[Senate Hearing 118-293]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 118-293

                     SUNNY PLACES FOR SHADY PEOPLE:
                      OFFSHORE TAX EVASION BY THE
                        WEALTHY AND CORPORATIONS

=======================================================================

                                HEARING

                               BEFORE THE

                        COMMITTEE ON THE BUDGET
                          UNITED STATES SENATE

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             April 10, 2024

                               __________

           Printed for the use of the Committee on the Budget
           
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                   U.S. GOVERNMENT PUBLISHING OFFICE                    
55-697 PDF                  WASHINGTON : 2024                    
          
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                        COMMITTEE ON THE BUDGET

               SHELDON WHITEHOUSE, Rhode Island, Chairman
PATTY MURRAY, Washington             CHARLES E. GRASSLEY, Iowa
RON WYDEN, Oregon                    MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan            LINDSEY O. GRAHAM, South Carolina
BERNARD SANDERS, Vermont             RON JOHNSON, Wisconsin
MARK R. WARNER, Virginia             MITT ROMNEY, Utah
JEFF MERKLEY, Oregon                 ROGER MARSHALL, Kansas
TIM KAINE, Virginia                  MIKE BRAUN, Indiana
CHRIS VAN HOLLEN, Maryland           JOHN KENNEDY, Louisiana
BEN RAY LUJAN, New Mexico            RICK SCOTT, Florida
ALEX PADILLA, California             MIKE LEE, Utah

                   Dan Dudis, Majority Staff Director
        Kolan Davis, Republican Staff Director and Chief Counsel
                   Mallory B. Nersesian, Chief Clerk 
                  Alexander C. Scioscia, Hearing Clerk
                           
                           
                           C O N T E N T S

                              ----------                              

                       WEDNESDAY, APRIL 10, 2024
                OPENING STATEMENTS BY COMMITTEE MEMBERS

                                                                   Page
Senator Sheldon Whitehouse, Chairman.............................     1
    Prepared Statement...........................................    24
Senator Charles E. Grassley......................................     3
    Prepared Statement...........................................    26

                    STATEMENTS BY COMMITTEE MEMBERS

Senator Ron Johnson..............................................    13
Senator Chris Van Hollen.........................................    15
Senator John Kennedy.............................................    17
Senator Ron Wyden................................................    19
Senator Mike Braun...............................................    21

                               WITNESSES

Ms. Zorka Milin, Policy Director, Financial Accountability and 
  Corporate Transparency (FACT) Coalition........................     5
    Prepared Statement...........................................    29
Mr. Stephen L. Curtis, President, Cross Border Analytics, Inc....     7
    Prepared Statement...........................................    36
Mr. Daniel Bunn, President and CEO, Tax Foundation...............     9
    Prepared Statement...........................................    48

                                APPENDIX

Responses to post-hearing questions for the Record
    Ms. Milin....................................................    54
    Mr. Curtis...................................................    58
    Mr. Bunn.....................................................    64
Chart submitted by Chairman Sheldon Whitehouse...................    68
Charts submitted by Mr. Curtis...................................    69
 Statement submitted for the Record by Mr. Curtis................    71
Statement submitted for the Record by Democrats Abroad...........    82

 
                     SUNNY PLACES FOR SHADY PEOPLE:
                  OFFSHORE TAX EVASION BY THE WEALTHY
                            AND CORPORATIONS

                              ----------                              


                       WEDNESDAY, APRIL 10, 2024

                                           Committee on the Budget,
                                                       U.S. Senate,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:04 
a.m., in the Dirksen Senate Office Building, Room SD-608, Hon. 
Sheldon Whitehouse, Chairman of the Committee, presiding.
    Present: Senators Whitehouse, Wyden, Van Hollen, Grassley, 
Johnson, Braun, Kennedy and R. Scott.
    Also present: Democratic Staff: Dan Dudis, Majority Staff 
Director; Dan RuBoss, Senior Tax and Economic Advisor and 
Member Outreach Director; Sion Bell, Tax Policy Advisor.
    Republican Staff: Chris Conlin, Deputy Staff Director; 
Krisann Pearce, General Counsel; Nick Wyatt, Professional Staff 
Member; Ryan Flynn, Staff Assistant.
    Witnesses:
    Ms. Zorka Milin, Policy Director, Financial Accountability 
and Corporate Transparency (FACT) Coalition
    Mr. Stephen L. Curtis, President, Cross Border Analytics, 
Inc.
    Mr. Daniel Bunn, President and CEO, Tax Foundation

          OPENING STATEMENT OF CHAIRMAN WHITEHOUSE \1\
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    \1\ Prepared statement of Chairman Whitehouse appears in the 
appendix on page 24.
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    Chairman Whitehouse. Good morning. This hearing of the 
Budget Committee will come to order. The Ranking Member is very 
nearby, and I've been instructed by his staff that I may 
proceed. I'll do my opening statement, the Ranking Member will 
do his, and we'll turn to introductions of our three witnesses, 
and each of you will have five minutes to make your verbal 
statement and your complete testimony will be made a part of 
the record of the proceedings.
    Good morning, Chuck. How are you, sir?
    On Tax Day, Monday, the vast majority of Americans will 
have paid the taxes they owe. That's because most Americans 
have taxes taken out of every paycheck automatically and on 
time. Most Americans understand that paying taxes is not just a 
legal obligation, it's also a duty to their communities and to 
their country. But there are super-rich individuals and giant 
corporations who chose not to pay their fair share of taxes. 
Instead, they chose to cheat everyone. They hide income in 
offshore tax havens and construct sham transactions and 
entities to cheat everyone else.
    Most Americans don't have offshore bank accounts. The 
super-rich stash nearly $2 trillion in offshore tax havens. The 
top 0.01 percent, representing only about 13,000 households, 
hold more than a third of that 2 trillion often through tangled 
webs of shell companies.
    The Internal Revenue Service (IRS) estimates tax cheats 
cost the U.S. at least $688 billion in 2021 alone. Trump's IRS 
Commissioner, Charles Rettig, told the Senate Finance Committee 
that the actual annual tax gap could be $1 trillion.
    One of our witnesses, Stephen Curtis, estimates that we 
could raise $600 billion from just a handful of scofflaw 
corporations for many years' worth of unpaid taxes. We have 
seen in my lifetime a collapse in the share of United States 
(U.S.) revenues that corporations contribute down to 6 percent 
at the same time that corporate profits have soared.
    A lot of that collapse of the corporate share of America's 
revenue is through tax tricks like offshoring. In 2010, 
Congress gave the IRS a new tool to root out offshore evasion 
by individuals. The Foreign Account Tax Compliance Act, or 
FATCA, made foreign banks report offshore accounts held by 
Americans to the IRS, but Republican cuts hamstrung the IRS and 
in 2018 the Treasury Inspector General for Tax Administration 
found that, and I'm quoting here, ``the IRS had taken virtually 
no compliance actions to meaningfully enforce FATCA.''
    Most Americans had their incomes reported to the IRS by 
their employer. The super-rich with offshore accounts were on 
the honor system. Guess how that worked out? For large 
multinational corporations, compliance can turn on whether the 
IRS can investigate its way through their armies of lawyers, 
accountants, and even lobbyists employed to avoid taxes.
    A huge amount of revenue can be hidden by a big 
corporation. The IRS has taken one Pharma giant to court for 
$10 billion in unpaid taxes, more than the entire proposed Food 
and Drug Administration (FDA) budget for next year. The Senate 
Finance Committee investigation showed the company reported 60 
percent of its profits offshore despite making 74 percent of 
its sales to U.S. patients.
    Facebook owes $9 billion for its own offshore tax schemes, 
according to the IRS, enough to fund President Biden's proposal 
to expand health coverage for kids. Microsoft, according to the 
IRS, owes a whopping $29 billion for what one of its executives 
called a pure tax play, enough loss revenue to fund, for 
instance, a $10,000 tax credit for American first-time 
homebuyers.
    For years, the outgunned IRS, hampered by Republican budget 
cuts, struggled against billionaires and corporations with 
virtually unlimited resources at their disposal. In the 
Facebook case, with time ticking on the statute of limitations, 
the company sought to run out the clock on the IRS 
investigation. The IRS had to pause its audit because it didn't 
have the money to hire an economist.
    What can we do to stop offshore tax evasion? First, 
preserve and extend the Enforcement Funding enacted by the 
Inflation Reduction Act (IRA). We're already seeing the 
enforcement results. Since last fall, the IRS has recovered 
nearly $500 million just from millionaires who didn't even 
bother to file tax returns.
    Second, the IRS and Treasury should enforce the FATCA law. 
Mr. Curtis has outlined additional enforcement strategies that 
deserve serious consideration. Treasury should use its 
rulemaking authority to close loopholes and improve consistency 
and fairness. A good start would be reversing the so-called 
``check the box'' regulations for foreign subsidiaries, as Ms. 
Milin mentions in her testimony.
    Cracking down on offshore tax cheating would raise billions 
of dollars a year to invest in our economic future or to reduce 
the deficit. But it's not just about dollars and cents. It's 
also about basic fairness. When people who've got the most 
money cheat on people who've got the least money by avoiding 
their taxes to get even richer, there's a price. Law-abiding 
taxpayers have to pick up the slack, public services go 
underfunded, deficits worsen. And, oh, by the way, it's wrong 
to cheat and a Congress that takes the side of the cheats 
demeans itself.
    Some colleagues think the only way to reduce deficits is to 
take away government services. Well, that's obviously not true. 
Some colleagues would rather cut Social Security and Medicare 
or withhold child tax credits than crack down on big tax 
cheaters. Well, that would be wrong. If we stop giving big tax 
cheaters amnesty for their scams, if we clean up our corrupted 
tax code, and if we make important, value-based healthcare 
reforms, we can make real progress reducing deficits. I hope 
that's the path that we chose.
    Chairman Whitehouse. And I turn now to our distinguished 
Ranking Member, Senator Grassley.

