[Congressional Record Volume 149, Number 113 (Monday, July 28, 2003)]
[Senate]
[Pages S10065-S10069]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HATCH:
  S. 1475. A bill to amend the Internal Revenue Code of 1986 to promote 
the competitiveness of American businesses, and for other purposes; to 
the Committee on Finance.
  Mr. HATCH. Mr. President, I rise today to introduce legislation to 
change the way this country taxes business income, whether earned at 
home or abroad. The bill I am introducing, the ``Promote Growth and 
Jobs in the USA Act of 2003,'' or the ``Pro Grow USA Act,'' was made 
necessary because the World Trade Organization has ruled that a 
significant feature of our current tax system, the Extraterritorial 
Income Exclusion (or ETI), is an impermissible trade subsidy under WTO 
rules.
  This final WTO ruling followed a similar decision of that body made a 
few years ago that a previous U.S. tax provision, the Foreign Sales 
Corporation (or FSC), was also an illegal trade subsidy under the WTO 
rules. After that first WTO decision, Congress replaced the FSC 
provision with the ETI provision, which generally replicated the 
benefits of the FSC to its recipients. Both provisions were designed to 
help U.S. exporters better compete in the global economy.
  Unfortunately, we now find ourselves in the very unpleasant situation 
of having to repeal the ETI tax benefit. This repeal will cost the 
exporters of this nation more than $4 billion per year. Failure to 
repeal it by the end of 2003 could bring upon us trade sanctions by the 
European Union, which has already been authorized by the WTO to assess 
these sanctions in an amount exceeding $4 billion per year.
  Even though I am not enthusiastic about introducing legislation to 
repeal that tax benefit, I believe we should make a virtue out of 
necessity. This is what I am trying to accomplish with this bill. We 
know we cannot, in a WTO-compliant way, give those lost tax benefits 
back to the companies that are losing them by the repeal. What we can 
do, however, is pass tax reform measures to strengthen all American 
businesses.
  I see this as an opportunity to once again make America the world's 
greatest location to start a business, and the world's greatest 
location to grow a business.
  Today, savings and investment dollars flow around the world at the 
speed of light, and businesses look all over the world when deciding 
where to put their global headquarters, their research departments, and 
their manufacturing operations. We need to take these facts into 
account when we reform our tax rules, which we now are forced to do. 
Our goal should be to make the U.S. economy a magnet for greater 
innovation and greater capital formation.
  I believe, that this is the right time to look at how our companies 
do business overseas, both how they export products abroad and how they 
expand their operations abroad. And, I believe we should also take this 
opportunity to examine whether our tax policy can be improved to better 
help U.S. firms that operate only domestically grow and thrive.
  In my view, the ETI repeal has to address the legitimate concerns of 
both domestic producers and U.S.-based multinationals. Both kinds of 
companies hire Americans, both kinds of companies make interest 
payments and dividend payments to Americans, and both kinds of 
companies pay American taxes.
  In response to this situation, Members of Congress have introduced 
several proposals to repeal and replace the ETI benefit. One leading 
proposal would create a new, lower tax rate for American manufacturers. 
While I am certainly not opposed to lowering tax rates on U.S. 
manufacturers, I am convinced that such a solution, by itself, is not 
adequate. This is because it ignores the very real problems our tax 
code presents to U.S. businesses that expand overseas.
  As with several of my colleagues on the Finance Committee, I have 
long been interested in improving our tax rules that govern 
international transactions. They are woefully out of date and harm the 
ability of U.S. firms to compete on a global basis. Moreover, the rules 
are mind numbingly complex.
  Legislation I introduced with Senator Baucus in 1999 would have gone 
a long way toward updating and simplifying these laws so they work much 
better. Some of those provisions were included in a large tax bill that 
both the Senate and House passed that year that was unfortunately 
vetoed by President Clinton for reasons unrelated to the international 
provisions.
  Since then, however, there has been a great deal of interest in 
reforming the international rules, but the opportunities to bring such 
measures to the floors of the House and Senate have been quite limited, 
until now. As I mentioned, I believe that the repeal of the ETI 
represents a rare opportunity to address these much-needed changes.
  Another major solution to the ETI repeal and replacement problem is 
the one taken by Chairman Bill Thomas of the House Ways and Means 
Committee in the bill he introduced last Friday. I want to emphasize 
that while my bill and Chairman Thomas's bill are very different in 
many respects, they are very much alike in the approach they take to 
the problem. Both Chairman Thomas and I believe it is vital to address 
the issues presented by both domestic businesses and by multinational 
firms.
  There are three principles underlying my legislation. The first is 
that as we repeal ETI, we should strive to replace it with provisions 
that would increase the competitiveness of U.S. companies at home as 
well as abroad, and that would increase the productivity growth of our 
economy. I want to increase the ability of all American firms to 
compete, both those just at home and those that also operate abroad
  There is a false notion we hear from time to time that if we make it 
easier for U.S. companies to operate effectively on a worldwide basis, 
we are making them more likely to move U.S. jobs abroad. I believe just 
the opposite is true--that making U.S. firms more competitive worldwide 
increases the quality and quantity of American jobs.
  When companies expand overseas, they likely hire more people at the 
U.S. headquarters. The R&D jobs, the marketing jobs, management and 
support jobs--we can have those jobs here, supporting a U.S. company's 
worldwide operations. I think we should make it easier to grow those 
kind of good-paying headquarters jobs right here at home.
  The second principle is that we ought to simplify the tax code to the 
extent possible. My bill would do this both in the international arena 
and in the depreciation rules.
  Finally, I want to make it clear that I disagree with the notion that 
replacing the ETI provision has to be a zero

