TEI's guideposts for tax reform: October 15, 2009.

• Position: Tax Executives Institute

On October 15, Tax Executives Institute submitted the following comments to President Obama's Task Force on Tax Reform (chaired by Paul Volcker) and the tax-writing committees of Congress. The document is the product of months of work by TEI's Task Force on Tax Reform whose membership reflects the breadth and depth of the Institute's membership. The task force is chaired by Philip G. Cohen of Unilever United States, Inc. Eli J. Dicker, TEI Chief Tax Counsel, serves as legal staff liaison to the task force.

As the preeminent association of in-house tax professionals worldwide, Tax Executives Institute appreciates the opportunity to comment on key principles that should frame the debate on tax reform. TEI's 7,000 members represent more than 3,000 companies in the United States, Canada, Europe, and Asia. Our members deal with the tax laws--in the United States and throughout the world --on a day-to-day basis, and we are proud of our record of working with Congress, the Treasury Department and Internal Revenue Service, and their counterparts around the globe to improve both tax policy and tax administration.

Background

The tax world has changed dramatically since Congress last enacted major tax reform in 1986. Since then, the Internal Revenue Code--like the world around us-has grown in size and complexity, a consequence of both the ever-changing, increasingly global economy and the patchwork approach that has been taken in developing statutory law, regulations, rulings, and case law. Another reason for the complexity, however, is Congress's use of the Internal Revenue Code to advance economic and social policies, separate from raising the revenues necessary to fund governmental operations.

While the policies undergirding the tax code are often laudable (especially in terms of fostering economic growth), they impose added complexity and administrative cost to the tax system and its participants, including the IRS and its counterparts in the states. They also have had the effect of increasing tax rates, thereby diminishing the overall competitiveness of the U.S. tax system and hence, U.S.- based businesses.

Tax Executives Institute believes the time is ripe for an open and comprehensive examination of the U.S. tax code and, in particular, of how the United States taxes corporations and other business enterprises. A roiling economy, unrelenting globalization, and staggering budgetary challenges have spawned a plethora of legislative proposals to revise and reform the Code. As a broad-based association of businesses headquartered both in the United States and abroad, TEI is committed to improving both the structure and administration of the tax system, and recommends that the following guideposts frame this critical examination.

1. U.S. Business Does Not Operate in a Closed System.

   TEI submits that it is imperative that the United States avoid what has been referred to as "U.S. exceptionalism," where U.S. tax policy is seemingly set in a vacuum, without full regard to the tax systems in other countries. For example, most of the U.S.'s major trading partner's exempt foreign source income from business operations from domestic taxation, i.e., they employ a so-called territorial system. Thus, the United States is nearly alone in subjecting resident corporations to...