           OPENING STATEMENT OF SENATOR GRASSLEY \2\
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    \2\ Prepared statement of Senator Grassley appears in the appendix 
on page 26.
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    Senator Grassley. Yes, I appreciate your holding today's 
hearing on offshore tax evasion and closing the tax gap. I 
think I have some experience in this area, and I've got some 
experience on what I think works and what doesn't work and 
that's what I'd like to discuss.
    But talking about the tax gap, I remember what my late 
friend and former Finance Committee Chairman, Orrin Hatch, 
referred to as the tax gap, and this is his quote, ``the great 
white whale of deficit reduction.'' Endlessly pursued in other 
words, but forever eluding capture. No aspect of the tax gap 
has been examined more than that of offshore tax evasion. 
Between 2001 and 2010, Senator Baucus and I partnered together 
in an effort to shut down the most egregious offshore tax 
evasion and avoidance.
    We enacted various pieces of legislation, held hearings, 
commissioned studies, and even sent the Government 
Accountability Office (GAO) to that famous Ugland House in the 
Cayman Islands, the notorious registered office home of 
thousands of offshore business entities. I'm proud of what we 
were able to accomplish shutting down egregious tax practices, 
raised billions of dollars in additional revenue, but not the 
hundreds of billions some claimed are ripe for the picking.
    The reality is that there are no pots of gold that can be 
easily harvested off of the beaches of far-flung tax havens. 
Even so, we owe it to the honest taxpayer, as a matter of 
fairness, as the Chairman referred to, if for no other reason 
than to snuff out tax evasion where we can. Those engaged in 
tax evasion aren't only shortchanging the Federal Government, 
but stealing from the American taxpayers. After all, it's the 
law-abiding taxpayers who end up footing the bill. That's why 
I've long championed reasonable policies intended to discourage 
evasion while providing tools to the IRS to detect tax cheats, 
but a key word here is reasonable.
    Whether it's increased financial reporting or stepped-up 
enforcement efforts, anti-evasion measures must be balanced 
against taxpayers' rights and the cost such measures imposed on 
innocent taxpayers. When it comes to catching tax cheats, I've 
found targeted approaches to being far more preferable to 
broadly applicable ones that sweep up innocent taxpayers in far 
greater numbers than tax cheats.
    One example of an overly broad sweep approach to offshore 
tax evasion is the Foreign Accounts Tax Compliance Act or FATCA 
enacted in 2010. FATCA imposed stringent requirements on 
foreign financial institutions to report to the U.S. Treasury 
on foreign assets held by their American account holders. In 
2010, Democrats sold this law as a solution to wealthy tax 
cheats hiding assets in offshore bank accounts. Yet, according 
to a 2022 Treasury Inspector General report, other than 
assessing $14 million in penalties, the IRS hasn't been able to 
quantify any revenue raised under the law, and that is despite 
spending $574 million on implementation and enforcement 
campaigns.
    Now, at the same time, FATCA has imposed great costs on the 
Americans living abroad. According to the 2019 GAO report, due 
to the law many Americans living overseas have seen their bank 
accounts closed or been unable to open an account. For many 
foreign financial institutions, the business of Americans 
living abroad simply isn't worth the additional burdens and 
costs of complying with the law.
    Compare this, then, with an approach that I've used--the 
IRS's whistleblower law I authored in 2006 which has brought in 
over $6 billion to the Treasury. Under this law, a single 
whistleblower--now just a single whistleblower took down an 
offshore banking scheme that resulted in Swiss Banking UBS 
paying $750 million in fines. In addition, thousands of illicit 
overseas accounts were closed, and offending taxpayers 
prosecuted.
    Now, whether it's offshore banking schemes, a tangled web 
of shell companies, or illicit transactions by shady 
multinational companies, a single whistleblower can bring the 
whole house of cards crashing down and at less cost and with 
fewer burdens for the innocent taxpayer.
    Finally, we shouldn't discount the value of good tax policy 
itself in shrinking evasion and avoidance. The Tax Cut and Jobs 
Act (TCJA) combined anti-based erosion and profit shifting 
measures with a cut in corporate tax rates. Since its 
enactment, we have seen intellectual property (IP) previously 
held offshore for tax reasons returned to the United States. 
Moreover, the act of companies moving their headquarters 
offshore to avoid U.S. tax has ceased. Combating the tax 
evasion is something we have an obligation to do, but we need 
to be realistic about what our policies will affect and how 
much revenue we actually stand to gain and enacting bad policy 
that increases tax complexity and threatens the international 
competitiveness of U.S. companies would only make matters 
worse. Thank you very much.
    Chairman Whitehouse. Thank you very much, Senator Grassley. 
Let me recognize and thank you for your many years of work in 
this space, and particularly, for mentioning Ugland House, 
which brings back to me happy memories of my predecessor in 
this chair, Kent Conrad, who had a graphic photo that he used 
regularly of Ugland House, and we saw it a lot. It's nice to 
have the memory of Chairman Conrad revived today.
    Now, our first witness is Ms. Zorka Milin, who is the 
Policy Director of the Financial Accountability and Corporate 
Transparency Coalition, the FACT Coalition. Milin previously 
served as senior advisor at financial transparency watchdog 
Global Witness, and also practiced international tax law.
    Next, after her, is Stephen Curtis, who is the President of 
Cross Board Analytics, a consulting firm focused on transfer 
pricing software and economics. He has 27 years of experience 
as a corporate practitioner and previously was an economist and 
partner at Price Waterhouse Coopers and Ernst and Young.
    Finally, we have Daniel Bunn, the President and Chief 
Executive Officer (CEO) of the Tax Foundation, where he has 
served in various roles since 2018. Previously, he worked for 
the Joint Economic Committee as part of Senator Lee's Social 
Capital Project and on the policy staff for Senators Lee and 
Scott. Ms. Milin, please proceed.

