Chamber Letter on FSC/ETI
October 1, 2003
The Honorable Max Baucus
Committee on Finance
Washington, DC 20510
Dear Senator Baucus:
On behalf of the U.S. Chamber of Commerce, the world's largest business federation representing over three million businesses of every size, sector and region, I write as the Finance Committee takes up legislation to address the FSC/ETI situation.
We appreciate your leadership in crafting this legislation. We understand the daunting task faced by you and other members of the Committee in developing a solution that will comply with U.S. obligations under the WTO Agreement, will address the problems faced by export manufacturers disadvantaged by the loss of FSC/ETI, and will enhance the viability of U.S. companies competing on a global stage with foreign companies advantaged by a territorial tax regime.
Your proposal to reduce the effective income tax rate on domestic production activities would at least partially compensate U.S. exporters for the loss of FSC/ETI benefits. In addition, your proposals to lengthen the foreign tax credit carryforward period, reform the interest expense allocation rules, expand the de minimis rules under subpart F, and repeal of the ninety percent limitation on the utilization of the AMT foreign tax credits, would help increase the competitiveness of U.S. multinational companies.
However, we realize that political and budgetary realities require the Senate to move a revenue-neutral bill and we are concerned about revenue-raisers that may be included in this bill, or in amendments to it, to achieve this end. Such tax increases are counterproductive in a bill designed to promote economic growth and create jobs. In particular, our concerns relate, but are not limited, to the following provisions:
Restriction or Invalidation of Corporate Inversions: The proper response to concerns about how corporations structure themselves is to fix the underlying problem. Congress should, instead, undertake a long-overdue legislative overhaul of the U.S. tax code's antiquated foreign tax provisions that disable U.S. corporations from competing fairly with their foreign competitors.
Disallowance of Tax Deductions for Government Settlements: The blanket denial of otherwise allowable tax deductions for settlement of potential violations of laws or mere investigations of such is overly broad and unfair. It would impose a chilling effect on the ability and willingness of parties to settle cases that would not ultimately merit prosecution to a conclusion.
Repeal or Weakening of Internal Revenue Code Section 911: Reducing the exclusion from gross income for U.S. citizens' foreign-earned income and related employer-provided housing costs would diminish the incentive for Americans to work abroad and would result in U.S. companies having to hire foreign workers to replace them, thus robbing them of American expertise. This would undercut efforts to encourage and increase employment of U.S. workers and negate income tax relief granted to them under recently-passed legislation.
Tax Shelter Initiatives: Legislation to expand disclosures of potentially abusive "tax shelters," to tighten penalties for those found to be abusive, and codify the economic substance doctrine should be approached with proper caution and restraint. Congress should ensure that such provisions be clear and reasonable in effect, as well as unambiguous and straightforward to interpret, apply, and enforce, so as to avoid burdening normal, business-motivated transactions of taxpayers.
CEO Execution of Tax Returns: Requiring the chief executive officer to sign the corporate tax returns is both onerous and unnecessary. This requirement does not relieve another corporate officer – one who is ordinarily more knowledgeable and familiar with the corporation's tax records – from executing the returns, as is already the case under current law.
Again, the Chamber commends the Finance Committee for its effort to address the international competitiveness of U.S. exporters and U.S. multinationals and we look forward to working with you to achieve these ends. We also strongly urge the committee to avoid including tax increases that will offset the growth-and job-enhancing provisions of this bill at a time when the economy desperately needs them.
R. Bruce Josten
Executive Vice President, Government Affairs
U.S. Chamber of Commerce
CC: Democratic members of Finance Committee