Legislative Update - Discussion draft of international business tax reform (Senate Finance Committee staff) 

November 19: The Senate Finance Committee today released a staff “discussion draft” of proposals for international business tax reform.

Documents

  • A six-page summary overview
  • Statutory language
  • Statutory languge for two options (described briefly below)
  • A request for comments
  • A Joint Committee on Taxation (JCT) description

These documents are available on the Finance Committee website.


Alternatively, read the JCT discussion JCX-15-13 [PDF 285 KB].

Brief summary of proposals

According to a one-page overview [PDF 70 KB] prepared by the Finance Committee staff, the discussion draft proposals would:


  • Impose tax on all foreign income of U.S. companies immediately or not at all—i.e., the proposal would repeal the deferral system for the earnings of foreign subsidiaries of U.S. companies and replace it with a more competitive system under which all such income is either taxed immediately when earned or exempt from U.S. tax, after which no additional U.S. tax is due.
    • Income from selling products and providing services to U.S. customers would be taxed annually at full U.S. rates.
    • There would be two options that apply an annual minimum tax to income from products and services sold into foreign markets—(1) one would impose a minimum tax that immediately taxes all such income at [80%] of the U.S. corporate tax rate with full foreign tax credits, coupled with a full exemption for foreign earnings upon repatriation; or (2) the other would impose a minimum tax that immediately taxes all such income at [60%] of the U.S. corporate rate if derived from active business operations but at the full U.S. rate if not, coupled with a full exemption for foreign earnings upon repatriation
    • Passive and highly mobile income would be taxed annually at full U.S. rates.
  • Deemed repatriation—historical earnings of foreign subsidiaries that have not been subject to U.S. tax would be subject to a one-time tax at a reduced rate of, for example, 20% payable over eight years.
  • Eliminate opportunities to avoid U.S. tax on U.S. income—this proposal would (1) eliminate international aspects of the “check-the-box” rule; (2) address base erosion arrangements used by foreign multinationals to avoid U.S. tax and deny deductions for related-party payments arising in a base erosion arrangement; (3) limit interest deductions for domestic companies to the extent that the earnings of their foreign subsidiaries are exempt from U.S. tax and to the extent that the domestic companies are over-leveraged when compared to their foreign subsidiaries; (4) limit income shifting through intangible property transfers; (5) repeal the domestic international sales corporations rules; (6) limit the extent to which foreign tax credits can eliminate U.S. tax on income from investments in foreign companies that are not controlled foreign corporations; (7) restore withholding taxes on interest paid by domestic corporations to residents of countries not providing similar benefits for U.S. investors; and (8) prevent foreign investors from using partnerships to avoid U.S. taxation.



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