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William Byrnes (Texas A&M) tax & compliance articles

International Tax Reform – Senator Baucus fires a volley

Posted by William Byrnes on November 20, 2013


In his first volley to start a serious discussion for reform of the U.S. taxation of the international activities of U.S. parent companies, Max Baucus, Senate Finance Committee Chairman released several draft tax bills yesterday.  His release statement included, “The proposal — the first in a series of discussion drafts to overhaul America’s tax code — details ideas on how to reform international tax rules to spark economic growth, create jobs, and make U.S. businesses more competitive.” 

The primary components of the proposed draft Bills include:

  • Income from selling products and providing services to U.S. customers is taxed annually at full U.S. rates.
  • Passive and highly-mobile income is taxed annually at full U.S. rates.

The drafts include two options that apply an annual minimum tax to income from products and services sold into foreign markets:

(1)   apply a minimum tax rate to all such income, or

(2)   tax such income at a lower minimum tax rate if derived from active business operations and at the full U.S. rate if not

Examples provided of a minimum rate include 60% and 80% of applicable U.S. tax, with an allowance for tax credit maintained.

The proposal calls for a ‘deemed repatriation’ of all historical earnings of foreign subsidiaries that have not been previously subject to U.S. tax, imposing a one-off tax at an example rate of 20%, payable over eight years.  Tax credits would also be allowed as offset against this one-off tax.

The proposal seeks to eliminate of the international aspects of the “check-the-box” rule.  Finally, the proposal explores mitigating ‘base profits erosion’ (BEPS) arrangements used by foreign multinationals to avoid U.S. tax.

Senator Baucus is quoted, “Over the past three years, the Finance Committee has examined every aspect of the tax code in an effort to fix a broken system.  Through hearings, option papers and blank slate proposals, we’ve received input from key stakeholders and nearly every member of the Senate.  These discussion drafts are the next step. They represent proposals collected throughout this process and provide a path forward on tax reform.  Some are Democratic ideas. Some are Republican ideas. The common link is they are all ideas worth exploring.

The Ranking (aka Minority) Member of the Committee, Republican Senator Orrin Hatch, released a statement that significant policy differences must still be bridged before international tax reform is realized: “…. but the fact is that significant policy differences remain between both sides and a final agreement was never reached.  I hope that once the budget conference negotiations have concluded that we can renew our discussions to determine whether we can find common ground to overhaul our tax code.”

The discussion draft is available at > Senate international tax proposals<

The proposed bills with legislative language are available at:

> International Tax Provisions Bill (Option 1) <

> International  Tax Provisions Bill (Option 2) < and

> International Tax Provisions Bill (Option 3)

For the entire series of Tax Reform Discussion Papers, see http://www.finance.senate.gov/issue/?id=6c61b1e9-7203-4af0-b356-357388612063

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