     STATEMENT OF ZORKA MILIN, POLICY DIRECTOR, FINANCIAL 
 ACCOUNTABILITY AND CORPORATE TRANSPARENCY (FACT) COALITION \3\
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    \3\ Prepared statement of Ms. Milin appears in the appendix on page 
29.
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    Ms. Milin. Thank you. Chairman Whitehouse, Ranking Member 
Grassley, members of the Committee, thank you for inviting me 
today to share my views on how we can tackle offshore tax 
evasion. I'm here on behalf of the Financial Accountability and 
Corporate Transparency, or FACT Coalition. We're a broad, 
nonpartisan alliance of more than 100 civil society business 
and labor organizations.
    Right now, many Americans are working to meet their tax 
obligations and file their tax returns before Tax Day. Most of 
us want to do the right thing. We are the honest, law-abiding 
majority, but there's a small, dishonest minority of 
individuals and businesses who are breaking the law and dodging 
their taxes very often by stashing their money abroad. Put 
simply, offshore tax evasion is a crime and it's far from a 
victimless crime because it gives an unfair advantage to tax 
cheats at the expense of those who play by the rules.
    When some of us fail to pay what they owe that takes away 
money from everyone else. It leads to higher taxes and 
ballooning budget deficits, and it robs us of the resources 
needed for shared national priorities like defense, healthcare, 
education. This is an enormous problem. Trillions of dollars in 
U.S. individual wealth are stashed overseas, much of it in tax 
havens and the main culprits are a relative handful of 
extremely wealthy Americans. These tax evaders use many tools 
and tactics, from secret Swiss bank accounts and anonymous 
shell companies to complex offshore structures.
    The good news is the U.S. is starting to crack down on 
these tax dodgers. But to get the job done, it will take 
resources and determination. I'd like to put forward four 
solutions. First, we need to better enforce our financial 
transparency laws because offshore tax evasion thrives in 
secrecy. A breakthrough in our fight against offshore evasion 
was the passage of the Foreign Account Tax Compliance Act known 
as FATCA, which has been in effect since 2015.
    FATCA requires foreign banks to send to the IRS data on 
accounts held by U.S. taxpayers and is typically implemented 
through bilateral agreements with other governments. Research 
shows that FATCA has helped to reduce deposits by U.S. citizens 
in tax havens and that offshore tax evasion has declined by a 
factor of about three over the last decade, but unfortunately, 
we still see brazen violations.
    For example, recently a Florida businessman was arrested 
and indicted for hiding more than $20 million in Credit Suisse 
and other secret Swiss bank accounts. The Senate Finance 
Committee has uncovered how Credit Suisse bankers failed to 
comply with FATCA and with Credit Suisse's plea deal with the 
Department of Justice (DOJ). We also need to make sure that the 
IRS has the resources needed to fully leverage the data 
disclosed under FATCA in order to collect the taxes that are 
owed.
    Beyond our borders, FATCA has had a dramatic global effect 
galvanizing more than 100 other countries to join forces to 
automatically exchange bank account information, but the U.S. 
is not a part of that global standard and as a result risks 
becoming a tax haven for foreign tax cheats. We should do more 
so the information flows both ways, not only to help our 
partner countries; this would also be in our interest. Other 
countries willingness to share information with the U.S. 
depends on our willingness and ability to reciprocate.
    Second, in addition to FATCA, Congress has created a 
valuable new transparency tool, the bipartisan Corporate 
Transparency Act (CTA), which gives the IRS access to a new 
database identifying the true owners of U.S. legal entities. 
Ownership transparency is important because shell companies are 
a significant conduit for tax evasion. For tax, as well as 
anti-money laundering purposes, the government must continue to 
vigorously defend the CTA against unfounded legal challenges.
    Third, we also need to crack down on tax dodging by large 
multinational corporations through better, tougher enforcement 
of our current transfer pricing rules. Right now it's too easy 
for big corporations to go beyond the law with fewer 
precautions. The IRS needs more resources so it can take on 
complexed transfer pricing schemes by big companies like 
Microsoft, and Mr. Curtis will discuss that in more detail.
    But I'd like to point out that transfer pricing also 
presents huge financial risks for investors. To protect 
investors from these risks the Securities and Exchange 
Commission (SEC) should mandate more detailed tax reporting by 
U.S. listed issuers, requiring basic information for each 
country of operation, known as public country-by-country 
reporting. Investor scrutiny would help to deter some of the 
most aggressive and illegal transfer pricing practices now 
underway.
    Fourth, current Treasury rules allow corporations to check 
a box on a tax form to effectively make an offshore subsidiary 
and its otherwise taxable income disappear. This provision, 
known as ``check the box election,'' harms our economy and 
facilitates offshoring of jobs and profits. While technically 
legal, this tax practice has lead to substantial losses to our 
economy to the tune of more than 1 million American jobs and 
more than $40 billion per year in lost domestic business 
earnings according to a recent Brookings analysis. Treasury 
should put a stop to these losses and repeal the ``check the 
box'' selection rule.
    I want to thank the members and staff of the Senate Budget 
Committee for holding this important hearing today and I 
welcome your questions.
    Chairman Whitehouse. Thank you very much, Ms. Milin. Mr. 
Curtis, please proceed.

    STATEMENT OF STEPHEN L. CURTIS, PRESIDENT, CROSS BORDER 
                       ANALYTICS, INC.\4\
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    \4\ Prepared statement of Mr. Curtis appears in the appendix on 
page 36.
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    Mr. Curtis. Chairman Whitehouse, Ranking Member Grassley, 
and distinguished members of the Committee, thank you for 
inviting me to share my research on corporate offshore profit 
shifting and related enforcement issues. I've been performing 
transfer pricing projects for around 27 years, mostly as an 
economist and partner in two Big Four accounting firms before 
starting a consultancy in 2013 to develop forensic models and 
technology for transfer pricing enforcement.
    I began publishing these models in academic papers in 2016 
and then in 2020 began working with a team of distinguished 
academics to publish cases of offshore tax evasion by 
multinationals. As seen here in Figure 1, from my written 
testimony, this table summarizes 10 of our studies since 2020, 
including 8 that have been published in Tax Notes, documenting 
around $600 billion in revenues that we believe the IRS could 
potentially recover for violations of the 2009 research and 
development (R&D) cost-sharing regulation. We estimate that the 
amounts owed for similar violations across all U.S. companies 
employing similar arrangements could reach around $1 trillion 
or more.
    Figure 2 shows a chart based on research by Kimberly 
Clausing, who previously testified before this Committee, 
showing how U.S. federal and state tax underpayments from 
offshore profit shifting have grown exponentially in recent 
decades to around $140 billion per year by 2015. Research in 
2023, cited in my written testimony, found no material impact 
on offshore profit shifting after the Tax Cuts and Jobs Act of 
2017.
    Put simply, the IRS is overmatched, understaffed, 
underfunded, and operating with vast information and resource 
asymmetries against sophisticated taxpayers with virtually 
unlimited resources. The IRS audits around a third of the 
largest 3,800 U.S. companies and around 50 percent of these 
conclude with no change result and only a fraction of these 
exams ever involve transfer pricing, or the prices assigned to 
cross boarder intercompany transactions by related affiliates 
of the same multinational companies, often manipulated to move 
taxable U.S. profits out of the U.S. tax net.
    Here are a few examples of transfer pricing that passed IRS 
exam. A U.S. company's most profitable subsidiary is a tax 
haven shell company in Ireland that exists only on paper with 
no employees. A U.S. Internet company serves billions of users 
from around the world and its average cost per user is $21, but 
it records $92 in the U.S. on its U.S. tax returns, but only 
$12 offshore, which inflates its foreign pre-tax income to 
twice that of its U.S. pre-tax income, or a U.S. company that 
designs, builds, and exports products from the U.S. directly to 
foreign customers, records the majority of these sales and 
profits into Irish tax haven shell companies for distribution 
operations that never touch the product.
    So, how does this happen? Well, consider how one company 
evaded around $100 billion in U.S. taxes, despite a decade of 
continuous IRS exams and a Senate investigation in 2013. Figure 
4 from my written testimony shows excerpts from a contract 
required by the 2009 regulation mentioned earlier in order to 
be exempt from some of the provisions of that law. Note how the 
contract contains the words such as ``functions performed by'' 
these Irish affiliates listed in the contract.
    These words could not be more clear in a document supported 
by comments made under oath to the Senate Permanent 
Subcommittee on Investigations (PSI). However, compare these 
words with statements shown in Figure 5. These statements were 
made 3 years later to European regulators, likewise, under 
oath. These comments testify that the purported functions 
performed by the Irish affiliates in the contract were actually 
never performed by these affiliates at all, but instead by the 
U.S. parent company, who booked their expenses against U.S. 
profits. The income, however, was booked into two nontaxable 
shell company branches of the Irish affiliates listed in the 
contract.
    These facts violate a cascade of tax regulations that the 
IRS currently does not enforce, such as periodic adjustments on 
effectively connected income for which we estimate this 
taxpayer could be on the hook for around $200 billion.
    In summary, our research over the past decade has found 
that many corporate tax laws remain unenforced and that 
offshore profit shifting continues unabated. However, many tax 
underpayments going back a decade or more remain collectible, 
some with no statute of limitation. The Inflation Reduction Act 
funding for the IRS can provide targeted improvements that we 
believe can recover $1 trillion or more from noncompliant 
transfer pricing and other forms of corporate tax evasion while 
reducing exams of compliant taxpayers and leading to more 
voluntary compliance so that corporations pay their fair share. 
I welcome your questions.
    Chairman Whitehouse. Thank you very much. And before I turn 
to Mr. Bunn, I just want to acknowledge the role of our friend 
and former colleague, Senator McCain, in the proceedings that 
you described, Mr. Curtis. We miss him to this day and I'm glad 
that you mentioned his work. Mr. Bunn.

