Relative to worldwide combined reporting for unitary businesses under the business profits tax.
The bill targets large, multi-national corporations that operate in New Hampshire and aims to create a more equitable tax structure by evaluating their global revenue. Critics of the current water's edge method argue that it results in a tax disadvantage for U.S.-based corporations, as foreign companies can exploit this system to reduce their tax liabilities. It is estimated that millions could flow into state budgets from a move to worldwide combined reporting, although the actual fiscal impact remains indeterminable as it relies on various factors, including companies' combined net income.
House Bill 121 (HB121) proposes a significant change to how business profits are taxed in New Hampshire by transitioning from the 'water's edge' method to 'worldwide combined reporting' for unitary business groups. This legislation aims to treat a parent corporation and its subsidiaries, both domestic and foreign, as a single taxpayer. The intention behind this change is to address profit shifting to foreign tax havens, which is currently facilitated by the water's edge method that separates the profits of foreign entities from federally taxable income in the U.S.
While supporters of HB121 insist that adopting worldwide combined reporting will improve state revenues and fairness in taxation, opponents raise concerns regarding the complexity and challenges that may arise in implementing this system. Questions remain over how effectively the Department of Revenue Administration will access financial information from foreign domains, and potential add-ons or costs in executing and auditing the new methodology. The debate hinges on balancing the need for competitive taxation while minimizing abuse of the tax code through profit shifting.