[Congressional Record Volume 145, Number 58 (Tuesday, April 27, 1999)]
[Senate]
[Page S4280]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HATCH (for himself, Mr. Baucus, Mr. Mack, Mr. Bryan, Mr. 
        Murkowski, and Mr. Breaux):
  S. 892. A bill to amend the Internal Revenue Code of 1986 to 
permanently extend the subpart F exemption for active financing income; 
to the Committee on Finance.


                Subpart F Exception for Active Financing

  Mr. HATCH. Mr. President, I am today introducing legislation on 
behalf of myself, Mr. Baucus. Mr. Mack, Mr. Bryan, Mr. Murkowski, and 
Mr. Breaux. This bill would permanently extend the exclusion from 
Subpart F for active financing income earned on business operations 
overseas. This legislation permits American financial services firms 
doing business abroad to defer U.S. tax on their earnings from their 
foreign financial services operations until such earnings are returned 
to the U.S. parent company.

  The permanent extension of this provision is particularly important 
in today's global marketplace. Over the last few years the financial 
services industry has seen technological and global changes that have 
changed the very nature of the way these corporations do business both 
here and abroad. The U.S. financial industry is a global leader and 
plays a pivotal role in maintaining confidence in the international 
marketplace. It is essential that our tax laws adapt to the fast-paced 
and ever-changing business environment of today.
  The bill we are introducing today would provide a consistent, 
equitable, and stable international tax regime for this important 
component of our economy. A permanent extension of this provision will 
give American companies much deserved stability. The current ``on-
again, off-again'' system of annual extension limits the ability of 
U.S.-based firms to compete fully in the marketplace and interferes 
with their decision making and long-term planning. The activities that 
give rise to this income are long-range in nature, not easily stopped 
and started on a year-to-year basis. Permanency is the only thing that 
makes sense. After all, the vast majority of the provisions in the tax 
code are permanent; it is only a select few that are subjected to this 
annual cycle of extensions.
  This legislation will give U.S. based financial services companies 
consistency and stability. The permanent extension of this exclusion 
from Subpart F provides tax rules that ensure that the U.S. financial 
services industry is on an equal competitive footing with their foreign 
based competitors and, just as importantly, provides tax treatment that 
is consistent with the tax treatment accorded most other U.S. 
companies.
  This legislation provides the U.S. financial services industry the 
certainty that they will be able to compete with their foreign 
competitors now and into the 21st century. This is important to our 
future economic growth and continued global leadership of American 
companies in the financial services industry.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 892

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. PERMANENT SUBPART F EXEMPTION FOR ACTIVE FINANCING 
                   INCOME.

       (a) Banking, Financing, or Similar Businesses.--Subsection 
     (h) of section 954 of the Internal Revenue Code of 1986 
     (relating to special rule for income derived in the active 
     conduct of banking, financing, or similar businesses) is 
     amended by striking paragraph (9).
       (b) Insurance Businesses.--Subsection (a) of section 953 of 
     such Code (defining insurance income) is amended by striking 
     paragraph (10) and by redesignating paragraph (11) as 
     paragraph (10).
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years of a foreign corporation 
     beginning after December 31, 1998, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of such foreign corporation end.

  Mr. BAUCUS. Mr. President, today I am pleased to join my colleague 
Senator Hatch in introducing legislation to permanently extend the 
exception from Subpart F for active financing income earned on overseas 
business.
  United States companies doing business abroad are generally allowed 
to pay U.S. tax on the earnings from the active operations of their 
foreign subsidiaries when these earnings are returned to the U.S. 
parent company. Until recently, U.S.-based finance companies such as 
insurance companies and brokers, banks, securities dealers, and other 
financial services firms, have not been afforded similar treatment. The 
current law provision that is intended to afford America's financial 
services industry parity with other segments of the U.S. economy 
expires at the end of 1999. Our legislation, intended to keep the U.S. 
financial services industry on an equal footing with foreign-based 
competitors, would make this provision permanent.
  The financial services sector is the fastest growing component of the 
U.S. trade in services surplus (which is expected to exceed $80 billion 
this year). It is therefore very important that Congress act to 
maintain a tax structure that does not hinder the competitive efforts 
of the U.S. financial services industry. That would be the case if the 
active financing exception to Subpart F were permitted to expire.
  The growing interdependence of world financial markets has 
highlighted the urgent need to rationalize U.S. tax rules that 
undermine the ability of American financial services industries to 
compete in the international arena. It is important to ensure that the 
U.S. tax treatment of worldwide income does not encourage avoidance of 
U.S. tax through the sheltering of income in foreign tax havens. 
However, I believe it is possible to adequately protect the federal 
fisc without jeopardizing the international expansion and 
competitiveness of U.S.-based financial services companies, including 
finance and credit entities, commercial banks, securities firms, and 
insurance companies.
  This active financing provision is particularly important today. The 
U.S. financial services industry is second to none, and plays a pivotal 
role in maintaining confidence in the international marketplace. 
Through our network of tax treaties, we have made tremendous progress 
in negotiating new foreign markets for this industry in recent years. 
Our tax laws should complement, rather than undermine, this trade 
effort.
  As is the case with other tax provisions such as the Research and 
Development tax credit, the temporary nature of the U.S. active 
financing exception denies U.S. companies the certainty enjoyed by 
their foreign competitors. U.S. companies need to know the tax 
consequences of their business operations. Over the last two years, 
U.S. companies have implemented numerous system changes in order to 
comply with two very different versions of the active financing law, 
and are unable to take appropriate strategic action if the tax law is 
not stable.
  I ask my colleagues to join me in supporting this legislation, and 
provide a consistent, equitable, and stable international tax regime 
for the U.S. financial services industry.
                                 ______