STATEMENT OF DANIEL BUNN, PRESIDENT AND CEO, TAX FOUNDATION \5\
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    \5\ Prepared statement of Mr. Bunn appears in the appendix on page 
48.
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    Mr. Bunn. Chairman Whitehouse, Ranking Member Grassley, 
members of the Committee, thank you so much for having me here 
today for this hearing on offshore tax evasion. At the outset, 
I want to distinguish between evasion, which is illegal, and 
avoidance, which is the use of different policies that are in 
the Tax Code, legal measures to reduce exposure to higher tax 
burdens.
    My view on evasion is simple. The Internal Revenue Service 
should enforce existing tax rules so that evaders are brought 
to justice and pay the correct amount of tax. On avoidance, we 
get into a lot of policy questions. There are many things in 
the Tax Code, domestic and cross border that provide 
opportunities for individuals or businesses to reduce their 
legal tax liability and it is up to policymakers to think 
through the different tradeoff.
    Ranking Member Grassley mentioned some of these, on what is 
the appropriate enforcement mechanisms and the appropriate 
policies to increase tax compliance. I'll mention the tax gap 
as well. The Chairman mentioned the size of the tax gap 
estimated in the $600 billion range for 2021. However, when you 
look at the gap between revenues and outlays, even 100 percent 
compliance does not close the deficit in the years that we've 
seen, even over the previous decade, so there's a policy 
question of what the appropriate measures should be to either 
enforce existing rules or how existing rules could be changed 
to recognize the tradeoffs between policy and enforcement of 
those policies.
    The U.S. is an outlier when it comes to offshore income or 
foreign income. The U.S. has historically used worldwide rules 
to tax the incomes of individuals and businesses. On the 
individual side, we are the only country, other than Eritrea in 
East Africa, that taxes our citizens on their worldwide income 
and that requires us to have different policies to enforce 
those rules. Now, the whistleblower policies, the FATCA that 
have been mentioned, those incur different costs for taxpayers 
to be able to comply with this worldwide tax system for 
individual income.
    On the FATCA, what we have seen as it has been rolled out 
and enforced, we have seen a spike in U.S. citizens who are 
often living abroad revoking their U.S. citizenship to avoid 
the high burden of compliance with the FATCA. So, that, to me, 
suggests there's a problem with the underlying policy of 
citizenship-based taxation.
    On the business side, up until 2017, we had a full 
worldwide tax system for business income where we would pay 
attention to income earned wherever it was in the world, but 
there was an option for companies to defer U.S. taxation of 
their foreign income and not repatriate the profits to avoid 
paying our 35 percent corporate tax rate at the time. This 
created a lot of bad incentives for businesses to create all 
sorts of creative structures to avoid having to pay that 35 
percent rate on repatriating profits.
    In 2017, though, policymakers chose to lower the corporate 
tax rate and enact a number of transition rules and anti-
avoidance mechanisms that, in my opinion, have improved the 
U.S. tax system for corporate income, particularly offshore 
income. Now, not everything with the Tax Cuts and Jobs Act was 
perfect, and even some of those anti-avoidance measures are not 
perfect. But, in general, it was a move in the right direction, 
and we have seen intellectual property profits move back to the 
United States as a result of the Tax Cuts and Jobs Act and 
other changes internationally. And that's where I think 
policymakers should also be thinking, not just with the 
rearview lens, but also looking forward, paying attention to 
where policy might change in the coming years.
    Next year is an opportunity with the expiration of many 
parts of the Tax Cuts and Jobs Act and changes that are 
happening around the world for lawmakers to consider what areas 
of the Tax Code should be adjusted to improve the incentives 
for businesses to hire in the U.S., to invest in the U.S., and 
to see an opportunity for lawmakers to move in that direction 
rather than just thinking through the number of layers and 
layers of anti-avoidance policies that have come to be.
    The corporate alternative minimum tax is one of them and 
that is still as yet uncertain for corporate taxpayers because 
they do not have final guidance, even 2 years on from the 
Inflation Reduction Act. Thank you for having me here for 
testifying, and I look forward to your questions.
    Chairman Whitehouse. Thank you very much.
    Mr. Curtis, you discussed the commensurate with income law, 
which goes back to the Reagan bipartisan 1986 tax reform and 
its basic non-enforcement. As I understand it, that was 
intended to prevent companies from mispricing intellectual 
property allocated to foreign subsidiaries; is that accurate?
    Mr. Curtis. Yes, Senator, it was.
    Chairman Whitehouse. And you have literally decades of 
experience as a corporate tax practitioner in the major tax and 
accounting firms of the country and you've developed forensic 
economic analyses of offshore structures. How does that work? 
How does your forensic work lead to the conclusion that these 
offshore companies are evading taxes?
    Mr. Curtis. Sure. So, some of the forensic models we've 
developed are designed to detect violations of transfer pricing 
principles, so the arms-length principle. So, if you see a 
corporation with high foreign profits, maybe more foreign 
profits than U.S. profits, you might think that it could be in 
violation of the transfer pricing rules or its transfer pricing 
is aggressive, but you actually need to look at the functions 
and risks and assets and how they're distributed and what goes 
on offshore versus U.S.
    We have some models that do this using time series analysis 
of statistical indicators of transfer pricing risks because 
profit is supposed to follow risks, so how do you define risk 
and so all those kinds of things. So, once we identify a group 
of companies that we think have these risks, we then start 
investigating them forensically, so we start looking for 
information, especially in offshore filings, like in Ireland. 
Some of the companies we've researched have filed some things 
in Ireland that are very difficult for those companies that if 
you take a look at those you can actually see some violations 
of U.S. tax codes. So, we investigate them going down that 
route.
    And then, for these companies that we've published, they do 
violate this commensurate with income law. The law regulations 
were passed to implement that law in 1994 with periodic 
adjustment for offshoring of IP, but then in cost-sharing 
arrangements in 2009 that is the law that the 10 companies that 
we've written about violate.
    Chairman Whitehouse. Senator Cassidy and I are also working 
on mispricing as a mechanism for international money 
laundering. You're talking about it as a means of tax avoidance 
and tax evasion. Is it also a way in which value can be 
transferred without proper accounting that allows for money 
laundering as well, or is that beyond your expertise?
    Mr. Curtis. I can only talk in the corporate context, but 
in the corporate context, U.S. companies that have people and 
assets, they also have intellectual property. It's hard to move 
people and hard assets offshore at non-arm's-length pricing or 
just to move your people to an onshore tax haven. That's very 
difficult, so corporations will move more fungible assets.
    When you're talking about a fungible asset like 
intellectual property, those assets can be very valuable and 
difficult to price and that's where you see a lot of the 
corporate offshore profit shifting. Now, whether that applies 
to money laundering, that I can't really speak to.
    Chairman Whitehouse. You can see how it might work. Ms. 
Milin, you've suggested that the $688 billion tax gap may 
actually not fully account for offshore tax evasion. Could you 
explain that further?
    Ms. Milin. That's right. The IRS is not able to fully take 
into account offshore tax evasion, so the figure is too low 
with respect to that. And I think as you alluded in your 
opening remarks, former Commissioner Rettig thought so too, and 
he thought that it could be as high as $1 trillion.
    Chairman Whitehouse. Just to a point in your testimony 
where you mention that granting access to FATCA data beyond the 
IRS could help--and I'm quoting you here--``law enforcement 
agencies fighting drug cartels, corruption, sanctions 
violations, human trafficking, and other major crimes.''
    Is it fair to conclude from that that anonymous offshoring 
in shell corporations has national security and law enforcement 
issues as well as tax issues associated with it?
    Ms. Milin. Absolutely. I mean it comes down to the problem 
of secrecy that enables all of these problems from offshore tax 
evasion to all of the issues that you just outlined and the way 
to tackle that is through greater transparency.
    Chairman Whitehouse. So, not just tax cheats, but 
terrorists, drug lords, child traffickers, all can benefit from 
the same secrecy.
    Ms. Milin. That's right.
    Chairman Whitehouse. Thanks very much. Senator Grassley.
    Senator Grassley. Mr. Bunn, the 2017 tax bill did a carrot 
and stick approach to the problem of multinationals shifting 
profits to low tax jurisdictions. Tell us how that tax bill 
reduced the incentive to engage in profit shifting transactions 
and what are some examples?
    Mr. Bunn. Thank you for the question. So, the Tax Cuts and 
Jobs Act looked at the difference between the tax burden on 
foreign income and the tax burden on domestic income and sought 
to close that gap. When there's a large gap between domestic 
tax rate and a foreign tax rate, there's a large incentive for 
businesses to shift their profits, either artificially or 
actually offshore activities--you know, physical activities in 
employment to minimize their exposure to a high tax rate.
    So, the Tax Cuts and Jobs Act, number one, brought the 
corporate tax rate down, but then had a pairing of anti-
avoidance policies. One in the global and tangible low tax 
income. The Global Intangible Low-Taxed Income (GILTI), which 
is a minimum tax rate applied to foreign income, and the 
foreign derived intangible investment, which is FDII, to 
balance the difference that companies, when they're thinking 
about where to put their research and development or put their 
IP to allow them to think maybe it makes sense to keep that in 
the U.S. rather than planning through different offshore 
structures.
    At the same time, we saw some changes in other 
jurisdictions that were helpful for this balance shifting in 
the U.S. and we've seen a significant amount of IP come from 
offshore locations back to the U.S. and profits being earned in 
the U.S. and we can see this in some data that I had in my 
written testimony, showing that royalties earned by U.S. 
companies on U.S. IP in the U.S. has increased dramatically, 
especially in bilateral data with Ireland.
    Senator Grassley. President Biden has proposed several 
changes to the U.S. tax system, so Mr. Bunn, most notable are 
reforms to the provision called GILTI. This includes taxing 
foreign income of multinationals at higher rates than what 
other countries are expected to adopt as part of Pillar II 
Agreement that the Biden Administration just negotiated.
    In addition, President Biden proposed corporate tax 
increase to 28 percent. How would these changes affect the 
competitiveness of U.S. companies, and would these proposals 
tend to increase or decrease the incentives for multinationals 
to shift profit offshore?
    Mr. Bunn. Thank you for the question. I think they would 
increase the incentive for planning through various structures 
and minimizing exposure to U.S. tax. The changes that the 
President is proposing would increase the gap between domestic 
and foreign and do it in a context where a lot of foreign 
jurisdictions that are adopting the global minimum tax are 
going to have an effective tax rate of 15 percent. And if the 
U.S. has a much higher tax burden through GILTI or the domestic 
corporate tax rate, then companies, instead of continuing to 
bring IP back or keep IP here in the United States, we'll 
probably see some of those same games to move things offshore 
or to develop things offshore rather than do them here in the 
United States.
    Senator Grassley. Also, Mr. Bunn, the Administration claims 
Pillar II tax framework will end, and I quote, ``a global race 
to the bottom with respect to corporate taxes.'' However, in 
reality, Pillar II may simply shift the focus from a 
competition-based on low rates and traditional tax incentives 
towards one based upon providing direct-cash subsidies. How do 
you feel or how do you expect tax havens to respond to the 
implementation of Pillar II?
    Mr. Bunn. So, we're already seeing some of this response. 
Some jurisdictions looking at the minimum tax rules--and 
minimum tax rules provide for certain things that I think a lot 
of jurisdictions are looking at through an attractive lens.
    The jurisdictions are looking at grants, refundable 
credits, and different mechanisms that the minimum tax rules 
treat more favorably than traditional tax credits. I was 
spending some time earlier this year looking at some of the 
jurisdictions and how they're planning to implement the rules, 
but Bermuda is looking at a refundable tax credit. Singapore is 
looking at a refundable investment tax credit. Switzerland, 
some cantons in Switzerland are looking at refundable credit 
programs. And the United Kingdom has had a refundable research 
and development credit program for a number of years that are 
treated very differently than our credits and I think what we 
are seeing is a shift in this competition from rates to the tax 
base and using the rules themselves to create advantages for 
different jurisdictions.
    Chairman Whitehouse. Thank you, Senator Grassley. Senator 
Johnson.