[[Page S10066]]

sum game. The Senate budget resolution calls for nearly $500 billion 
more in tax cuts outside of budget reconciliation. I believe we should 
be willing to spend some of this tax cut money to ensure that all 
American businesses are better able to grow and compete.
  Notwithstanding our new deficit projections, I still believe that 
President Bush and those who support him are on the right track in 
trying to pass tax cuts to increase economic growth and productivity, 
combined with spending discipline. One thing is for certain--we will 
never get out of a deficit mode with the slower growth that comes from 
tax hikes and more government spending.
  I understand the political realities facing the Senate in this, the 
108th Congress. I understand that a bill featuring $200 billion or more 
in additional tax cuts is not likely to attract the kind of bipartisan 
support it needs in order to be marked up in the Finance Committee and 
to make it to the floor of the Senate.
  Therefore, my goal in introducing this legislation is threefold. 
First, I hope to help convince my colleagues of the importance of 
meeting our WTO obligations this year, by repealing the ETI provision. 
As our economy struggles to shake off the last recession, the last 
thing we need is to impose large and onerous trade sanctions upon it.
  Second, I want to expand the options on the table for the Finance 
Committee to consider when we start putting the bill together this 
autumn. Even in a revenue neutral environment, the ideas put forward by 
my bill should provide many additional choices for the Committee to 
consider.
  Finally, I hope that by introducing this legislation, we will end up 
with a final bill that will be more beneficial to U.S. domestic and 
U.S.-based multinational companies and their workers. In my view, we 
simply cannot afford to focus on just workers for domestic companies or 
just on employees of global companies. We need both for our long-term 
prosperity.
  The bill I am introducing today has four major components. First, of 
course, it repeals the ETI provision and provides three years of 
generous transition relief. When a representative of the U.S. Trade 
Representative's office testified before the Finance Committee a few 
weeks ago, I asked him what the appropriate phase-out of the ETI 
benefit might be, so as not to trigger the trade sanctions by the E.U. 
In reply to my question, he stated that he believed the Europeans would 
view one or two years as a normal and expected phase out period.
  On the other hand, the USTR official indicated that he believed that 
a longer period of, four or five years I believe he said, would 
definitely cause some real concern on the part of the Europeans. 
Therefore, I included a three-year phaseout of the ETI benefit in my 
bill. Specifically, the benefits of the ETI exclusion would be phased 
out at the rate of 25 percent in 2004, 50 percent in 2005, 75 percent 
in 2006, and no benefits in 2007 and thereafter.
  Second, the bill contains a substantial international tax reform 
title. Our international tax system is based on two key principles, 
neither of which work very well in practice under our current outdated 
laws. The first principle is that U.S. companies that pay income tax to 
other countries should not be double taxed on that income. The second 
principle is that companies engaged in active overseas businesses 
should not pay tax on that income until it is returned to the U.S. 
parent corporation. Our current rules violate these principles again 
and again, and I think it's time to return to these principles.
  For example, our foreign base company tax rules, which make it 
expensive for companies to create an overseas regional marketing and 
distribution network for U.S. products, are an anachronism. They hurt 
U.S. exports, and need to be fixed. But we are told that repealing 
these rules would cost the Treasury too much revenue, and that they may 
open up opportunities for transfer pricing abuses.
  Recognizing this revenue concern, I am proposing to allow a repeal of 
the foreign base company rules as long as the base company is in a 
country with which we have a comprehensive tax treaty, or when the U.S. 
parent has an advanced pricing agreement in place with the IRS. These 
backstops should reduce these concerns about base company repeal.
  Further, I want to open a debate on the merits of a territorial tax 
system. I want to open that debate by proposing an expansion of the 
temporary dividend repatriation proposal that some of my colleagues 
have embraced, and that I myself voted for in the Finance Committee and 
on the floor. While I believe that such a temporary provision has merit 
from an economic stimulus standpoint, I have real tax policy concerns 
about it.

