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These comments to Rep. Amo Houghton discuss generally the AICPA support for many of the proposed international tax simplification provisions in the proposed legislation, H.R. 4151, Fairness, Simplification and Competitiveness for American Business Act of 2002. The comments note that the bill would reduce complexity and compliance burdens. The comments also address statutorily defining the EU as a single country for U.S. income tax purposes and suggest that the extra territorial income (ETI) problem be addressed in separate legislation.
May 24, 2002
The Honorable Amo Houghton
Chair, Subcommittee on Oversight
House Ways and Means Committee
1110 Longworth House Office Building
Washington, D.C. 20515
Re: Comments on H. R. 4151, Fairness, Simplification and Competitiveness for American Business Act of 2002
Dear Chairman Houghton:
The American Institute of Certified Public Accountants (AICPA) is pleased to provide our comments on H.R. 4151, the Fairness, Simplification and Competitiveness for American Business Act of 2002. The AICPA is the national, professional organization of certified public accountants comprised of more than 350,000 members. Our members advise clients on federal, state, and international tax matters, and prepare income and other tax returns for millions of Americans. They provide services to individuals, not-for-profit organizations, small and medium-sized businesses, as well as America's largest businesses.
The AICPA very strongly supports many of the changes contemplated in H.R. 4151 and its predecessor, H.R. 4047. However, we have two reservations: (1) section 106 should immediately rewrite the statute to treat the European Union (EU) as one country, rather than mandating a study; and (2) section 313, which would repeal the extraterritorial income regime (ETI), should be deleted because it involves trade policy concerns and delicate political negotiations unrelated to the other concerns of H.R. 4151.
As global trade increases, legislative changes, such as those in H.R. 4151, are needed to allow U.S. businesses to react more nimbly and on a par with foreign competitors having less complex tax systems. H.R. 4151 is both timely and a welcome simplification proposal.
Reducing Complexity and Compliance Burdens
The AICPA supports the following provisions, which would greatly simplify the tax compliance burden:
· Expanding the Subpart F de minimis rule (section 101);
· Deleting overlapping provisions by, for example, repealing the foreign personal holding company and foreign investment company rules (section 104);
· Eliminating reporting requirements for foreign-owned domestic corporations with immaterial cross-border transactions (section 307);
· Allocating interest on a worldwide basis (section 311); and
· Rationalizing the foreign tax credit rules (Title II).
The current foreign tax credit rules often result in double taxation and leave many taxpayers with excess foreign tax credits. Extending the carryover period, allowing recharacterization of overall domestic losses, and repealing the alternative minimum tax foreign tax credit limitation would significantly reduce this double tax burden and enhance competitiveness.
Achieving Greater Simplification
The European Union (EU) has harmonized member country tax systems, eliminating tax competition and restructuring opportunities, and many members now share a common currency. Corporations now draft contracts that include all EU countries without regard to national boundaries.
Continuing to treat each EU member as a separate country puts U.S. companies providing services throughout the EU from a common hub at a competitive disadvantage as compared with most other non-US multinationals. Under the current Subpart F rules, the hub's "cross-border" operations within the EU result in foreign base company income, including foreign personal holding company income, foreign base company sales income, and foreign base company services income. (See Internal Revenue Code Section 954.) If, however, the EU is treated as a single country, then same country treatment would be available with respect to dividends, interest, rents, royalties, sales income and services income. By statutorily defining the EU as a single country for U.S. income tax purposes, H.R. 4151 could resolve this competitiveness issue simply and efficiently.
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Addressing the ETI Problem
The extraterritorial income regime (ETI), created to resolve the foreign sales corporation (FSC) controversy, has been rejected by the World Trade Court. Therefore, addressing ETI involves trade policy concerns and delicate political negotiations unrelated to the other concerns of H.R. 4151. Without addressing the merits of the ETI dispute, the AICPA believes that these unrelated ETI issues would be better addressed in separate trade legislation, freeing H.R. 4151's less controversial improvements from the difficulties inherent in finding an internationally acceptable FSC solution.
The AICPA would be happy to offer our further assistance on this legislation. Please contact me at (805) 653-6300; Andrew Mattson, Chair of the International Tax Technical Resource Panel, at (408) 369-2566; or Eileen Sherr, AICPA Technical Manager at (202) 434-9256.
Sincerely,
Pamela J. Pecarich
Chair, Tax Executive Committee
cc:
The Honorable William M. Thomas, Chairman, House Ways &Means Committee
The Honorable Charles B. Rangel, Ranking Minority Member, House Ways & Means Committee
The Honorable Max Baucus, Chairman, Senate Finance Committee
The Honorable Charles E. Grassley, Ranking Minority Member, Senate Finance Committee
Mr. Hugh Hatcher, Tax Legislative Assistant to Rep. Houghton
Mr. Bob Winters, Special Counsel, House Ways & Means Committee
Ms. Allison Giles, Majority Chief of Staff, House Ways & Means Committee
Mr. John Kelliher, Chief Counsel, House Ways & Means Committee
Mr. James Clark, Chief Tax Counsel, House Ways & Means Committee
Mr. Greg Nickerson, Tax Counsel, House Ways & Means Committee
Mr. Jon Sheiner, Tax Legislative Assistant to Rep. Rangel
Ms. Janice Mays, Democratic Chief Counsel, Ways & Means Committee
Mr. John Buckley, Democratic Chief Tax Counsel, Ways & Means Committee
Mr. John Angell, Staff Director, Senate Finance Committee
Mr. Russell Sullivan, Chief Tax Counsel, Senate Finance Committee
Ms. Maria Freese, Tax Counsel, Senate Finance Committee
Ms. Anita Horn Rizek, Democratic Tax Professional Staff, Senate Finance Committee
Mr. Kolan Davis, Republican Staff Director and Chief Counsel, Senate Finance Committee
Mr. Mark Prater, Republican Chief Tax Counsel, Senate Finance Committee
Ms. Lindy L. Paull, Chief of Staff, Joint Committee on Taxation
Mr. H. Benjamin Hartley, Senior Legislation Counsel, Joint Committee on Taxation
Mr. E. Ray Beeman, Legislation Counsel, Joint Committee on Taxation
Mr. David G. Noren, Legislation Counsel, Joint Committee on Taxation
Mr. Oren S. Penn, Legislation Counsel, Joint Committee on Taxation
Mr. Thomas A. Barthold, Senior Economist, Joint Committee on Taxation
Ms. Pamela F. Olson, Acting Assistant Secretary for Tax Policy, Treasury Department
Mr. Rob Hanson, Tax Legislative Counsel, Treasury Department
Ms. Barbara M. Angus, International Tax Counsel, Treasury Department
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