[Congressional Record (Bound Edition), Volume 147 (2001), Part 1]
[Extensions of Remarks]
[Pages 1007-1008]
[From the U.S. Government Publishing Office, www.gpo.gov]



                   GUAM FOREIGN INVESTMENT EQUITY ACT

                                 ______
                                 

                        HON. ROBERT A. UNDERWOOD

                                of guam

                    in the house of representatives

                       Tuesday, January 30, 2001

  Mr. UNDERWOOD. Mr. Speaker, today I would like to reintroduce the 
Guam Foreign Investment Equity Act, which passed the House of 
Representatives during the 106th Congress. While an agreement was 
reached with the Treasury Department on the provisions of the bill, the 
Senate was unable to act on this important legislation before sine die 
adjournment.
  At the outset, I would like to say that this legislation is direly 
needed, given Guam's struggling economy and 15 percent unemployment 
rate. Unlike the rest of the nation, which has experienced 
unprecedented economic growth and low unemployment rates the last few 
years, Guam's economy and tourism industry continues to recover from 
the Asian financial crisis, given our island's close proximity to Asia. 
Guam is only three flying hours from Japan.
  My legislation provides the Government of Guam with the authority to 
tax foreign investors at the same rates as states under U.S. tax 
treaties with foreign countries since Guam cannot change the 
withholding tax rate on its own under current law. Since the U.S. 
cannot unilaterally amend treaties to include Guam in its definition of 
United States, the legislation amends Guam's Organic Act, which has an 
entire tax section that mirrors the U.S. tax code. The legislation does 
not cost the federal government any money. It simply allows the 
Government of Guam to lower its withholding rate for foreign investors. 
While the Congressional Budget Office last year estimated that the bill 
will result in the loss of revenue for the Government of Guam in the 
short term, those losses are expected to be offset by the generation of 
increased tax revenues through increased foreign investments in the 
long term. Seventy-five percent of Guam's commercial development is 
funded by foreign investors.
  Currently, under the U.S. Internal Revenue Code, there is a 30 
percent withholding tax rate for foreign investors in the United 
States. Since Guam's tax law ``mirrors'' the rate established under the 
U.S. Code, the standard rate for foreign investors in Guam is 30 
percent. Under U.S. tax treaties, it is a common feature for countries 
to negotiate lower withholding rates on investment returns. 
Unfortunately, while there are different definitions for the term 
``United States'' under these treaties, Guam is not included. As an 
example, with Japan, the U.S. rate for foreign investors is 10 percent. 
That means while Japanese investors are taxed at a 10 percent 
withholding tax rate on their investments in the fifty states, those 
same investors are taxed at a 30 percent withholding rate on Guam.
  While the long term solution is for U.S. negotiators to include Guam 
in the definition of the term ``United States'' for all future tax 
treaties, the immediate solution is to amend the Organic Act of Guam 
and authorize the Government of Guam to tax foreign investors at the 
same rates as the fifty states.

[[Page 1008]]

  Other territories under U.S. jurisdiction have already remedied this 
problem through delinkage, their unique covenant agreements with the 
federal government, or through federal statute. Guam, therefore, is the 
only state or territory in the United States which is unable to take 
advantage of this tax benefit.
  The bill I am introducing today incorporates changes recommended by 
the Treasury Department to ensure that a foreign investor who benefits 
from this new tax benefit cannot simultaneously benefit from tax 
rebates under Guam territorial law. My legislation is supported by the 
Governor of Guam, the Guam Legislature, and the Guam business 
community. During the 106th Congress, I also worked closely with the 
House Resources Committee, the House Ways and Means Committee, the 
Senate Finance Committee, the Senate Energy and Natural Resources 
Committee, the Interior Department, the Treasury Department, and the 
White House National Economic Council. I am hopeful that all of the 
progress that was undertaken on this issue last year will continue, and 
that the Congress and the Bush Administration will move quickly on this 
legislation this Congress.

                          ____________________