                  STATEMENT OF SENATOR JOHNSON

    Senator Johnson. Thank you, Mr. Chairman. I'm going to try 
and simplify these issues here because this is incredibly 
complex what we're talking about.
    First of all, I think the main root cause here is the 
distinction between taxing worldwide income and not. I've known 
that individuals get taxed on their worldwide income. I was not 
aware of the fact that only American and Eritrea are the only 
two countries.
    Mr. Bunn, the reason we don't tax corporate worldwide 
income is we would be uncompetitive, and we would see 
inversions of corporations, right? They would just locate 
offshore. They'd become--again, we don't want to change our 
citizenship, so you can get away with taxing worldwide income 
individuals, but corporations they can be run by U.S. citizens, 
but domiciled someplace else. Correct? Is that the basic?
    Mr. Bunn. Yes, that's correct.
    Senator Johnson. So, if we attempted to tax worldwide 
income, that backfires, wouldn't it?
    Mr. Bunn. Yes. And it has historically with a lot of the 
inversions that we saw leading to the Tax Cuts and Jobs Act.
    Senator Johnson. So, the fact that we don't tax worldwide 
income that sets up the whole complex issue of transfer 
payments. And just, you know, paper entries, a legal document 
that says this IP is owned in that country that has low tax 
rates or all these costs we're incurring here. And I mean 
that's playing whack-a-mole, isn't it, Mr. Curtis? I mean you 
could say you could set up all these rules and all these laws, 
but you're still just playing whack-a-mole.
    Mr. Curtis. That is true. The ``check the box'' rules help 
with this as well because under ``check the box,'' if you have 
a shell company offshore and you put the IP in there, offshore 
you can split the IP returns into a tax haven and then you have 
functional entities that are doing some things. But under 
``check the box,'' your entities underneath get checked into 
this shell company or the shell company gets checked into 
another company.
    Senator Johnson. You're describing the complexity that we 
have.
    Mr. Curtis. Exactly.
    Senator Johnson. My whole point--any of the three witnesses 
think that the U.S. tax system is simple and rational? So, 
really the thrust of this questioning--I only have five minutes 
and it's not nearly enough to really explore this--is what 
could we accomplish by simplifying our Tax Code, by making it 
more rational? I mean, to me, it's--I mean income ought to be 
income. The fact that we have different tax rates for corporate 
income versus capital gains, I mean, index of the capital gain 
and have a unified tax rate scheme. Things like cash income. We 
have all these loopholes, it's just about amortizing, it's 
depreciating over different years. They're all arbitrary. What 
would we potentially accomplish, for example, just moving to 
cash-based income? Would that have any impact on this at all? I 
mean forget the paper entry or transfer payments or it's like, 
no, you got the cash in the U.S. You're going to be paying tax 
on it. I mean is there some way or ways that we can simplify 
our Tax Code, rationalize it, then start addressing this as 
opposed to continue to play whack-a-mole with something that's 
naturally complex? Mr. Bunn.
    Mr. Bunn. Thank you for the question. The answer is yes. 
So, Tax Foundation has looked at various forms of corporate 
income taxes, including cashflow taxes. And cashflow taxes are 
relatively rare across the world, but where we see them, we see 
them working well. There is a paper we put out last year 
looking at essentially a cashflow tax for the U.S. And it can 
be both supportive of growth and revenue positive. And these 
are things that I think lawmakers should be thinking about, 
thinking about simplicity while also aiming for certain revenue 
targets.
    Senator Johnson. Let me also point out. If we would 
transition to cash-based income, it would simply be a timing 
difference. Correct? I don't know how long a time period it 
would all work its way out, but yeah, I mean if you're 
investing today in some kind of R&D or some kind of capital 
equipment, you're going to have a lower tax rate because you 
have less cash on hand, but the next 4 years where you're not 
making that investment your cash income is going to increase. 
Correct?
    Mr. Bunn. Exactly.
    Senator Johnson. Did you have any feeling for how many 
years that would take to play out in terms of that timing 
difference?
    Mr. Bunn. So, in the long run it all works out. The 
challenge is that depending on what you're investing in, 
whether it's a building or a tractor, the return-on-investment 
timeline differs across the economy. In the aggregate, we could 
see things turn around within the budget window, but more often 
than not, you're looking outside the 10-year budget window to 
really see things turn around.
    Senator Johnson. So, most appreciation on equipment would 
be pretty short, right, 5 years, 7 years?
    Mr. Bunn. Correct.
    Senator Johnson. Buildings are.
    Mr. Bunn. Thirty-nine.
    Senator Johnson. Buildings are what?
    Mr. Bunn. Thirty-nine.
    Senator Johnson. Yes. So, I mean it's going to take a while 
for that to work its way--what about R&D?
    Mr. Bunn. Well, we're currently amortizing R&D based on 
the--I think it's 3 to 5 years, somewhere in there. Yes.
    Senator Johnson. Okay. Again, what I'd love to have, I'd 
love to hold a hearing on how do we simplify and rationalize 
our Tax Code because, again, nobody wants to see tax evasion. I 
don't know what percentage of the tax gap is evasion versus 
avoidance, as you're pointing out, Mr. Bunn, but avoidance is 
all about a complex tax system. So, anything we can do to 
rationalize and simplify it that's the drum I've been beating, 
and I'd like this Committee to take the time to really analyze 
that. Thank you, Mr. Chairman.
    Chairman Whitehouse. Thank you, Senator Johnson. Senator 
Van Hollen.

