[Congressional Record (Bound Edition), Volume 148 (2002), Part 3]
[Extensions of Remarks]
[Page 4273]
[From the U.S. Government Publishing Office, www.gpo.gov]




THE FAIRNESS, SIMPLIFICATION AND COMPETITIVENESS FOR AMERICAN BUSINESS 
                              ACT OF 2000

                                 ______
                                 

                           HON. AMO HOUGHTON

                              of new york

                    in the house of representatives

                       Wednesday, April 10, 2002

  Mr. HOUGHTON. Mr. Speaker, today I am introducing the ``Fairness, 
Simplification and Competitiveness for American Business Act of 2002''. 
It would address a number of tax issues facing U.S. multi-national 
corporations and provide a way to comply with a ruling of the World 
Trade Organization that our present tax law provides a prohibited 
export subsidy to these companies.
  Much has been made about multinational corporations avoiding U.S. 
corporate income taxes by all sorts of arrangements, including use of 
offshore entities, re-incorporations/inversions, agreements to avoid 
loss of foreign tax credits, earnings stripping, sales/leasebacks of 
assets, etc. There is nothing inherently illegal in what is being done. 
Does it go to the edge? Probably. I believe much of this activity is 
motivated by our outmoded international tax laws. We have known for 
some time that the laws are far behind and out of sync with our trade 
policy. In fact, our international tax policy seems to promote 
consequences that may be contrary to the national interest. Ours is a 
terribly complex system of worldwide taxation, with exceptions for 
deferral of taxes on certain income earned abroad, and a foreign tax 
credit system that attempts to minimize double taxation.
  At the same time, we have tried to alleviate the disadvantage to our 
multinationals by such provisions as the Domestic International Sales 
Corporation, replaced by the Foreign Sales Corporation, then replaced 
by the Extraterritorial Income Exclusion Act of 2000. All of these 
provisions were aimed at leveling the field for U.S. multinationals, as 
contrasted to foreign multinationals. The latter typically operate 
under territorial and value added tax systems that provide tax relief 
for exporters. The FSC and ETI provisions have been estimated to reduce 
U.S. tax revenues by over $4 billion annually.
  The ETI system was enacted after the U.S. lost its appeal of the WTO 
ruling that the FSC was a prohibited export trade subsidy. A case was 
brought on the new ETI, and it too was held to be an export trade 
subsidy. Again, the U.S. lost on appeal. So what do we do now?
  The bill introduced would do two things. It would provide a number of 
international tax fairness and simplification changes to the Internal 
Revenue Code. The bill would include all of the provisions of a bill 
introduced on March 20, 2002, H.R. 4047, as well as provisions to 
improve the interest allocation rules and provide a permanent subpart F 
exception for ``active financing'' income (the current exception 
expires for tax years beginning after December 31, 2006). In addition, 
the bill would repeal the ETI. These changes would be effective January 
1, 2003).
  The goal is to promote fairness, simplification and competitiveness 
in the U.S. international tax provisions to benefit U.S. multinational 
corporations, and to pay for those changes with the revenue generated 
from repeal of the ETI provisions.
  I believe this approach would result in a number of benefits. It 
would settle the WTO dispute, provide benefits in our present system to 
the U.S. multinationals, and would not preclude future changes to our 
entire corporate system, if that is the desire of Congress. I would 
welcome my colleagues' support of this legislation.

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