Paul L. Caron

Friday, May 10, 2013

Senate Releases Tax Reform Option Paper on International Competitiveness

Senate LogoThe Senate Finance Committee yesterday released its Fifth Tax Reform Option Paper on International Competitiveness:

This document is the fifth in a series of papers compiling tax reform options that Finance Committee members may wish to consider as they work towards reforming our nation’s tax system.  This compilation is a joint product of the majority and minority staffs of the Finance Committee with input from Committee members’ staffs.  The options described below represent a non-exhaustive list of prominent tax reform options suggested by witnesses at the Committee’s 30 hearings on tax reform to date, bipartisan commissions, tax policy experts, and members of Congress.  For the sake of brevity, the list does not include options that retain current law. The options listed are not necessarily endorsed by either the Chairman or Ranking Member.  ...

The paper outlines the following broad goals for reform in this area:

  • Increasing U.S. competitiveness and job creation by reducing barriers to U.S. and foreign multinationals investing in the U.S.;
  • Reducing tax incentives for multinationals to be foreign-based;
  • Reducing tax incentives for U.S. multinationals to keep foreign earnings abroad;
  • Preventing base erosion and profit shifting to low-taxed foreign entities lacking relevant business substance; and
  • Reducing complexity, uncertainty, and compliance burdens.

Some of the reform options discussed in the paper in greater detail include:

  • Tightening anti-base erosion rules and reforming the treatment of non-subpart F earnings;
  • Strengthening the subpart F rules via several specific changes;
  • Repealing deferral for controlled foreign corporations;
  • Strengthening thin-capitalization rules to limit base erosion through excessive debt financing;
  • Strengthening rules against U.S. base erosion by foreign companies;
  • Limiting cross-crediting of foreign tax credits;
  • Improving the sourcing of income rules;
  • Repealing Domestic International Sales Corporation (DISC) provisions;
  • Reforming passive foreign investment company (PFIC) rules;
  • Reforming effectively connected income rules;
  • Providing an election to long-term nonresident citizens to be taxed as nonresident aliens if they meet certain conditions; and
  • Repealing the foreign-earned income exclusion.

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