                STATEMENT OF SENATOR VAN HOLLEN

    Senator Van Hollen. Thank you, Mr. Chairman. Thank all of 
you for your testimony here today. Mr. Curtis, I'd like to 
start with you. From your experience, roughly, how many tax 
experts, accountants, lawyers, does the average, large 
multinational have at their disposal to try to minimize their 
U.S. tax obligation? I know there's not a one-size-fits-all, 
but if you could just give a rough approximation.
    Mr. Curtis. Well, if you include people working within the 
corporations and their advisors because most of the large 
corporations, Fortune 500 and higher, don't do all of their 
transfer pricing documentation in-house. They use advisors. And 
I'll pull a source. So, there's a study that was done in 2018 
that predicted that there's 250,000 professionals, I believe 
worldwide, that do transfer pricing that are in the industry of 
transfer pricing. Compared to the IRS, we think as between 100 
and 200 people that do transfer pricing inside the IRS, so it's 
a big number if even a third of that was in the U.S., so it 
would be 60,000 or something like that. So, the IRS is 
overmatched maybe 100 to 1 or even more than that.
    Senator Van Hollen. You totally anticipated my next 
question, which was what the IRS does have, and you just 
explained they're totally outgunned when it comes to doing this 
kind of work. How about on the expertise side, right, because 
it's both the number of people that are engaged in this, but 
also the level of expertise. What kind of expertise and 
resources are needed for the IRS to be able to compete in that 
area?
    Mr. Curtis. So, in the IRS, what you have in the IRS is you 
have so few resources that people who perform exams, like 
international examiners and transfer pricing economists, they 
tend to be generalists, if you will. If it's a continuous audit 
or a random audit, they'll come in and they'll do basically a 
fishing expedition to try to find what's going on. What I felt 
having worked inside the Big Four and how the Big Four operates 
is you have experts that are an inch wide and a mile deep at 
every code section. They know every loophole, every typo. They 
know how different codes operate to create a loophole.
    There's also technology. So, I took those things and said, 
well, if you were the IRS, what would you want to do? Well, the 
first thing you'd want to do is you'd want to take your 
workforce and instead of auditing companies where 50 percent of 
your audits are no change and doing fishing expeditions and 
using generalists who don't have a grasp necessarily what might 
be going on inside the company or is an expert in any number of 
discrete transfer pricing issues, you would want some 
technology that would identify the key risks and then put your 
workforce there and then take that workforce, build it, add to 
it, but what you're adding to it is you're adding more 
specialists in different areas that you can have 
multifunctional teams really operate more like the industry. 
Now, you can go toe-to-toe with what's going on in the 
industry. That's what I would say.
    Senator Van Hollen. No, I appreciate that. And you 
mentioned technology. The IRS is still operating, in some 
cases, on 25-year-old technology. Do you expect that a lot of 
the Fortune 500 companies are using technology that's older 
than their employees?
    Mr. Curtis. No, absolutely not.
    Senator Van Hollen. So, this is one of the reasons, as part 
of the Inflation Reduction Act, we provided the IRS with 
additional resources to help on customer service, yes, but also 
to allow upgrades in technology, as well as to allow them to 
hire more people to go after very, very wealthy tax cheats, 
including corporate tax cheats. And we are witnessing a battle 
here where some people want to take away those resources and 
not allow the IRS to at least try to compete with the resources 
of big corporations.
    Ms. Milin, I appreciate your testimony mentioning a bill 
I've introduced, Disclosure of Tax Havens and Offshoring Act, 
and the work that the FACT Coalition has done on the issue of 
country-by-country reporting. As you mentioned, countries file 
country-by-country reports with the IRS, but are not required 
to disclose that information to investors. Could you just 
expand briefly on how country-by-country reporting can be 
meaningful for their investors?
    Ms. Milin. Thank you, Senator, for that question, and thank 
you for your leadership on corporate tax transparency. The 
information is already available and filed with the IRS, so 
this is not imposing any additional costs on companies, but it 
would help investors better assess the very material risks of 
the sort that Mr. Curtis has described and that his research 
has documented. And those risks, in some cases, they run into 
the tens of billions of dollars. So, it clearly impacts the 
bottom line for many of these large companies, and yet, the 
investors remain in the dark. So, the bill that you've 
introduced would change that and make this information 
available to investors so that they can scrutinize the risks 
that the companies are taking. And in doing so, the hope is 
that it will also deter some of these most aggressive 
practices.
    Senator Van Hollen. Thank you. It's investor right to know 
to help protect others in the economy as well. Thank you, Mr. 
Chairman.
    Chairman Whitehouse. Thank you, Senator. We have Senator 
Kennedy, then Chairman Wyden, and then Senator Braun.

