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AICPA Letter to Houghton on EU, ETI Provisions in H.R. 4151

MAY 24, 2002

AICPA Letter to Houghton on EU, ETI Provisions in H.R. 4151

DATED MAY 24, 2002
DOCUMENT ATTRIBUTES
  • Institutional Authors
    American Institute of Certified Public Accountants
    Tax Executive Committee
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2002-12971 (3 original pages)
  • Tax Analysts Electronic Citation
    2002 TNT 104-20
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:

[1] 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.

[2] 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.

[3] 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

[4] 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).

 

[5] 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

[6] 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.

[7] 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.

Addressing the ETI Problem

[8] 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.

 

* * * * *

 

 

[9] The AICPA would be happy to offer our further assistance on this legislation. Please contact me at (805) 653-6300 or ppecar@aol.com; Andrew Mattson, Chair of the International Tax Technical Resource Panel, at (408) 369-2566 or Andy@mohlernixon.com; or Eileen Sherr, AICPA Technical Manager at (202) 434-9256 or esherr@aicpa.org.
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
DOCUMENT ATTRIBUTES
  • Institutional Authors
    American Institute of Certified Public Accountants
    Tax Executive Committee
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Language
    English
  • Tax Analysts Document Number
    Doc 2002-12971 (3 original pages)
  • Tax Analysts Electronic Citation
    2002 TNT 104-20
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