[Congressional Record (Bound Edition), Volume 145 (1999), Part 3]
[Extensions of Remarks]
[Pages 4648-4649]
[From the U.S. Government Publishing Office, www.gpo.gov]




                 FOREIGN PIPELINE TRANSPORTATION INCOME

                                 ______
                                 

                            HON. JIM McCRERY

                              of louisiana

                    in the house of representatives

                        Tuesday, March 16, 1999

  Mr. McCRERY. Mr. Speaker, today with my colleague, Wes Watkins from 
Oklahoma, I am introducing legislation that will clarify the U.S.

[[Page 4649]]

tax treatment of foreign pipeline transportation income.
  This legislation is needed because current tax law causes active 
foreign pipeline transportation income to be unintentionally trapped 
within anti-abuse tax rules. These rules were originally established to 
prevent avoidance of tax on easily movable and passive income, not on 
active pipeline income. In fact, when these rules were first enacted, 
U.S. pipeline companies were not even engaged in international 
activities. Now, as opportunities in the international arena arise, 
pipeline companies are unfairly caught within the scope of the anti-
abuse rules. As such, U.S. pipeline companies are finding themselves at 
a competitive disadvantage, vis a vis foreign companies. In order for 
U.S. companies to remain competitive, it is essential that U.S. tax law 
not unfairly tax U.S. companies' foreign operations. The legislation 
that Mr. Watkins and I are introducing today will correct this 
injustice.
  Under the Subpart F anti-abuse rules, current taxation is imposed on 
certain types of earnings whether or not a dividend is actually paid. 
The policy behind these rules is to currently tax income which is 
passive in nature or which is easily moved from one jurisdiction to 
another. One type of Subpart F income is foreign based company oil 
related income (FORI). FORI includes income derived outside the U.S. 
from the transportation of oil and gas. This general rule, in many 
cases, causes current income taxation on income that is not passive or 
manipulable. This adverse result is slightly mitigated by two narrow 
exceptions, the extraction exception and the consumption exception.
  Pipeline transportation income is neither passive nor easily movable, 
and therefore, should not be subject to these rules. Pipe location is 
based on where the natural resources and energy needs exist. Pipes 
cannot be placed just anywhere, nor once they are in place, can they be 
easily moved. Consequently, applying these anti-abuse rules for passive 
and manipulable income to active and hard to move income just doesn't 
make sense.
  In looking at the legislative history, it is clear that Congress 
intended the anti-abuse rules to reach the significant revenues derived 
by highly profitable oil related activities that were sourced to the 
low-taxed country as opposed to the country in which the oil and gas 
was extracted or ultimately consumed. The intent of these rules was not 
to target pipeline transportation income. In fact, when the rules were 
being considered and then put in place, pipeline companies were not 
engaged in international development activities. Rather, they were 
focused solely on domestic infrastructure investment.
  Today pipeline companies are continuing to actively pursue all 
development opportunities domestically. These opportunities, however, 
are somewhat limited. The real growth for the U.S. pipeline companies 
is not occurring in the international arena. These opportunities stem 
from fairly recent activities by foreign countries to privatize their 
energy sectors. Increased U.S. involvement in energy infrastructure 
projects will have tremendous benefits back home. More U.S. employees 
will be needed to craft and close these transactions, to build plants 
and pipelines, and to operate the facilities. New investment overseas 
will also result in new demands for U.S. equipment. Before these 
benefits can be realized, however, U.S. companies must be able to 
defeat their foreign competitors and win the projects. Unfortunately, 
current U.S. tax laws significantly inhibit the ability of U.S. 
companies to win such projects.
  It is time we change these laws if we are to ensure that U.S. 
companies remain competitive players in the international marketplace. 
A complete review and rewrite, however, will take a significant amount 
of time--time we can not afford to lose. In the interim, we believe 
there are incremental reforms to the international tax regime that we 
can and should take. One step in the right direction, and one that 
would have a minimal impact on the FISC, is to pass our legislation 
that would clarify the U.S. tax treatment of foreign pipeline 
transportation income.
  I ask my colleagues to join us in this effort to bring the current 
law in line with good tax policy. Let's ensure we keep America 
competitive in the global economy.

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