  Therefore, in my bill I propose a permanent, reduced corporate tax 
rate of 5.25 percent to companies that repatriate foreign earnings to 
the U.S., as long as they spend that money on higher levels of business 
equipment and research expenditures. Overseas profits can pay for new 
machines, new research, and better jobs right here at home, and 
multinational businesses will be given a strong incentive in my bill to 
invest in such economically positive activities. I hope that my 
colleagues will give serious consideration to this proposal.
  In the 107th Congress, Senator Breaux and I introduced S. 1475, a 
bill to provide an appropriate and permanent tax structure for 
investments in the Commonwealth of Puerto Rico and the possessions of 
the United States. That bill would have allowed subsidiaries of U.S. 
companies incorporated in Puerto Rico and the U.S. possessions to 
repatriate active business income earned in these jurisdictions at the 
equivalent of a 5.25 percent tax rate.
  As I just mentioned, the bill I am introducing today would provide 
generally comparable treatment for U.S. subsidiaries incorporated in 
all foreign jurisdictions, including Puerto Rico and the U.S. 
possessions, to the extent the companies invested those repatriated 
earnings on higher levels of business equipment and research.
  As a result of expanding the scope of last year's bill, I recognize 
that U.S. companies might not be encouraged to invest in Puerto Rico 
and the U.S. possessions as compared to any foreign country. Since 
1921, the United States has accorded preferential tax treatment to the 
business operations of U.S. companies in Puerto Rico and the U.S. 
possessions. This tax treatment offsets U.S. regulatory mandates--such 
as minimum wage and environmental and safety regulations--and has 
supported Puerto Rico's industrial development program, which has 
resulted in an increase in Puerto Rico's per capita income from 16 
percent of the U.S. average in 1948 when the industrial incentives 
program began, to 32 percent today.
  I remain concerned about the economic development of Puerto Rico and 
the U.S. possessions and therefore will continue to support separate 
legislation that supports employment and economic opportunity for 
American citizens living in the Commonwealth and the possessions.
  The third section of my bill extends and expands the research credit 
on a permanent basis. This provision is identical to the bill that 
Senator Baucus and I introduced earlier this year. And as many of my 
colleagues know, a permanent research credit enjoys significant 
bipartisan support here in the Senate, both on and off the Finance 
Committee.
  Finally, the bill offers real depreciation reform. The bill offers 
three years of complete expensing of business equipment and leasehold 
improvements. It builds on the bonus depreciation incentives we 
included in both the 2002 stimulus tax cut bill and the growth tax cut 
bill we passed earlier this year.
  Essentially, all the same kinds of assets that qualified for the 
bonus depreciation benefits in those two bills would now qualify for 
100 percent immediate expensing under this bill. Moreover, the bill 
would extend the Section 179 expensing provision for small businesses 
by one full year. Economists tell us that what this recovery lacks is 
capital spending by business. By building on the incentives we passed 
in the earlier tax bills, we can get capital spending moving again. 
This will lead to higher productivity and higher wages.
  I would like to comment on more aspects of the depreciation section 
of my bill. I have been told by some of my business constituents in 
Utah that the bonus depreciation provisions are not

