[Congressional Record Volume 144, Number 86 (Friday, June 26, 1998)]
[Extensions of Remarks]
[Pages E1246-E1247]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


   INTRODUCTION OF THE INTERNATIONAL TAX SIMPLIFICATION FOR AMERICAN 
                          COMPETITIVENESS ACT

                                 ______
                                 

                           HON. AMO HOUGHTON

                              of new york

                    in the house of representatives

                        Thursday, June 25, 1998

  Mr. HOUGHTON. Mr. Speaker, I am joined by my colleagues, Messrs. 
Levin, Crane, Matsui, Herger, Johnson, English and Neal, in introducing 
legislation to simplify and reform our current international tax laws. 
As all of you know, we are in a period of fundamental re-examination of 
the Internal Revenue Code. One of the most complicated and impenetrable 
areas of the Code and most in need of change is the foreign area. Our 
international trade laws have gotten ahead of our tax laws for this 
area. We consider our bill to be a ``down payment' on needed changes in 
this area.
  Now as we begin the process of re-examining in fundamental ways our 
income tax system, we believe it imperative to address the area of 
international taxation. In an Internal Revenue Code stuffed with eye-
glazing complexity, there is probably no area that contains as many 
difficult and complicated rules as international taxation. Further, I 
cannot stress enough the importance of continued discussion between the 
Congress and Treasury of

[[Page E1247]]

simplifying our international tax laws; especially in the areas of 
interest allocation, partnerships, and the European Union.
  The business world is changing at an increasingly rapid pace. As we 
all know, tax laws have failed to keep up with the rapid changes in the 
world technology and economy. Neither one of us is under any illusion 
that the measure which we introduced removes all complexity or breaks 
bold new conceptual ground. We believe, however, that the enactment of 
this legislation would be a significant step in the right direction. 
The legislation would enhance the ability of America to continue to be 
the preeminent economic force in the world. If our economy is to 
continue to create jobs for its citizens, we must ensure that the 
foreign provisions of the United States income tax law do not stand in 
the way.
  The focus of the legislation is to put some rationalization to the 
international tax area. In general, the bill seeks in modest but 
important ways to: (1) simplify this overly complex area, especially 
the foreign tax credit and the various antideferral mechanism; (2) 
encourage exports; (3) enhance U.S. competitiveness in other 
industrialized countries. And it seeks to achieve these objectives in a 
revenue-conscious manner.
  Specifically, the provision regarding the Subpart F exception for 
active financial services income is based in large part on the one-year 
rule embodied in H.R. 2513, the House passed bill that resulted from 
lengthy negotiations between the Treasury Department and the financial 
services industry. The bill's provision are not intended to replace the 
one-year rule in H.R. 2513 that could well be enacted this year. 
Rather, the bill includes additional options that taxpayers would like 
to see in a permanent rule, to facilitate discussion regarding the 
parameters of a permanent rule that would effectively level the playing 
field with respect to our foreign competition.
  Furthermore, the bill allows deferral for cross-border income 
received by controlled foreign corporations engaged in the active 
conduct of a banking, financing, or similar business, under narrowly 
defined circumstances that are designed to preclude opportunities for 
excessive ``mobility'' of income. The first safeguard is the 
requirement that income eligible for deferral must be derived from a 
transaction with a ``customer;'' the definition of a customer (which is 
identical to the definition prescribed under proposed treasury 
regulations dealing with passive foreign investment companies) would 
not permit a related-party transaction to qualify if one of the 
principal purposes for such transaction was to satisfy the underlying 
provision. Second, the requirement that employees meet a ``material 
participation'' test will reinforce the ``active'' nature of the 
covered activities. Thus, corporations holding passive investments 
would be precluded from relying on the rule.
  The law as now constituted frustrates the legitimate goals and 
objectives of American business and erects artificial and unnecessary 
barriers to U.S. competitiveness. In addition, the law stands as a 
monument to the act that the conceptual complexity of man as applied to 
the Internal Revenue Code knows no limits. Neither the largest U.S. 
based multinational companies nor the Internal Revenue Service is in a 
position to administer and interpret the mind numbing complexity of 
many of the foreign provisions. Why not then move toward creating a set 
of international tax rules which taxpayers can understand, and the 
government can administer?
  In summary, therefore the proposed changes we believe represent a 
creditable package and a ``down payment'' on further reform in the 
international tax area. We ask you to join us, in this bipartisan 
effort, by supporting our legislation.

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