[Senate Report 107-173]
[From the U.S. Government Publishing Office]
Calendar No. 438
107th Congress Report
SENATE
2d Session 107-173
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GUAM FOREIGN INVESTMENT EQUITY ACT
_______
June 24, 2002.--Ordered to be printed
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Mr. Bingaman, from the Committee on Energy and Natural Resources,
submitted the following
R E P O R T
[To accompany H.R. 309]
The Committee on Energy and Natural Resources, to which was
referred the Act (H.R. 309) to provide for the determination of
withholding tax rates under the Guam income tax, having
considered the same, reports favorably thereon without
amendment and recommends that the Act do pass.
Purpose
The purpose of H.R. 309 is to authorize the Government of
Guam to tax foreign investors at the same rates that States tax
them under tax treaties between the United States and foreign
nations.
Background and Need
The Federal Internal Revenue Code of 1986 levies a tax on
nonresident aliens in the amount of 30 percent of the income
the nonresident alien receives from investments in the United
States. 26 U.S.C. 871(a). The United States has, however,
entered into tax treaties with many nations, which lower the
tax rate for investors from any nation that has entered into
such a treaty. The treaties typically lower the tax rate from
30 percent to between 5 and 15 percent. The lower tax rate
encourages foreign investment in the United States.
Guam is an unincorporated territory of the United States
and its residents are citizens of the United States. Guam is
governed by an organic act approved by Congress. The Organic
Act of Guam applies the income tax laws in force in the United
States to Guam. Guam collects the federal income tax in the
form of a separate Guam territorial income tax. 48 U.S.C.
1421i. Since the Guam territorial income tax must mirror the
Federal Internal Revenue Code of 1986, Guam must tax foreign
investors at the 30 percent rate.
Although tax treaties lower the tax on foreign investment
in the United States, Guam is not considered part of the United
States for purposes of those treaties. As a result, the tax on
foreign investment continues to be taxed at the 30 percent rate
in Guam, while it is typically only 5 to 15 percent on foreign
investment in the United States.
Guam needs to lower its tax rate to help it attract foreign
investment. Federal legislation is needed to lower the tax rate
because the Organic Act of Guam ties Guam's tax rate to the
rate set in the Federal Internal Revenue Code.
H.R. 309 would lower the tax rate on foreign investment in
Guam by amending the Organic Act of Guam to authorize Guam to
apply the tax rate that would apply ``were Guam treated as part
of the United States for purposes of'' the tax treaties.
Legislative History
H.R. 309 was introduced by Representative Underwood and
referred to the House Committee on Resources on January 30,
2001. The Committee on resources ordered the bill reported by
voice vote on March 28, 2001. H. Rept. 107-48. The House or
Representatives passed the bill by voice vote on May 1, 2001.
During the 106th Congress, similar legislation appeared as
section 3 of H.R. 2462, the Guam Omnibus Opportunities Act,
when it passed the House of Representatives on July 25, 2000.
The Senate struck the provision, House of Representatives
agreed to the Senate amendment, and H.R. 2462 became Public Law
106-504 without addressing the issue.
The Committee on Energy and Natural Resources held a
hearing on H.R. 309 on July 27, 2001. The Committee considered
H.R. 309 at its business meeting on June 5, 2002, and ordered
the bill favorably reported.
Committee Recommendation
The Senate Committee on Energy and Natural Resources, in
open business session on June 5, 2002, by a voice vote of a
quorum present, recommends that the Senate pass H.R. 309
without amendment.
Section-by-Section
The provisions of H.R. 309 are self-explanatory.
Cost and Budgetary Considerations
The following estimate of the costs of this measure has
been provided by the Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, June 14, 2002.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 309, the Guam
Foreign Investment Equity Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Matthew
Pickford (for federal costs) and Marjorie Miller (for the state
and local impact).
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
H.R. 309--Guam Foreign Investment Equity Act
H.R. 309 would amend the Organic Act of Guam to require the
government of Guam to tax the earnings of foreign investors at
the same rates as those applied by the 50 states under U.S. tax
treaties with foreign countries. Because the act would not
affect federal tax rates, CBO estimates that implementing H.R.
309 would have no impact on the federal budget. Because the
legislation would not affect direct spending or governmental
receipts, pay-as-you-go procedures would not apply.
H.R. 309 contains no private-sector or intergovernmental
mandates as defined in the Unfunded Mandates Reform Act. The
act would change the tax rate applied to income earned by
foreign (i.e., non-U.S. and non-Guamanian) investors under the
Guam territorial income tax. This change would allow income
earned in Guam by foreign investors to be taxed at the same
rates as would apply to such income earned in the 50 states--
rates established by tax treaties with foreign countries. In
the short term, this change would result in decreased revenues
from the Guam territorial income tax. In the long term,
however, those losses could be offset to the extent that
increased foreign investment in the territory generates
increased tax revenues.