                  STATEMENT OF SENATOR KENNEDY

    Senator Kennedy. Thank you, Mr. Chairman. Ms. Milin, is 
your expertise in the area--Mr. Bunn made this distinction. Is 
your expertise in the area of tax avoidance or tax evasion or 
both?
    Ms. Milin. I would say both. I think the lines--there are 
situations where the lines might get blurry, especially on the 
corporate side. But in my----
    Senator Kennedy. It's both?
    Ms. Milin. It's both. In short, it's both.
    Senator Kennedy. Do you believe that there are major 
American corporations that are cheating on their taxes?
    Ms. Milin. I think, yes, there are cases where the transfer 
pricing regulations are not being followed and Mr. Curtis's 
testimony speaks to that.
    Senator Kennedy. Tell me who they are. Who are the five--
name the five American corporations that are the biggest tax 
cheats?
    Ms. Milin. Well, this is a question for the IRS. It's their 
job to enforce the law, so I wouldn't----
    Senator Kennedy. That's a pretty serious allegation you 
made there and I'm just asking you who they are.
    Ms. Milin. There are cases pending against a number of 
companies. Until those cases conclude, it's not----
    Senator Kennedy. Who do you think they are? You're an 
expert in this area. I'm just asking you. You talked a lot and 
I've read some of your writings about American corporations 
cheating on their taxes. I'm just asking you who they are.
    Ms. Milin. I wouldn't use the word ``cheating.'' I think 
that they are----
    Senator Kennedy. You've use----
    Ms. Milin [continuing]. Taking advantage of the grey zone.
    Senator Kennedy. You've used it in your testimony.
    Ms. Milin. I'm sorry?
    Senator Kennedy. You used it in your testimony. I'm not 
trying to trick you. I just want to know--you have been very 
vociferous in saying that American companies are cheating. 
Okay, as an American, you're entitled to your opinion, but 
you're an expert and just tell me who they are.
    Ms. Milin. I stand by that. I think that there is evidence 
to suggest that some of these companies, and the IRS has 
pursued cases against a number of the companies that----
    Senator Kennedy. Who are they, though?
    Ms. Milin [continuing]. That Mr. Curtis has analyzed, 
including Apple and Microsoft and Facebook and Coca Cola.
    Senator Kennedy. Is Apple a tax cheat?
    Ms. Milin. I wouldn't say tax cheat. I think that's putting 
it too strongly and I didn't use that word.
    Senator Kennedy. Then who are they?
    Ms. Milin. I wouldn't say tax cheats, but I think they are 
crossing the legal lines that have been set by Congress and by 
the IRS in the relevant regulations and because the IRS is 
outgunned, they're not able to enforce the law against them.
    Senator Kennedy. Let me start over. Do you believe that 
there are major American corporations cheating on their taxes?
    Ms. Milin. I believe they are coming very close to crossing 
the line and it's difficult for IRS that is outgunned to 
enforce the law.
    Senator Kennedy. Are they crossing the line or not? Are 
they crossing the line or not?
    Ms. Milin. Well, it's up to the IRS to enforce the line. If 
they don't have the resources----
    Senator Kennedy. I'm asking in your opinion. You're an 
expert.
    Ms. Milin. I think there is a good case to be made that, 
yes, they are crossing the line.
    Senator Kennedy. So, yes.
    Ms. Milin. Yes.
    Senator Kennedy. Who are they?
    Ms. Milin. That's up to the courts and the IRS to 
determine.
    Senator Kennedy. You made this allegation, but you don't 
want to say who they are? I mean you know who they are, you 
just don't want to tell us.
    Ms. Milin. I think that's been explained by Mr. Curtis in 
his----
    Senator Kennedy. No, I'm asking you to explain. You talk 
about tax cheats. I'm just asking you who they are and you 
don't want to tell us?
    Ms. Milin. Again, I think it's for the IRS to enforce the 
line and we need to make sure that the IRS is properly----
    Senator Kennedy. Well, do you have a list of these tax 
cheats?
    Ms. Milin. No.
    Senator Kennedy. Okay. Have you been to the IRS and said 
here are these companies and they're cheating on their taxes 
and I can show you how they're doing it?
    Ms. Milin. No, I'm not--I've never practiced in that area 
of law. I'm not a tax----
    Senator Kennedy. So, all you've done.
    Ms. Milin [continuing]. Lawyer.
    Senator Kennedy. All you've done is run around saying 
American companies are cheating on their taxes. I can't tell 
you who they are and I haven't been to the IRS to show my data 
to the IRS, but I want you to believe me that they're cheating 
on their taxes. Is that your testimony today?
    Ms. Milin. No, Senator. No.
    Senator Kennedy. Sure sounds like it.
    Ms. Milin. No, I think that the case against some of these 
companies has been well documented----
    Senator Kennedy. Which companies?
    Ms. Milin [continuing]. In the public.
    Senator Kennedy. Which companies because I'm going to run 
out of time. Tell me in the last 23 seconds. Here's your 
chance. You believe they're major American corporations 
cheating on their taxes. You just testified to that. I believe 
you told me yes. Tell me who they are.
    Ms. Milin. I think they are the companies that Mr. Curtis 
discussed in his----
    Senator Kennedy. Tell me who they are----
    Ms. Milin [continuing]. In his testimony.
    Senator Kennedy. Tell me who they are.
    Ms. Milin. It includes some of the big tech companies.
    Senator Kennedy. Who are the five worst?
    Ms. Milin. Big Pharma companies that are----
    Senator Kennedy. Who are the five worst?
    Ms. Milin. I don't have a ranking.
    Senator Kennedy. You're not going to tell me. You don't 
want to say.
    Ms. Milin. I haven't looked into that.
    Senator Kennedy. You understand it makes it hard to believe 
your allegations if you won't tell us who they are.
    Talk's cheap. You ever heard that expression? Thank you, 
Mr. Chairman.
    Chairman Whitehouse. Senator Wyden, who actually done some 
investigation in this space.

                   STATEMENT OF SENATOR WYDEN

    Senator Wyden. With your cooperation, I very much 
appreciate it and glad that you're digging into these issues. 
Ms. Milin, for you, the Finance Committee has conducted a 
number of investigations into the role of Swiss banks who've 
been implicated in major offshore tax evasion schemes, 
including Credit Suisse. One of these investigations looked 
into the Swiss Bank Mirabaud, where Robert Brockman hid more 
than $1 billion from the IRS for over a decade and as Chairman 
Whitehouse notes, we've long been concerned by the general lack 
of criminal prosecution of bankers and other enablers complicit 
in major tax evasion schemes.
    And I know my colleagues are talking about naming people 
and all the rest. I just named people. We named them and we 
said specifically we're talking about somebody who hid more 
than $1 billion from the IRS for over a decade. And I'd be 
curious in your thoughts how is it credible for foreign banks 
to claim that they did not know, who has an account like this.
    I mean I heard my colleague from Louisiana said name some 
names and all the rest, so we're talking about naming a name. 
Somebody who had $1 billion hiding in a Swiss bank and I'm just 
curious how you claim that you didn't know it if you're a 
banker?
    Ms. Milin. Thank you, Senator, for everything that you and 
your Senate Finance staff have been doing to expose these 
issues and the ways in which we still see too many violations 
of the Foreign Account Tax Compliance Act. What you described 
with the Mirabaud Bank is a very obvious breach of the law and 
when such cases are uncovered it's important that the DOJ and 
IRS are very tough on, not just the banks and the bankers, but 
also to make sure that they turn over the names of individual 
account holders.
    Unfortunately, that hasn't always happened in the past with 
respect to some of these Deferred Prosecution Agreements (DPAs) 
and Non-Prosecution Agreements (NPAs) that DOJ has signed in 
this area, so that's hopefully a lesson learned.
    Senator Wyden. Aren't the bankers required to know who 
their customers are?
    Ms. Milin. Absolutely. And they're required, not only under 
FATCA, but also under anti-money laundering laws, so 
absolutely, yes.
    Senator Wyden. That leaves us with kind of a choice. Either 
they ignore the law or they're not capable of looking at their 
customer. I mean it just kind of defies credulity here to 
believe that they don't know about somebody sitting on $1 
billion, so what is it? They don't follow the law, they don't 
care about the law of being on the books and think they're 
going to get away with it? I mean how does this work?
    Ms. Milin. I agree with you. I think that they should know. 
It's willful blindness if they claim that they don't know. And 
perhaps if there was more resources put into enforcing FATCA 
then we would see more of a deterrent effect.
    Senator Wyden. I know of your work. I will tell you I don't 
think this is a resource issue primarily. It's a question about 
whether you consider it important. If you consider it 
important, you go out and do it. And if you bump up against a 
situation where you don't have the resources, you come to the 
Congress.
    And let me ask you about one last example with the 
remainder of my time. The Finance Committee exposed how Credit 
Suisse bankers helped a family with dual passports living in 
Miami hide over $90 million from the IRS and DOJ. We are 
unaware of any charges being filed. What kind of a message is 
DOJ sending when they don't bring cases against bankers who 
willingly help American clients hide money offshore? And 
pretend you're talking to the people at the Department of 
Justice because I have. I've talked to them repeatedly and I 
have been pretty spirited in my comments about how it is when 
our terrific investigators who are sitting behind me bring this 
stuff to them, and we've worked with Chairman Whitehouse on it, 
and nothing happens. What kind of a message does it send for 
DOJ to basically sit back and kind of do nothing.
    Ms. Milin. That's unfortunate and disappointing to hear and 
I share the concern and I would hope that the DOJ would step up 
their enforcement efforts to make sure that there's a really 
strong deterrent effect as intended by FATCA.
    Senator Wyden. For you and other people who are thoughtful 
and well respected on these issues, I hope you communicate that 
to the people at the Department of Justice as well because I've 
done it on a number of occasions, and we are still waiting and 
we're just going to keep pushing.
    Thank you, Mr. Chairman.
    Chairman Whitehouse. Let me interject for one second before 
I turn to Senator Braun because this is an area where I've 
spent some time and I really appreciate Chairman Wyden's work 
here. And part of the problem is that the Department of Justice 
before it brings a tax enforcement prosecution insists on there 
being a referral from the IRS to the DOJ, even where the 
challenged conduct is as simple as filing a false statement 
under 18 U.S.C. 1001, which is bread and butter prosecution for 
DOJ.
    So, you can get very quickly into a situation in which the 
IRS won't make the referral, so the DOJ won't prosecute and the 
whole thing just flops and the ball falls between the second 
baseman and the shortstop over and over and over again because 
the protocol for these IRS referrals is a disaster from a point 
of view of enforcement.
    Sorry to seize that editorial moment but appreciate it. 
Senator Braun, my apologies for taking some of the time ahead 
of you.

