Taxation Of Corp Income Sheltered In Tax Haven

The bill pertains to an affiliated group of corporations filing a combined report. In a combined report filing, the tax is based on a percentage of the entire taxable income of all of the includable corporations, but the tax is assessed only against the corporation or corporations doing business in Colorado. Including more affiliated corporations in the combined report may result in an increase in income subject to tax.

There are jurisdictions located outside of the United States with no tax or very low rates of taxation, strict bank secrecy provisions, a lack of transparency in the operation of its tax system, and a lack of effective exchange of information with other countries. There are several common legal strategies for sheltering corporate income in such jurisdictions, often called 'tax havens'.

Notwithstanding a current requirement in state law that those corporations with 80% or more of their property and payroll assigned to locations outside of the United States be excluded from a combined report, the bill makes a corporation that is incorporated in a foreign jurisdiction for the purpose of tax avoidance an includable C corporation for purposes of the combined report.

The bill defines a corporation incorporated in a foreign jurisdiction for the purpose of tax avoidance to mean any C corporation that is incorporated in a jurisdiction that has no or nominal effective tax on the relevant income and that meets one or more of 5 factors listed in the bill, unless it is proven to the satisfaction of the executive director of the department of revenue that such corporation is incorporated in that jurisdiction for reasons that meet the federal economic substance doctrine.

The bill requires the state controller to credit a specified amount per fiscal year to the state education fund to be used to help fund public school education.

The bill requires the secretary of state to submit a ballot question, to be treated as a proposition, at the statewide election to be held in November 2016 asking the voters:

• To increase taxes annually by the taxation of a corporation's state income that is sheltered in a foreign jurisdiction for the purpose of tax avoidance;
• To use the resulting tax revenue to help fund elementary and secondary public school education; and
• To allow an estimate of the resulting tax revenue to be collected and spent notwithstanding any limitations in section 20 of article X of the state constitution (TABOR).

(Note: This summary applies to the reengrossed version of this bill as introduced in the second house.)