[Congressional Record (Bound Edition), Volume 147 (2001), Part 2]
[Extensions of Remarks]
[Page 2077]
[From the U.S. Government Publishing Office, www.gpo.gov]



 INTRODUCTION OF LEGISLATION TO APPLY THE LOOK-THRU RULES FOR PURPOSES 
    OF THE FOREIGN TAX CREDIT LIMITATION TO DIVIDENDS FROM FOREIGN 
         CORPORATIONS NOT CONTROLLED BY A DOMESTIC CORPORATION

                                 ______
                                 

                            HON. SAM JOHNSON

                                of texas

                    in the house of representatives

                      Wednesday, February 14, 2001

  Mr. SAM JOHNSON of Texas. Mr. Speaker, I am joined by Representative 
Bob Matsui in the Introduction of legislation to clarify a provision of 
our tax code that is needlessly hindering U.S. businesses' ability to 
efficiently operate in overseas markets.
  In some countries, U.S. investors face significant business, legal 
and political obstacles that prevent them from acquiring a controlling 
interest in a foreign company. This occurs in particular when the local 
government has a share in the foreign venture, the industry is heavily 
regulated (financial services, utilities, and oil and gas exploration, 
for example), or other business factors necessitate that the U.S. 
investor hold a minority interest. Consequently, U.S. companies must 
operate in these foreign countries through corporate joint ventures, 
many times in partnership with local businesses. U.S. international tax 
rules, however, tend to discourage corporate joint venture activity, 
even when these foreign laws require that U.S. companies take minority 
ownership interest in cooperative arrangements with local companies in 
order to do business.
  In particular, the so-called ``10/50 foreign tax credit rules'' 
impose a separate foreign tax credit limitation for each corporate 
joint venture in which a U.S. company owns at least 10 percent but not 
more than 50 percent of the stock of the foreign entity.
  The 10/50 regime is bad tax policy because it increases the cost of 
doing business for U.S. companies operating abroad by singling out 
income earned through a specific type of corporate business for 
separate foreign tax credit ``basket'' treatment. This provision 
inevitably prevents U.S. companies from fully using these tax credits, 
and thus subjects them to double taxation. Moreover, the current rules 
impose an unreasonable level of complexity, especially for companies 
with many foreign corporate joint ventures.
  The 1997 Tax Relief Act partially corrected this inequity by 
eliminating separate baskets for 10/50 companies. Unfortunately, the 
1997 act did not make the change effective for such dividends unless 
they were received after the year 2003. It further complicated the Tax 
Code by requiring two sets of rules--one from earnings and profits 
(E&P) generated before the year 2003 and one for dividends from E&P 
accumulated after the year 2002.
  My legislation will greatly simplify the U.S. tax treatment for U.S. 
companies subjected to these 10/50 foreign tax credit rules. This bill 
will accelerate from 2003 to this year the repeal of the separate 
foreign tax credit basket for these companies. In doing so, so-called 
``look-thru treatment'' will allow them to aggregate income from all 
such ventures according to the type of earnings from which the 
dividends are paid, thus conforming the treatment of this joint venture 
income to other income earned overseas by the U.S. companies. The 
proposal also ensures that pre-effective date foreign tax credits that 
are being carried forward also receive this look-thru treatment. 
Without such a rule, these tax credits will expire, a result that never 
was intended.
  In 1999, the House of Representatives and the Senate passed the 
``Taxpayer Refund and Relief Act of 1999.'' Although former President 
Clinton vetoed that particular bill, his administration recommended 
this legislative proposal in its next budget proposal. Consequently, I 
am confident that this bill will have strong bipartisan support.
  I urge my colleagues to join me in cosponsoring this important 
legislation.

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