off the charts
POLICY INSIGHT
BEYOND THE NUMBERS

You are here

Oregon Should Retain International Tax-Haven Law

March 2, 2018 at 3:30 PM

Oregon lawmakers are about to repeal an effective 2013 law that limits corporations’ ability to cut their taxes by shifting profits they earned in the state to their subsidiaries in foreign tax havens.  Corporate representatives argue that Oregon no longer needs the law because the state can piggyback on new federal rules — under the new tax law that President Trump and Congress enacted in December — aimed at preventing international profit shifting.  But those rules have just taken effect, and many experts question how effective they’ll be.  The Oregon House should amend the bill to preserve the tax-haven law and send it back to the Senate.

Here’s the background: Like almost all states, Oregon requires multistate corporations to report their total nationwide profits to the state, which then taxes part of those profits based on the company’s level of activity in the state.  In 2013, Oregon became the third state to require multinational corporations to include in that total the profits of their subsidiaries in low-tax foreign countries.  (Several other states have since taken similar steps.) This requirement prevents a company from cutting its state taxes by artificially shifting income to a foreign subsidiary.

Corporate lobbyists have waged a relentless campaign to narrow or repeal the law, which applies to most major tax havens.  That’s not surprising; corporations subject to Oregon’s corporate profits tax owed an estimated $28 million more in taxes in 2014 due to the law, according to a Legislative Revenue Office study.  Also, multinationals with a major presence in Oregon have many subsidiaries in countries commonly used for artificial profit shifting.  For example, Nike reports 39 subsidiaries in the Netherlands — the world’s largest recipient of artificially shifted profits, according to Reed College economist Kimberly Clausing, a leading expert. 

Corporate lobbyists seized on must-pass legislation to address how Oregon will conform its tax code to the new federal tax law and evidently convinced the bill’s sponsors to include language that repeals the tax-haven requirement retroactively to the start of 2017.  Their arguments for repeal, however, don’t hold water.  They claimed, for example, that the requirement may be ruled unconstitutional and is on the verge of widespread litigation, even though a nearly identical Montana law has been on the books for 13 years and its legality has never been successfully challenged. 

They also claimed that Oregon’s requirement is unnecessary because the new federal tax law includes rules to prevent international income-shifting, even though the law firms representing many of these same corporations are organizing a national coalition to block states from piggybacking on the new federal rules that tax tax-haven profits.  Moreover, the new federal rules only took effect on January 1, and the IRS has issued no guidance on how to implement them.  Several tax experts warn that firms can easily “game” the new rules, and others warn that the new tax law overall will encourage more international income shifting, not less.

Oregon should not repeal its tax-haven law until there’s significant evidence both that the new federal rules are actually reducing international income-shifting and that states can legally adopt those rules themselves.


SHARE