On June 23, 1993, Tax Executives Institute submitted the following comments to the Subcommittee on Select Revenue Measures of the House Committee on Ways and Means concerning several miscellaneous tax proposals affecting international operations. The Institute's comments were submitted in response to a request from Subcommitte Chairman Charles Rangel, and were prepared under the aegis of TEI's International Tax Committee whose chair is Lisa Norton of Ingersoll-Rand Company.
Tax Executives Institute is the principal organization of corporate tax professionals in North America. Our approximately 4,900 members represent more than 2,400 of the leading corporations in the United States and Canada. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. TEI is firmly committed to maintaining a tax system that works - one that is consistent with sound tax policy, one that taxpayers can comply with, and one in which the IRS can effectively perform its audit function.
H.R. 1401: Modification of Subpart F Rules
Under section 954 of the Internal Revenue Code, a U.S. parent company is currently taxed on sales or services income earned outside a controlled foreign corporation's (CFC's) home country. Income earned within the CFC's home country, however, is generally exempt from current taxation under Subpart F of the Code (the "same country" exception).
Introduced on March 18, 1993, by Representative Sam Gibbons, H.R. 1401 would treat the unified European Community (EC) as a single economic unit for purposes of the same country exception. Under the bill, a U.S. parent company would not be subject to current taxation with respect to the earnings of a controlled EC-country subsidiary derived from sales to customers located within another EC country.
TEI endorses the proposal to treat the EC countries as a single country for purposes of the same-country exception. The consolidation of the 12 countries comprising the EC into one economic unit last year presented U.S. companies with a competitive challenge. The initiative allowed EC-based companies to consolidate their European business opportunities, leading to a reduction of operating costs. Because of the rigidity of the same...