[Congressional Record Volume 144, Number 135 (Thursday, October 1, 1998)]
[Extensions of Remarks]
[Page E1865]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                      INTRODUCTION OF LEGISLATION

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                          HON. PHILIP M. CRANE

                              of illinois

                    in the house of representatives

                       Thursday, October 1, 1998

  Mr. CRANE. Mr. Speaker, my distinguished colleague from the Committee 
on Ways and Means, Mr. Matsui, and I today are introducing legislation 
to prohibit the Department of Treasury from issuing any regulations 
dealing with hybrid transactions under subpart F of the Internal 
Revenue Code. The bill will further instruct the Secretary of the 
Treasury to conduct a study of the tax treatment of hybrid transactions 
and, after receiving input from the public, to submit the report to the 
House Committee on Ways and Means and the Senate Committee on Finance.
  The subpart F provisions found in the Code have a direct impact on 
the competitiveness of U.S. businesses in the global marketplace. 
Historically, Congress has moved carefully when making changes to those 
sections of the Code pertaining to international taxation. Unwarranted 
or injudicious action in these areas can have substantial impact on 
U.S. businesses operating abroad.
  With this in mind, I was very concerned when the Treasury Department 
issued Notice 98-11 earlier this year to restrict the use of hybrid 
transactions, which Treasury suggested were being used ``to circumvent 
the purposes of subpart F.'' Treasury's actions caused Mr. Matsui, me 
and many others to question the regulatory process Treasury intended to 
use to change the policy.
  Both Chairman Archer and Ranking Democrat Rangel wrote Treasury 
Secretary Rubin to express their concern over the policy Treasury was 
suggesting as well as the means by which it was implementing the 
change. Rather than asking Congress to consider possible changes, 
Treasury was, in effect, legislating by executive fiat. Following up 
the letters from Messrs. Archer and Rangel, Mr. Matsui and I joined 31 
fellow members of the Ways and Means Committee in asking Treasury to 
withdraw the regulations in order for Congress to have an opportunity 
to review the issues.
  After receiving this input from Congress and the business community, 
Treasury did issue Notice 98-35, which withdrew Notice 98-11. However, 
the issue remains unresolved as Notice 98-35 still leaves Treasury with 
the option of issuing binding rules regarding hybrid transactions. And, 
although the rules will not be finalized before January 1, 2000, they 
will be effective for payments made on or after June 19, 1998. Because 
Treasury still retains this option to issue regulations and, in effect, 
legislate in this area, I believe Congress must act to protect its 
Constitutional prerogative.
  With regard to the policy, I am concerned that proposed changes to 
hybrid transactions would increase foreign taxes on U.S. companies 
operating abroad--thus putting U.S. companies at a competitive 
disadvantage with their foreign competitors. Congress just simplified 
some of the subpart F rules in the Taxpayer Relief Act of 1997, and 
these, or similar, proposed regulations would be inconsistent with 
recent Congressional action. Lastly, this policy raises the question as 
to why the U.S. Treasury Department is so concerned about helping to 
generate revenue for the coffers of other countries.
  I look forward to the study and input from the Department of Treasury 
on the issue of modifications to the subpart F provisions in the Code. 
Regardless of the merits of the proposed changes to the subpart F 
policy, we must not allow Treasury to move forward with regulations 
until Congress determines the appropriate course of action. The bill we 
introduce today will allow for that judicious process to go forward and 
I urge my colleagues to join with us in cosponsoring this bill.

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