[[Page S10067]]

helpful to them. This is because those companies are currently 
suffering losses and have no current taxable income. Moreover, some of 
these businesses have been having difficulties for so long that they 
have no recent year when tax was paid to which they may carry back a 
net operating loss.
  One tax attribute that many of these companies do have, however, is 
prepayment credits under the Alternative Minimum Tax. As many of my 
colleagues know, the AMT has the perverse effect of hurting companies 
when business conditions are poor, thus exacerbating an already 
difficult financial situation. So, unprofitable companies often find 
themselves continuing to pay the alternative minimum tax.
  In order to assist companies like the ones I described, my bill 
includes a provision that would allow a taxpayer to elect to forego the 
expensing of newly acquired business property and instead to 
effectively monetize their corporate alternative minimum tax credits to 
that extent. This simple proposal bestows no new tax benefits on these 
companies, but rather delivers the full expensing provision at the time 
it is most needed by the company and in the economy generally.
  Moreover, this provision helps to equalize the tax treatment between 
fully taxable companies that can take full advantage of tax incentives 
and their less fortunate competitors that cannot at the present fully 
utilize those benefits. Having Congress assist those companies who are 
enjoying good times at the expense of those who are struggling is not 
in the best interest of this nation.
  I hope this bill will make a positive contribution to the debate in 
both the Senate and the House. And, I hope the final ETI repeal and 
replacement bill that the President signs will be more beneficial to 
more domestic and multinational companies because of the ideas we are 
proposing.
  Finally, I hope that throughout this debate, as accusations and 
proposals fly back and forth regarding how best to help the U.S. 
economy, we keep our eyes on the real goal--keeping America's workers 
the most productive in the world, whether they work in an office park 
or in a factory. And as the 1990s proved beyond doubt, high 
productivity and lower unemployment rates can easily go hand in hand. 
As we saw in the 1990s, higher productivity is the key to higher wages 
and better jobs.
  I ask unanimous consent that a section-by-section summary of my bill 
be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

ETI Repeal and Replacement Bill--Promote Growth & Jobs in the USA (PRO 
                         GROW USA) Act of 2003


                     Section-by-Section Description

            Title I--Repeal ETI & Provide Transition Relief

       Section 101. Repeal of exclusion for extraterritorial 
     income.
       Provides for repeal of ETI regime with three years of 
     transition relief, (i.e., 75 percent of current benefit in 
     2004, 50 percent in 2005, and 25 percent in 2006).

    Title II--Simplification of Rules Relating to Taxation of U.S. 
                      Businesses Operating Abroad

