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These recommendations on international tax simplification were submitted to the Senate Finance Working Group and include various concerns regarding the overly complex international tax provisions. The letter includes a summary of the AICPA's most urgent concerns. It also contains the following attachments: (1) the September 30, 2002, AICPA Comments to the Honorable William M. Thomas, Chairman of the House Ways and Means Committee on the International Tax Provisions in H.R. 5095, the American Competitiveness and Corporate Accountability Act, the May 24, 2002; (2) AICPA Comments to the Honorable Amo Houghton, Chairman of the Subcommittee on Oversight of the House Ways and Means Committee on H. R. 4151, Fairness, Simplification and Competitiveness for American Business Act of 2002; (3) the February 7, 2002, AICPA Comments on Recommendations of the Staff of the Joint Committee on Taxation to Simplify the Federal Tax System; and (4) the April 26, 2001, AICPA Testimony to the Senate Committee on Finance Holding Hearings on Tax Simplification.
January 9, 2003
Sent via e-mail to the Senate Finance Group
Ms. Lara Birkes
International Tax Working Group
Senate Finance Committee
219 Senate Dirksen Office Building
Washington, D.C. 20510
Dear Ms. Birkes:
The American Institute of Certified Public Accountants (AICPA) is pleased to respond to Senator Max Baucus's November 14, 2002, request for proposals aimed at addressing competitiveness and simplification in the international tax arena to be submitted to the Senate Finance Committee's International Tax Working Group. 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 believes that certain international tax provisions in the Internal Revenue Code are overly complex and disadvantageous to American businesses operating and competing abroad. We have addressed these concerns in the following attached documents and testimony submitted to Congress over the last two years. (International tax excerpts from these documents are attached.)
- September 30, 2002, AICPA Comments to the Honorable William M. Thomas, Chairman of the House Ways and Means Committee on the International Tax Provisions in H.R. 5095, the American Competitiveness and Corporate Accountability Act.
- May 24, 2002, AICPA Comments to the Honorable Amo Houghton, Chairman of the Subcommittee on Oversight of the House Ways and Means Committee on H. R. 4151, Fairness, Simplification and Competitiveness for American Business Act of 2002.
- February 7, 2002, AICPA Comments on Recommendations of the Staff of the Joint Committee on Taxation to Simplify the Federal Tax System.
- April 26, 2001, AICPA Testimony to the Senate Committee on Finance Holding Hearings on Tax Simplification.
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A Summary of the AICPA's Most Urgent Concerns:
1. Limit application of Subpart F to truly passive income by repealing the CFC rules on foreign base company sales and services income. (See Attachments A and D.)1
2. Reduce the number of foreign tax credit "baskets" to three. (See Attachments A and D.)
3. Provide a 10-year foreign tax credit carry-forward. (See Attachments A and B.)
4. Repeal the alternative minimum tax limitation on the utilization of the foreign tax credit. (See Attachments A, B, and D.)
5. Modify the interest expense allocation rules. (See Attachments A and B.)
6. Consolidate, reconcile, modernize, and simplify the various overlapping anti-deferral regimes and provisions (e.g., the passive foreign investment company, foreign personal holding company, and foreign investment company rules in Subpart F).
a. Repeal the foreign personal holding company and foreign investment company rules. (See Attachments B and C.)
b. Exclude foreign corporations from the personal holding company rules. (See Attachment C.)
c. Include certain personal services contract income targeted under the present-law foreign personal holding company rules as Subpart F foreign personal holding company income. (See Attachment C.)
d. Eliminate the application of the passive foreign investment company rules to smaller investments in foreign companies whose stock is not marketable. (See Attachment D.)
e. Revise the rules for determining foreign personal holding company income with respect to commodity transactions. (See Attachment A.)
7. Recharacterize overall domestic losses. (See Attachments A and B.)
8. Provide for deemed paid foreign tax credits to be claimed indirectly through partnerships. (See Attachment C.)
9. Eliminate the reporting requirements for foreign-owned domestic corporations with immaterial cross-border transactions. (See Attachment B.)
The attached comments contain additional proposals not highlighted in this letter, but which also should be considered in addressing competitiveness and simplifying the international tax rules.
We thank you for your leadership in this area. The AICPA is pleased to provide these comments, and we would be happy to offer our further assistance on this legislation. Please contact me at (202) 414-0705; Andrew Mattson, Chair of the AICPA's International Tax Technical Resource Panel, at (408) 369-2566; or Eileen Sherr, AICPA Technical Manager at (202) 434-9256.
Sincerely,
Robert A. Zarzar
Chair, Tax Executive Committee
cc: Members of Senate Finance Committee
Members of House Ways & Means Committee
Mr. Jon Traub, Legislative Director to Rep. McCrery
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
Ms. Janice Mays, Democratic Chief Counsel, Ways & Means Committee
Mr. John Buckley, Democratic Chief Tax Counsel, Ways & Means Committee
Mr. John Angell, Democratic Staff Director, Senate Finance Committee
Mr. Russell Sullivan, Democratic Chief Tax Counsel, Senate Finance Committee
Ms. Maria Freese, Democratic 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
Mr. Ed McClellan, Republican Tax Counsel, Senate Finance Committee
Ms. Lindy L. Paull, Chief of Staff, 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. Thomas A. Barthold, Senior Economist, Joint Committee on Taxation
Ms. Pamela F. Olson, Assistant Secretary for Tax Policy, Treasury Department
Ms. Barbara M. Angus, International Tax Counsel, Treasury Department
Attachment A:
Comments on the International Tax Provisions in H.R. 5095, the American Competitiveness and Corporate Accountability Act
Attachment B:
Comments on H. R. 4151, Fairness, Simplification and Competitiveness for American Business Act of 2002
Attachment C:
Comments on Recommendations of the Staff of the Joint Committee on Taxation to Simplify the Federal Tax System
Attachment D:
Statement of Pamela J. Pecarich to the United States Senate Committee on Finance Holding Hearings on Tax Simplification
. We also have previously suggested and continue to support treating the European Union (EU) as one country in order to mitigate the problems raised by the Subpart F rules. (See Attachment B.)
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