Enactment of this legislation would have no significant
impact on the budgets of other state, local, or tribal
governments.
On March 28, 2001, CBO transmitted a cost estimate for H.R.
309 as ordered reported by the House Committee on Resources.
The two versions of the legislation are identical, and our cost
estimates are the same.
The CBO staff contacts for this estimate are Matthew
Pickford (for federal costs) and Marjorie Miller (for the state
and local impact). This estimate was approved by Peter H.
Fontaine, Deputy Assistant Director for Budget Analysis.
Regulatory Impact Evaluation
In compliance with paragraph 11(b) of the rule XXVI of the
Standing Rules of the Senate, the Committee makes the following
evaluation of the regulatory impact which would be incurred in
carrying out H.R. 309.
The bill is not a regulatory measure in the sense of
imposing Government established standards or significant
economic responsibilities on private individuals and
businesses.
No personal information would be collected in administering
the program. Therefore, there would be no impact on personal
privacy.
Little, if any additional paperwork would result from the
enactment of H.R. 309.
Executive Communications
On July 25, 2001, the Committee on Energy and Natural
Resources requested legislative reports from the Department of
the Interior and the Office of Management and Budget setting
forth executive views on H.R. 309. These reports have not been
received at the time the report was filed. The testimony
provided by the Department of the Interior at the Committee
hearing follows:
Statement of Christopher Kearney, Deputy Assistant Secretary for Policy
and International Affairs, Department of the Interior
Mr. Chairman and members of the Committee, it is a pleasure
for me to appear before you today to discuss the
Administration's views on H.R. 309--the Guam Foreign Investment
Equity Act.
BACKGROUND
Foreign investors, who do not reside in Guam, contribute
significantly to the economy of Guam. Under current United
States law, such investors pay tax to Guam at a rate of thirty
percent on the gross amount of interest, dividend, rent,
royalty and other periodic income derived from their
investments. With respect to investment within the fifty
states, foreign non-resident investors pay United States taxes,
but the rate of such tax is often reduced significantly under
one of the over sixty income tax treaties to which the United
States is a party. This disparity in tax rates has proven to be
a disincentive for investment in Guam by foreign investors.
There are three ways to lessen the taxation of foreign
investors who do not reside in Guam. The first would be the re-
negotiation of current United States treaties to cover Guam.
Such an undertaking would be a time-consuming and expensive
governmental task. Second, under the 1986 tax act, Guam could
reduce its tax rates if it chose to de-link its tax system from
the Federal system. Guam has chosen not to de-link. Third, the
Congress, by law, can assign the benefit of the tax treaties to
foreign investors on Guam.
This last alternative is embodied in H.R. 309. Under the
bill, foreign investor income would be subject to tax at the
rate that would apply were Guam covered by United States tax
treaties. H.R. 309 would level the playing field for Guam, and
bolster its economy.
ADMINISTRATION POSITION
The Administration supports the enactment of H.R. 309.
Changes in Existing Law
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
the act H.R. 309, as ordered reported, are shown as follows
(existing law proposed to be omitted is enclosed in brackets,
new matter is printed in italic, existing law in which no
change is proposed is shown in roman):
PUBLIC LAWS--CH. 512--AUG. 1, 1950
[CHAPTER 512]
AN ACT To provide a civil government for Guam, and for other purposes
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled, That this
Act may be cited as the ``Organic Act of Guam''.
* * * * * * *
Sec. 31. (a) The income-tax laws in force in the United
States of America and those which may hereafter be enacted
shall be held to be likewise in force in Guam: Provided, That
notwithstanding any other provision of law, the Legislature of
Guam may levy a separate tax on all taxpayers in an amount not
to exceed 10 per centum of their annual income tax obligation
to the Government of Guam.
* * * * * * *
(d)(1) * * *
* * * * * * *
(3) In applying as the Guam Territorial income tax the
income-tax laws in force in Guam pursuant to subsection (a) of
this section, the rate of tax under sections 871, 881, 884,
1441, 1442, 1443, 1445, and 1446 of the Internal Revenue Code
of 1986 on any item of income from sources within Guam shall be
the same as the rate which would apply with respect to such
item were Guam treated as part of the United States for
purposes of the treaty obligations of the United States. The
preceding sentence shall not apply to determine the rate of tax
on any item of income received from a Guam payor if, for any
taxable year, the taxes of the Guam payor were rebated under
Guam law. For purposes of this subsection, the term ``Guam
payor'' means the person from whom the item of income would be
deemed to be received for purposes of claiming treaty benefits
were Guam treated as part of the United States.
* * * * * * *