        Subtitle A--Treatment of Controlled Foreign Corporations

       Section 201. Exceptions from foreign base company sales and 
     services income rules.
       Provides for repeal of the foreign base company sales and 
     services income rules for income derived either from 
     transactions covered by an Advanced Pricing Agreement with 
     IRS (APA) or from transactions with countries with whom the 
     U.S. has a comprehensive income tax treaty and exchange of 
     information program, excluding Barbados. Provides that 
     transactions in which an APA would not apply will not trigger 
     subpart F income in any case. This provision allows companies 
     to centralize their offshore marketing and sales operations 
     in one country without triggering current U.S. tax.
       Section 202. Look-thru treatment of payments between 
     related controlled foreign corporations under foreign 
     personal holding company income rules.
       Dividends, interest, rents, and royalties received by one 
     CFC from a related CFC would not be treated as foreign 
     personal holding company income to the extent attributable to 
     non-subpart F earnings of the payor. Under current law, many 
     companies can already achieve this result through the use of 
     hybrid branches. This provision would simplify the subpart F 
     rules and reduce the expense of international tax planning.
       Section 203. Look-thru treatment for sales of partnership 
     interests.
       Treats the sale of a partnership interest by a CFC as the 
     sale of a proportionate share of partnership assets for 
     purposes of determining foreign personal holding company 
     income under subpart F.
       Section 204. Repeal of foreign personal holding company 
     rules and foreign investment company rules.
       Eliminates redundancy in the U.S. tax code. Recommended by 
     the Joint Committee on Taxation, in its simplification study.
       Section 205. Clarification of treatment of pipeline 
     transportation income.
       Foreign base company oil-related income would not include 
     income derived from a source within a foreign country in 
     connection with the pipeline transportation of oil or gas 
     within such foreign country. Pipeline transportation income 
     is not mobile income, and the arms-length price of such 
     income is readily determined.
       Section 206. Permanent extension and modification of 
     Subpart F exemption for active financing.
       Permanently extends the subpart F exemption for active 
     financing income, currently due to expire January 1, 2007. 
     This provision first became law in 1997, and accords with the 
     underlying policy that income earned by a domestic parent 
     corporation from active foreign operations conducted by 
     foreign corporate subsidiaries generally is subject to U.S. 
     tax only when repatriated. Until such repatriation, the U.S. 
     tax on such income is generally deferred. In addition, for 
     purposes of defining ``qualified banking or financing 
     income'' (under section 954(h)(3)), activities conducted by 
     employees of certain related persons are treated as conducted 
     directly by an eligible CFC or qualified business unit in its 
     home country.
       Section 207. Expansion of de minimis rule under subpart F.
       Expands Subpart F de minimis rule to be the lesser of 5 
     percent of gross income or $5 million. Current law threshold 
     is 5 percent of gross income or $1 million. Recommended by 
     the Joint Committee on Taxation in its simplification study, 
     this provision would simplify tax planning for small- and 
     medium-sized companies just starting their overseas 
     operations.
       Section 208. Modification of interaction between Subpart F 
     and PFIC rules.
       Adds an exception to the rules governing the overlap of the 
     Subpart F and passive foreign investment company rules for 
     U.S. shareholders that face only a remote likelihood of 
     incurring a Subpart F inclusion in the event that a CFC earns 
     Subpart F income, thus preserving the potential application 
     of the passive foreign investment company rules in such 
     cases. Recommended by the Joint Committee on Taxation in its 
     Enron report. This provision would raise a small amount of 
     revenue.
       Section 209. Determination of foreign personal holding 
     company income with respect to transactions in commodities.
       Allows a company to hedge its commodities without 
     triggering Subpart F as long as the company uses these 
     commodities in the course of its business. Since hedging 
     allows companies to lock in long-term prices on commodities 
     with fluctuating spot-market prices, this hedging simplifies 
     long-run business planning, and is an integral part of a 
     company's active operations.
       Section 210. Repeal of foreign base company shipping income 
     rules.
       Foreign base company shipping rules are repealed outright. 
     The proposal also relaxes the ``active rents'' test under 
     subpart F for rents derived from aircraft or vessels. 
     Requires the CFC receiving such rental income to be actively 
     in the business of renting or leasing such aircraft or 
     vessels. The current ``active rents'' test, by looking at the 
     CFC's active leasing expense rather than its actual activity, 
     sets too high a bar for companies leasing aircraft and 
     vessels.
       Section 211. Reduced tax on repatriated earnings previously 
     exempt from tax under Subpart F.
       Allows companies to repatriate overseas profits at a 
     reduced tax rate as long as those funds are spent to increase 
     U.S. innovation. Specifically, reduces the tax on repatriated 
     earnings by 85 percent, to a 5.25 percent rate, to the extent 
     that a company's spending on equipment and research exceeds 
     an ``innovation baseline.'' The innovation baseline is 
     defined as 85 percent of the average spending on equipment 
     and research over the past three years. This permanent 
     provision encourages companies to repatriate overseas profits 
     that would otherwise likely remain offshore.