                   STATEMENT OF SENATOR BRAUN

    Senator Braun. Thank you, Mr. Chairman. I'm sure you'll 
give me a little latitude to go over my standard 5 minutes 
since I'm the last one here too, maybe.
    Chairman Whitehouse. To a reasonable point, yes sir.
    Senator Braun. Very good. Ms. Milin, I'm not going to ask 
you to identify who the companies are, but I'm going to see if 
you've got a good grasp of kind of the macroeconomics of what 
we're dealing with. Let's take the year that just was 
concluded. By the way, we never did a budget within Fiscal '23. 
We're in some type of movement. I think, yes, we just got that 
done without a budget with the two big spending bills. We need 
to get more process into all that and I think we'd end up with 
better results.
    But in '23, what were federal revenues, since you're 
talking about a gap there that we need to kind of shrink due to 
better tax compliance and everything that you can do. Do you 
know what our federal revenues were that we ended up in Fiscal 
'23? And if you don't----
    Ms. Milin. I don't know that off the top of my head.
    Senator Braun [continuing]. You probably know the deficit 
amount, roughly. Correct?
    Ms. Milin. There is a substantial deficit, yes.
    Senator Braun. Want to take a stab at what that is or what 
it was for the last fiscal year?
    Ms. Milin. I'm not sure.
    Senator Braun. It was $1.9 trillion. Do you want to know, 
or can you tell me what the Biden Administration has forecast 
over the next 10 years in terms of what kind of deficit, 
structurally, we'll be running?
    Ms. Milin. I haven't looked at those numbers. My specialty 
is in----
    Senator Braun. That's pretty simple too.
    Ms. Milin [continuing]. Tax law and policy. I haven't 
looked at those numbers.
    Senator Braun. I think it's important because it's $2 
trillion a year and we're now $34 trillion in debt. We were 
only $18 trillion in debt when I got here a little over 5 years 
ago. And as far out as you can see, we are borrowing and 
spending and this is something I hope you know. What has been 
the average that we've generated as a percentage of GDP from 
revenue raised over the last 50 years as a percentage of our 
gross domestic product (GDP)?
    Ms. Milin. I'm not sure. I couldn't say.
    Senator Braun. Well, I would hope that being an expert in 
the field of trying to shrink that gap you'd learned more of 
that. It's been 17.5 percent of our GDP. So, if you look at 
what we did in '23 with revenue, which would've been record 
levels compared to what it would've been not too long ago, it's 
$4.4 trillion. That was 16.5 percent of our GDP. We spent 23.7 
percent, $6.3 trillion. That is in the books. It just occurred. 
We are headed towards that again in '24 and for the next 10 
years out.
    In the last 50 years, we've never brought in more than 17.5 
percent of our GDP with high rates. When you flush a little 
more into the Treasury, you start to dampen economic growth. 
When you cut taxes, you take a little bit away from the 
Treasury. You bring more in due to economic growth. Is there 
any possible way where you can be credible that we got a tax 
compliance issue as opposed to a spending issue when you look 
at those statistics? Remember we're currently spending nearly 
24 percent of our GDP. We've never, historically, raised more 
than 20 percent 2 years during the Clinton years out of the 
last 50. So, do you think we have a tax compliance issue or a 
spending problem? That's a fairly easy question.
    Ms. Milin. I don't study spending issues, but I can assure 
you there is a tax compliance problem. And so, even if it 
wouldn't go all the way towards closing the deficit, it is 
still something that we should address as a matter of fairness 
and rule of law. Whatever the GDP share is--you said 17.5 
percent.
    Senator Braun. Five percent, historically, over 50 years.
    Ms. Milin. It is important that everybody is contributing 
their fair share.
    Senator Braun. So, what do you think if you threw 
everything in the kitchen sink at it, what would you do? 
Hopefully, you've got that figure in terms of generating 
additional revenues and at what cost would it come? How much 
would it cost to do it? Do you have that there?
    Ms. Milin. I'm sorry. I'm not following. What the cost of--
--
    Senator Braun. In other words, what is the most do you 
think we could generate in extra revenue if you threw 
everything and the kitchen sink at it and what would the cost 
of doing it be so you can net out what that difference would be 
towards a $2 trillion deficit.
    Ms. Milin. Well, I think there are experts who have looked 
at the return on investment in terms of greater investment in 
IRS resources and it's something like eight----
    Senator Braun. Again, experts probably looked at it. I 
think you're one of them. I can tell you that Trump tax cuts 
were almost paying for themselves and that was $150 billion 
annually over 10 years, $1.5 trillion. That is just a small 
amount of a $2 trillion--chronic deficit.
    Before I do run out of time and push the latitude of having 
a little extra conversation here, I want to turn to Mr. Bunn. 
Would you want to weigh on that in terms of--since I didn't get 
an answer there, what you could possibly garner after the cost 
of doing it in terms of extra revenue and how does that compare 
relative to spending that has never, ever been close to 23 or 
24 percent of our GDP in history, other than in wartime?
    Mr. Bunn. Thank you, Senator. If you were to fully close 
the estimated or projected tax gap, you'd maybe get, you know, 
a half a percentage point on GDP. But the 100 percent 
compliance, I think, is relatively unrealistic, but you can 
think through policies----
    Senator Braun. And would you put that into--since we've 
been talking about dollars, roughly, what that would be, how 
many billions a year?
    Mr. Bunn. So, their estimated tax gap is about $600 billion 
a year, so that would require full 100 percent compliance. And 
then, as has been discussed, there's some questions about 
whether that covers the full tax gap.
    Senator Braun. Is that net of the cost of trying to get it?
    Mr. Bunn. No. So, you would still need additional IRS 
enforcement.
    Senator Braun. Okay. So, let's just stop there. So, that 
would be one-third of the gap. The other two-thirds clearly, 
we're spending too much. We're borrowing it from our kids and 
grandkids. Jamie Diamond, who would be respected in the private 
sector, just said it's the biggest issue, economically, going 
forward.
    Jerome Powell finally got rid of the modern monetary theory 
that it doesn't make any difference how much your deficits and 
your cumulative debt would be. You've got two renowned experts 
that have said----
    Chairman Whitehouse. Senator Braun.
    Senator Braun [continuing]. This place is going to swamp 
the system under our current policies.
    Chairman Whitehouse. I have to get to Judiciary and it's 
starting to wrap up, I'd appreciate it.
    Senator Braun. I think I've made my case. Thank you.
    Chairman Whitehouse. You do very eloquently, sir.
    Senator Braun. Thank you.
    Chairman Whitehouse. Thank you to all of the witnesses. I 
think I'd like to ask each of you a question for the record you 
can get back to me with. I showed this graph that shows the 
decline in the share of corporate tax revenue as a portion of 
United States tax revenue. It's run in recent decades from a 
high over 30 percent down to current levels of about 5 or 6 
percent. I'd be interested in your thoughts on where you think 
the sweet spot is. What is the right number or range of 
corporate tax revenue as a percentage or portion of overall 
U.S. tax revenue, if you have thoughts on that.
    With that, thank you very much. And Committee members 
questions for the record will be due by noon tomorrow. We ask 
witnesses if you receive further questions for the record to 
get back to us within seven days, and this hearing is 
adjourned.
    [Whereupon, at 11:21 a.m., Wednesday, April 10, 2024, the 
hearing was adjourned.]

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