only 27 percent believe there would be corporate tax reform in the next 12 months.

In addition to the 49 percent who said they favor a territorial system, 16 percent of the respondents preferred the U.S.'s current worldwide tax system, which requires U.S. multinationals to pay taxes on profits on active business income earned outside the country, while receiving tax credits for payments to other governments and deferring residual U.S. tax until they bring the money home. Eight percent said they favored a worldwide system that made corporate overseas profits immediately taxable, and 27 percent said they weren't sure what system they preferred.

The territorial taxation proposal, released Oct. 26 as part of a comprehensive discussion draft by House Ways and Means Committee Chairman David Camp (R-MI), assumes the top corporate rate will be lowered to 25 percent from its current 35 percent and would be revenue neutral. The proposal is part of a broad plan that Camp is seeking to rewrite individual and corporate U.S. tax laws.

"Chairman Camp's proposal is a bold and comprehensive discussion draft that could drastically alter the playing field," Gutman added. "Companies need to pay close attention to this important issue and how the end result could affect them." 

Corporate Concerns

Interestingly, while almost half of respondents favor a territorial system, only 39 percent of respondents said they favor exempting overseas corporate income permanently from U.S. taxation. Thirty-two percent were against such an exemption and 29 percent were unsure.

Gutman added: "This finding highlights the concerns of multinationals versus domestic companies on the topic and shows how difficult it will be to arrive at an acceptable solution to this and other issues related to business tax reform."

In other key findings:

• Forty-eight percent of respondents believe a change in the territorial taxation system would open the door for a cut in the corporate tax rate.
• Only 15 percent of those surveyed said they thought the United States would adopt a territorial system without broad corporate tax reform. A vast majority (64 percent), though, felt broad corporate tax reform was necessary for such a move.

The TGI executive survey reflects the responses of some 1200 senior executives -- including board and audit committee members, chief financial officers and tax directors -- who participated in TGI's Nov. 1 video webcast, "Taxing Business Income Earned Outside the United States: Will the U.S. Shift to a Territorial System?" A replay of the webcast can be accessed via the following link: http://www.kpmginstitutes.com/tax-governance-institute/events/territorial-taxation.aspx

Part of the KPMG Institute Network (www.kpmginstitutes.com), the Tax Governance Institute (www.taxgovernanceinstitute.com) provides opportunities for board members, corporate management, stakeholders, government representatives and others to share knowledge regarding the identification, oversight, management, and appropriate disclosure of tax risk.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative ("KPMG International").  KPMG International's member firms have 138,000 professionals, including more than 7,900 partners, in 150 countries.

SOURCE KPMG LLP