         Subtitle B--Provisions Relating to Foreign Tax Credit

       Section 221. Interest expense allocation rules.
       Modifies current-law interest expense allocation rules by 
     providing a one-time election for the common parent of an 
     affiliated group to allocate and apportion interest expense 
     of domestic members of a worldwide affiliated group on a 
     worldwide-group basis and allows a one-time election for 
     financial subgroups to allocate interest expense by applying 
     fungibility principles on a worldwide basis. Current interest 
     allocation rules assume that money borrowed in the U.S. is 
     used in overseas operations, and thereby reduces reported 
     foreign source income. This may artificially reduce the 
     foreign tax credit limitation, even for companies that have 
     paid substantial foreign taxes.
       Section 222. Extension of period to which excess foreign 
     taxes may be carried.
       Allows a 20-year carryforward of foreign tax credits. 
     Extending the carryforward from five years to 20 years allows 
     companies more opportunities to avoid double taxation.

[[Page S10068]]

       Section 223. Ordering rules for foreign tax credit 
     carryforwards.
       Reorders the utilization of foreign tax credits so that 
     credits carried from prior years would be used before current 
     year credits under a first-in-first-out rule, instead of the 
     current-law last-in-first-out rule. By allowing companies to 
     use their oldest foreign tax credits first, this provision 
     would reduce the possibility of double taxation.
       Section 224. Repeal of limitation of foreign tax credit 
     under alternative minimum tax.
       Eliminates the arbitrary and unfair 10 percent haircut on 
     foreign tax credits that can be applied to the alternative 
     minimum tax.
       Section 225. Look-thru rules to apply to all dividends from 
     noncontrolled section 902 corporations.
       Current law provides look-through treatment to dividends 
     from section 902 corporations for dividends paid out of 
     earnings and profits accumulated from 2003 onward. This 
     provision gives such treatment to all dividends, regardless 
     of the year the earnings and profits from which a dividend is 
     paid were accumulated. The current rules for dividends from 
     section 902 corporations are complex and result in compliance 
     burdens for taxpayers; this provision would simplify the Code 
     and remove these burdens. This proposal is based on a Joint 
     Committee on Taxation recommendation.
       Section 226. Reduction to 2 foreign tax credit baskets.
       Reduces number of foreign tax-credit baskets to two: 
     General Category Income and Typically-Low-Taxed Income 
     (TyLT). The TyLT tax basket would include income from the 
     eliminated passive, shipping, and DISC/FSC baskets. The 
     General Category Income basket would include income from the 
     old general limitation basket, as well as income from the 
     high withholding interest income and financial services 
     income baskets. The current-law division of income into 
     multiple baskets is a leading source of tax complexity.
       Section 227. Recharacterization of overall domestic loss.
       Allows companies with an overall domestic loss to more 
     easily use their foreign tax credits. This proposal would 
     provide symmetry in the treatment of U.S. and foreign losses 
     for foreign tax credit limitation purposes. Current law makes 
     it difficult for companies to use these credits when they 
     have overall domestic losses.
       Section 228. Repeal of special rules for applying foreign 
     tax credit in case of foreign oil and gas income.
       Repeals special rules for applying foreign tax credits in 
     the case of foreign oil and gas income. Current law places 
     special restrictions on foreign tax credits derived by the 
     foreign oil and gas extraction industry.
       Section 229. Increase in individual exemption from foreign 
     tax credit limitation.
       Increases the current exemption from the foreign tax credit 
     limitation for certain individuals under section 904(j) from 
     $300, $600 in the case of a joint return to $500, $1,000 in 
     the case of a joint return, and indexes those amounts for 
     inflation. This simplifies tax filing for individual 
     investors who hold small amounts of foreign investments.
       Section 230. U.S. property not to include certain assets of 
     CFCs.
       Reforms the rules regarding investments in U.S. property by 
     CFCs so that ``U.S. property'' does not include certain 
     securities acquired and held by a CFC in the ordinary course 
     of its business as a dealer in securities.
       Section 231. Attribution of stock ownership through 
     partnerships to apply in determining section 902 and 960 
     credits.
       For foreign tax credit purposes, allows stock owned 
     indirectly through a partnership to be treated as 
     proportionately owned by the partners. By allowing foreign 
     tax credits to pass through to partners, potential for double 
     taxation is reduced. Recommended by the Joint Committee on 
     Taxation in its simplification study.
       Section 232. Provide equal treatment for interest paid by 
     foreign partnerships and foreign corporations.
       Provides foreign partnerships with the same sourcing 
     treatment on interest payments as foreign corporations. 
     Current law states that if a foreign partnership has any U.S. 
     operations, then any interest paid by that partnership is 
     U.S. source. By contrast, for foreign corporations with U.S. 
     branch operations, only interest payments from the U.S. 
     branch are U.S. source.
       Section 233. Application of look-thru rules to interest, 
     rents, and royalties.
       Applies look-through rules to interest, rents, and 
     royalties received or accrued from noncontrolled 902 
     corporations and entities that would be CFCs if they were 
     foreign corporations.
       Section 234. Clarification of treatment of certain 
     transfers of intangible property.
       This resolves an uncertainty that arose in connection with 
     changes made to section 367(d) in 1997.

