[Congressional Record Volume 144, Number 136 (Friday, October 2, 1998)]
[Extensions of Remarks]
[Page E1887]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


[[Page E1887]]


                      THE SAVE SOCIAL SECURITY ACT

                                 ______
                                 

                            HON. JIM McCRERY

                              of louisiana

                    in the house of representatives

                        Friday, October 2, 1998

  Mr. McCRERY. Mr. Speaker, I commend Chairman Archer on the inclusion 
in this bill of the provision to modify and extend the present law 
treatment of active financial services income under Subpart F of the 
Internal Revenue Code. The provision permits U.S.-based insurance 
companies, banks, finance companies, securities dealers, and other 
financial services firms--like other U.S. industries doing business 
abroad--to defer the U.S. tax on the earnings from the active 
operations of their foreign subsidiaries until such earnings are 
returned to the U.S. parent company. The provision is vital to the 
global competitiveness of the U.S. financial services industry.
  In particular, I commend Chairman Archer and the staff for the 
resolution of the question relating to the interaction of this subpart 
F provision regarding active financial services income and the ability 
of the U.S. financial services industry to use so-called hybrid 
arrangements and other techniques to reduce their foreign taxes. In 
January of this year, the Treasury Department issued notice 98-11, 
attacking the use by U.S.-owned foreign companies of hybrid 
arrangements to reduce their foreign taxes. Chairman Archer, along with 
a bipartisan majority of the Ways and Means Committee, strongly opposed 
the Treasury Department's action on Notice 98-11. In response to the 
concerns raised by Congressman Archer, in June of this year, the 
Treasury Department issued Notice 98-35, withdrawing Notice 98-11. 
According to Notice 98-35, ``the purpose of this action [was] to allow 
Congress an appropriate period to review the important policy issues 
raised . . . and if appropriate, address the issues by the 
legislation.'' Notice 98-35 further provides specific rules with 
respect to the use of hybrid arrangements during the interim. In Notice 
98-35, the Treasury Department wisely anticipated and explicitly 
provided for the use of hybrid arrangements to reduce foreign taxes 
with respect to financial services income.
  Concerns had been raised regarding whether the provision in this bill 
modifying and extending the subpart F treatment of active financial 
services income could be interpreted to limit in any way the ability to 
use hybrid arrangements to reduce foreign taxes. Of course, such a 
limit would be inconsistent with the position regarding active 
financial services income set forth by the Treasury Department in 
Notice 98-35. Moreover, such a limit would be inconsistent with the 
purpose of this provision, which is intended to improve the ability of 
the U.S. financial services industry to compete with its foreign 
counterparts. Because of the importance of this issue, I am very 
pleased that the provision modifying and extending subpart F treatment 
of active financial services income was carefully drafted so that 
nothing in the provision would authorize or allow this treatment to be 
denied because a hybrid arrangement, or any other technique available 
under foreign tax law, is used to reduce foreign tax.

                          ____________________