Tax News

CCH (cch.taxgroup.com) reports:

A tax increase on foreign-owned U.S. corporations included in the Farm Bill Extension Act of 2007 (HR 2419) threatened to sideline the legislation on July 26. House lawmakers began debate on the measure late on July 26, but it was unclear whether GOP protests would force Democrats to delay floor consideration.
The farm bill had bipartisan support when it left the House Agriculture Committee; however, a $4 billion tax measure was included in the bill to pay for an increase in food stamps and other farm programs. The tax provision was authored by House Ways and Means Committee member Lloyd Doggett, D-Texas, and would tax the interest and royalties that foreign-owned U.S. companies pay to their foreign affiliates. Doggett said that his legislation would ensure that tax treaties, designed to eliminate double-taxation for true residents of foreign countries, are not exploited by foreign parent corporations that structure expenses and payments though low-tax jurisdictions to avoid taxes on income earned in the U.S.
The Bush administration has issued a veto threat on the farm bill because of this provision. According to a statement of administration policy issued on July 25, if the bill were presented to President Bush in its current form, White House senior advisors would recommend that he veto the bill. "The [a]dministration strongly opposes the provision that would raise taxes on payments by U.S. subsidiaries to foreign affiliates," the statement reads. "In addition to being a tax increase, this provision would discourage foreign investment in the U.S., override tax treaties the U.S. has with many nations, and raise questions under other international agreements."
Ways and Means ranking member Jim McCrery, R-La., said that Doggett's tax legislation would hurt U.S. competitiveness and violate a host of tax treaties. "It is bad policy and bad politics," he said. "Democrats are trying to sneak a far-reaching and potentially destructive proposal through the House without proper consideration."
By Stephen K. Cooper, CCH News Staff
Ways and Means Release --U.S. Business: Vote "NO" on the Surprise Farm Bill Tax Hike
Letter from the Association of International Automobile Manufacturers, Inc. (AIAM) Regarding the Farm Bill Extension Act of 2007
Letter from the Business Roundtable Regarding the Farm Bill Extension Act of 2007
Letter from U.S. Chamber of Commerce Regarding the Farm Bill Extension Act of 2007
Statement of Administration Policy on HR 2419