                      Subtitle C--Other Provisions

       Section 251. Application of uniform capitalization rules to 
     foreign persons.
       Requires the use of U.S. generally accepted accounting 
     principles rather than UNICAP rules for purposes of 
     determining earnings and profits as well as subpart F income. 
     For most firms, this will prevent companies from having to 
     keep accounting books in both UNICAP and GAAP formats. This 
     simplification proposal was recommended by the Joint 
     Committee on Taxation in its simplification study.
       Section 252. Treatment of certain dividends of regulated 
     investment companies.
       Exempts from U.S. withholding tax certain dividends 
     received by nonresident alien individuals or foreign 
     corporations from a regulated investment company. Such 
     exemption would apply to dividends paid out of short-term 
     capital gains and interest income that would itself be exempt 
     from withholding.
       Section 253. Repeal of withholding tax on dividends from 
     certain foreign corporations.
       Extends an exemption from the withholding tax to dividends 
     paid by certain foreign corporations. Recommended by the 
     Joint Committee on Taxation in its simplification study.
       Section 254. Airline mileage awards to certain foreign 
     persons.
       Grants Treasury authority to exempt from the air travel 
     excise tax amounts attributable to mileage awards issues to 
     persons outside the United States.
       Section 255. Interest payments deductible where 
     disqualified guarantee has no economic effect.
       Eliminates the limitation for the deduction of interest as 
     a result of section 163(j) for interest payments on debt 
     guaranteed by a foreign person as long as the taxpayer 
     establishes that it could have borrowed the same amount of 
     debt from an unrelated lender without a guarantee. The 
     Secretary would be granted authority to disregard such a 
     showing if the terms of the loan are substantially 
     dissimilar. This proposal properly focuses the U.S. earnings 
     stripping rules on the realm of possible abuse: related party 
     debt.
       Section 256. Modifications of reporting requirements for 
     certain foreign-owned corporations.
       Creates de minimis exception for reporting, and provides 
     companies a 60-day window for translating documents into 
     English.
       Section 257. Repeal of tax on certain U.S. source capital 
     gains of nonresident aliens.
       Repeals the tax on net U.S. source capital gains of 
     nonresident alien individuals present in the U.S. for 183 
     days or more during a taxable year. Recommended by the Joint 
     Committee on Taxation in its simplification study.
       Section 258. Election not to use average exchange rate for 
     foreign tax paid other than in functional currency.
       Allows companies an election to use the effective exchange 
     rate on the day of payment rather than an annual average 
     exchange rate. Exchange rates in many countries are volatile, 
     which can turn an annual average rate into an inaccurate 
     indicator of taxable income.
       Section 259. Study of impact of international tax laws on 
     taxpayers other than large corporations.
       The Secretary of the Treasury shall conduct a study 
     regarding the impact of the international tax rules on 
     smaller taxpayers, in particular regarding the compliance 
     burden on such taxpayers. The study shall set forth 
     suggestions of how the compliance burden could be reduced for 
     smaller taxpayers. Not later than 180 days after the date of 
     enactment, the Secretary shall submit to the Congress a 
     report of such study.

