[Congressional Record (Bound Edition), Volume 148 (2002), Part 9]
[Extensions of Remarks]
[Pages 12729-12730]
[From the U.S. Government Publishing Office, www.gpo.gov]




INTERNATIONAL TAX SIMPLIFICATION, FAIRNESS, AND COMPETITIVENESS ACT OF 
                                  2002

                                 ______
                                 

                          HON. SANDER M. LEVIN

                              of michigan

                    in the house of representatives

                        Thursday, July 11, 2002

  Mr. LEVIN. Mr. Speaker, today I am introducing a bill, the 
``International Tax Simplification, Fairness, and Competitiveness Act 
of 2002.'' I have worked for many years with my dear colleague, Amo 
Houghton, to help bring sensible and low-cost simplifications and 
reforms to the U.S. international tax rules. I look forward to working 
with him this year and in future years on these important issues.
  The bill contains a menu of proposals unified by a common theme: The 
way we tax the income of U.S. companies doing business abroad should 
reflect the economic realities of doing business abroad and should 
facilitate the efficient allocation of resources. Guided by that 
principle, the bill provides a list of possible amendments to the U.S. 
international tax regime that will simplify the reporting burden, 
update the rules to reflect the new realities of globalization, enhance 
the competitiveness of U.S. businesses and their workers, and promote 
exports. While I do not anticipate that all of these provisions would 
be enacted at once, and certainly the fiscal impact of any provision 
must be considered as it progresses through the legislative process 
including by considering appropriate offsets, I look forward to working 
to get provisions of the bill enacted into law.
  In the context of trade policy I have spoken for some time about the 
need to address head-on the changing nature of trade which has followed 
from the phenomenon of economic globalization. That need exists in the 
international tax sphere, as well. The nature of business and commerce 
has changed dramatically in the past fifty years and continues to 
change rapidly. Today, companies regularly take advantage of the gains 
in efficiency that may come from locating strategically in multiple 
points around the globe. Not only can strategic location around the 
globe make U.S. companies more competitive, it also can increase demand 
for U.S. exports, since U.S. companies operating overseas are very 
likely to purchase U.S. goods and services. In the trade context, I 
have worked to establish basic rules of international competition, 
including a floor of core labor standards, to ensure that there is a 
level playing field for U.S. companies and workers. Just as we need 
relentless innovation in our trade policy, we must ensure that our tax 
policy is keeping up with the realities of domestic and international 
business.
  Additionally, as international business transactions have increased 
dramatically, it is increasingly necessary to be sure that the rules 
meet two challenges: they must be updated to prevent new types of 
abusive transactions with little or no purpose other than the avoidance 
of U.S. taxes, and at the same time they should not have the effect of 
deterring or severely burdening transactions undertaken for legitimate 
and, from the point of view of American competitiveness, desirable, 
economic reasons.
  Toward that end, and as someone who has spent a lot of time working 
to simplify and improve the U.S. international tax regime, I want to 
put forth a proposition--although there is a need to discuss the 
competitive implications of the U.S. international tax rules and there 
is a need for simplification, the issue of corporate inversions does 
not provide an appropriate vehicle for that discussion.
  Corporate inversions are not truly about the complexities of the U.S. 
international tax rules; they are driven by tax avoidance, plain and 
simple.

[[Page 12730]]

  Whether a corporation is headquartered in Germany, France, the 
Netherlands, Japan, or the United States, it has a tax-based incentive 
to do an inversion into a tax haven. Coming from any OECD country with 
a responsible tax authority, an inversion into a tax haven will allow a 
company to avoid the relevant passive income rules, embodied in subpart 
F of the U.S. Tax Code, but in existence in one form or another 
throughout the OECD.
  Also, once a corporation from any OECD country has undertaken an 
inversion, the corporation can reap further tax benefits through 
earnings stripping transactions that avoid domestic taxes on domestic-
source income.
  So, the corporate inversion phenomenon is not about territorial 
systems versus the U.S. modified worldwide system of taxation. An 
inversion results in a tax regime more favorable than either of these 
systems. Any attempt to turn the inversion phenomenon into an 
indictment of the U.S. system is therefore misguided. Inversions are 
about tax havens versus developed taxing jurisdictions like those in 
OECD countries. The only ``business reason'' driving an inversion--
reflected in disclosure filings accompanying each inversion reassuring 
shareholders that the transaction will not impact business operations--
is tax avoidance.
  I will therefore resist any effort to draw a false link between the 
inversion phenomenon and the need for reform of the U.S. international 
tax rules. I believe that consideration of legislation to close off 
inversions is important and should be considered on its own merits, 
similarly, legislation to reform and simplify the U.S. international 
tax rules to improve the competitiveness of U.S. companies is important 
and should be considered on its own merits. Attempts to link the two 
issues together will only add unnecessary difficulty and will 
jeopardize the types of needed changes included in the bill introduced 
today.

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