[Congressional Record Volume 151, Number 72 (Thursday, May 26, 2005)]
[Senate]
[Pages S6055-S6056]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HATCH (for himself, Mr. Baucus, Mr. Smith, Mr. Schumer, 
        Mr. Crapo, Mr. Lott, Mr. Kyl, and Mrs. Lincoln):
  S. 1159. A bill to amend the Internal Revenue Code of 1986 to 
permanently extend the subpart F exemption for active financing; to the 
Committee on Finance.
  Mr. HATCH. Mr. President, I rise today to introduce a bill, S. 1159, 
to make permanent a provision under subpart F of the Internal Revenue 
Code regarding active financial services income earned abroad. I am 
joined in this effort by my colleagues Senators Baucus, Smith, Schumer, 
Crapo, Lott, Kyl, and Lincoln. Under current law, the provision will 
expire at the end of next year.
  This legislation would ensure that U.S. financial services firms and 
U.S. manufacturing companies with financial services operations are 
subject to U.S. tax on income from their active overseas financial 
services operations only when such earnings are sent home to the U.S. 
parent company. As my colleagues know, this is the treatment provided 
under the U.S. tax law for other active business income earned 
overseas. Our legislation simply extends, on a permanent basis, the 
expiring provision that ensures this same treatment for the financial 
services industry.
  The permanent extension of this provision is critically important in 
today's global marketplace. Over the last few years, the financial 
services industry has seen technological and global changes that have 
altered the very nature of the way these corporations do business, both 
here and abroad. The U.S. financial industry is a worldwide leader that 
plays a pivotal role in maintaining confidence in the international 
marketplace and positively contributes to the U.S. international trade 
balance. We believe it is essential that our tax laws not impose anti-
competitive burdens on this important U.S. industry.
  If we allow the active financial services provision to lapse, U.S. 
companies would have to pay both local tax and current U.S. tax on the 
financial services income they generate overseas. While some of this 
double taxation is often alleviated by the foreign tax credit, we all 
know that this system works imperfectly. The result is that U.S. firms 
end up with a cost that is not borne by their European and Asian 
competitors, because companies based in these areas do not face current 
home country taxation on financial services income. In an industry 
where companies compete on price and a few basis points can mean the 
difference between getting the business or losing it to a competitor, 
the imposition of this additional tax cost on U.S.-based companies 
would translate into a competitive disadvantage for U.S. companies and 
a competitive advantage for their foreign counterparts. Given the 
thousands of U.S. jobs at stake, many of them in Utah, we do not 
believe our tax policy should allow this to happen.
  While this provision may seem far removed from the average Utahn or 
the average American, I can assure you that this is not true. For 
example, the Salt Lake City area serves as the headquarters location 
for the banking operations of American Express Centurion Bank and 
American Express Bank, FSB, which are important parts of the worldwide 
American Express Card system. Salt Lake City is also the headquarters 
of American Express Travelers Cheques, with its Utah facility servicing 
Travelers Cheques clients on a worldwide basis. Thousands of Utahns are 
employed by these companies.
  These businesses are tied to the international marketplace through 
the competitive strength of the American Express global franchise. For 
American Express and other U.S. companies to compete on par with their 
foreign competitors, the U.S. tax rules need to provide fair and 
equitable treatment of their overseas operations. To the extent foreign 
competitors can take business away from U.S. firms because of an uneven 
playing field, U.S. jobs are at risk.
  The bill we are introducing today would provide equitable and 
consistent tax treatment for this important component of our economy. 
Making this provision permanent would provide American companies much-
needed stability. The current provision has been renewed several times, 
most recently for 5 years in the Job Creation and Worker Assistance Act 
of 2002. Our ``on-again, off-again'' habit of extensions prevents U.S.-
based firms from competing fully in the global marketplace by 
interfering with their ability to make business decisions and plan on a 
long-term basis. The permanent extension of this subpart F provision 
would ensure that the U.S. financial services industry is on a 
competitive footing with their foreign-based competitors and would 
provide tax treatment that is consistent with the tax treatment 
accorded other U.S. businesses.
  The Congress and the administration took an important step toward 
modernizing our international tax rules with the enactment of the 
American Jobs Creation Act of 2004. The legislation we introduce today 
furthers that act's goals of ensuring that American firms can compete 
in the 21st century economy.
  I urge my colleagues to support this important bill and ask 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. 1159

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

     SECTION 1. PERMANENT EXTENSION OF SUBPART F EXEMPTION FOR 
                   ACTIVE FINANCING.

       (a) In General.--Section 954(h)(9) of the Internal Revenue 
     Code of 1986 is amended by striking ``and before January 1, 
     2007,''.
       (b) Conforming Amendments.--Section 953(e)(10) of the 
     Internal Revenue Code of 1986 is amended--
       (1) by striking ``and before January 1, 2007,'', and
       (2) by striking the second sentence thereof.

  Mr. BAUCUS. Mr. President, today I am pleased to join my friend and 
colleague, Senator Hatch, in introducing legislation to make permanent 
the subpart F provision for active financial serviced income earned 
abroad.

[[Page S6056]]

  The legislation we are filing today is identical to a bill we filed 
in the 107th Congress. Since then, this exemption has been temporarily 
extended but that will expire at the end of next year. This exemption 
ensures that the active financial services income earned abroad by U.S. 
financial services companies, or U.S. manufacturing firms with a 
financial service operation, is not subject to U.S. tax until that 
income is brought home to the U.S. parent company.
  By making this provision permanent, our legislation will put the U.S. 
financial services industry on an equal footing with its foreign-based 
competitors, which do not face current home country taxation on active 
financial services income. I will tell my colleagues that this bill is 
about jobs in Montana, and in each of our States. In fact, one of these 
competitive U.S. financial services companies employs hundreds of 
Montanans in Great Falls alone, so the health of that company is 
critically important to my constituents.
  American financial services companies successfully compete in world 
financial markets. We need to make sure, however, that the U.S. tax 
rules do not change that situation and make them less competitive in 
the world arena. This legislation will extend a provision that I 
believe preserves the international competitiveness of U.S.-based 
financial service companies, including finance and credit companies, 
commercial banks, securities firms, and insurance companies. This 
provision also contains appropriate safeguards to ensure that only 
truly active businesses benefit.
  As my colleagues have heard year after year, the active financial 
services provision is critically important in today's global economy. 
Our U.S. financial services industry is a global leader playing a 
pivotal role in maintaining confidence in the international 
marketplace. It is a fiercely competitive business. And U.S.-based 
companies would surely be disadvantaged with an additional tax burden 
if we allow this exemption to lapse. Through our network of trade 
treaties, we have made tremendous progress in gaining access to new 
foreign markets for this industry in recent years. Our tax laws should 
complement, rather than undermine, this effort.
  The temporary nature of the active financial services provision, like 
other expiring provisions, denies U.S. companies the stability enjoyed 
by their foreign competitors. It is time to make permanent this subpart 
F active financial services provision in order to allow U.S. business 
companies to make business decisions on a long-term basis. I ask my 
colleagues to join us in supporting this legislation, providing 
consistent, equitable, and stable tax treatment for the U.S. financial 
services industry.
                                 ______