1. Presentation to the President’s Advisory Panel on Federal Tax Reform
International Provisions of the Internal Revenue Code
Tax Compliance and Administration Concerns
Larry Langdon
March 31, 2005

2. The Realities of International Tax
We are in an increasingly complex global economy
International tax competition is an important factor
Different countries will have competitive advantages in certain types of businesses
Corporate income taxes will be imposed by most countries in some form (e.g., income tax, VAT, etc.)
Although the form may be different, many issues such as complexity likely will remain
The worldwide tax system will continue to use the “arms length standards” for global inter-company pricing
We need to deal with old myths and new realities
Cannot use old paradigms in making policy and tax administration decisions today

3. Impact of Tax Rules on Business
Generally for business decisions, income taxes are secondary
The complexity of our tax system complicates decision-making by business managers

4. Issues in International Tax Reform
Some principles of international taxation will not change
Deferral is an essential and unavoidable part of the worldwide income tax system
Exists in either a remittance-based or territorial type system
Need to simplify rules for inclusion in current taxation of passive income
Arms-length pricing issues for related entities
Simplification of the tax code is essential
Examine both horizontal (across all taxpayers) and vertical (different rules for different-sized taxpayers) means of simplification
Develop safe harbors and standards for compliance
Watch administration of broad vs. narrow definitions

5. Improvement of International Tax Administration is an Important Goal of Tax Reform
Increased simplification will increase effectiveness of tax administration
Global enterprises and tax administrators face significant challenges and limited resources
Recognize reform efforts for accounting and tax irregularities
Address sophisticated means of tax fraud and tax avoidance
Principles of global taxation and cooperation are key to success
Involvement with OECD and treaty partners
Develop worldwide systems and administration
Develop improved tools for effective tax administration
Devote resources to highest priority projects, such as transfer pricing
Develop electronic tools – both for compliance and audits
Place a higher priority on increased use of alternative tax dispute resolution tools: mediation, arbitration, international tax court?