 Title III--Credit for Increasing Research Activities, provisions are 
   identical to S. 664, the Hatch-Baucus research credit bill, which 
             enjoys the bipartisan support of 30 senators.

       Section 301. Permanent extension of research credit.
       The research credit, which is scheduled to expire on June 
     30, 2004, would be extended permanently.
       Section 302. Increase in rates of alternative incremental 
     credit.
       The rates of the current-law alternative incremental 
     credit, which is elective, would be increased as follows:
       Tier One, qualified research expenditures (QREs) in excess 
     of 1.0 percent of base amount,--increase from 2.65 percent to 
     3 percent.
       Tier Two, QREs in excess of 1.5 percent of base amount,--
     increase from 3.2 percent to 4 percent.
       Tier Three, QREs in excess of 2.0 percent of base amount,--
     increase from 3.75 percent to 5 percent.
       Section 303. Alternative simplified credit for qualified 
     research expenditures.
       The proposed alternative simplified credit (ASC) would 
     provide a meaningful incentive for companies to perform R&D 
     activities in the United States as opposed to other countries 
     that provide more substantial incentives for such activities. 
     The ASC is an elective credit that equals 12 percent of the 
     excess of current-year qualified research expenses 
     (``QREs''), as defined under section 41(b), over 50 percent 
     of the taxpayer's average QREs for the prior three years. For 
     start-up taxpayers, the credit would equal 6 percent of 
     current-year QREs.
       The election, once made, would apply for taxable years 
     ending after the date of enactment, and all subsequent 
     taxable years, unless revoked with the consent of the 
     Secretary of Treasury. Taxpayers that have previously elected 
     the Alternative Incremental Research Credit (AIRC) could 
     apply the new computational rules or continue to calculate 
     the credit under the AIRC rules.

         Title IV--Reform of Depreciation of Business Property

       Section 401. 100 percent expensing for certain property 
     through 2006.
       Provides immediate write-off for all business equipment and 
     leasehold improvements, the same property which benefits from 
     the

[[Page S10069]]

     2002 and 2003 Tax Acts' bonus depreciation provisions. 
     Effectively, this provision would expand the bonus 
     deprecation to 100 percent and extend it through 2006.
       Section 402. One-year extension of expensing for small 
     businesses.
       The expansion of section 179 (allowing small businesses to 
     immediately write off their business property) is extended 
     through 2006, rather than expiring at the end of 2005 as is 
     now the law.
       Section 403. Election to increase minimum tax credit 
     limitation in lieu of bonus depreciation.
       Would allow taxpayers making investments in business 
     equipment and leasehold improvements (which would otherwise 
     qualify for immediate expensing under Section 401) to elect 
     to claim accumulated AMT credits in lieu of claiming 
     immediate expensing. Specifically, a taxpayer making the 
     election would forego the expensing and would either reduce 
     its current-year regular or minimum tax liability or be 
     allowed an unlimited carryback of AMT credits in an amount 
     not to exceed the amount of foregone expensing multiplied by 
     0.35, i.e., the assumed corporate tax rate. The provision 
     would expire at the same time as the expensing provision. 
     Taxpayers making the election would not reduce the basis of 
     eligible property and the depreciation adjustments of the AMT 
     would not apply to such property. Provision would expire at 
     the end of 2006.
                                 ______