The rate at which companies are taxed is posing a problem both for company and the government. With the corporate tax rate at 35 percent, companies try to save on paying taxes in the U.S. by keeping their profits in countries with lower tax rates.
Without the legal framework to support them, the government cannot “force” companies to bring their profits in the U.S. and pay taxes on them. On the other hand, companies declare that they are justified in keeping their profits abroad because of the high rate at which they are taxed.
To improve tax compliance and reduce tax evasion, the IRS has made it mandatory for foreign financial institutions (FFIs) to report to the IRS. The IRS has under the Foreign Account Tax Compliance Act (FATCA) made agreements with numerous countries including, but not limited to, France, Ireland, Switzerland, the United Kingdom, and Germany. With enhanced transparency in the financial transactions of U.S. citizens with other countries, the IRS can discover and punish tax evasion easily.
The government might not lower the corporate tax, but it is making efforts to improve the tax code, which has become complex and lengthy, enabling taxpayers to legally evade taxes. The future will tell how much this overhauling of the tax code will help in tackling tax evasion.