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NFTC Opposes Anti-Tax Treaty Legislation
Date: 7/25/2007
Written By: Eric Thomas or Jennifer Cummings, The Fratelli Group for NFTC, 202-822-9491

Washington, DC  - The National Foreign Trade Council (NFTC) today expressed serious concern that the leadership of the House of Representatives may fast track a discriminatory tax bill introduced just yesterday by Rep. Lloyd Doggett (D-TX) to pay for the Farm Bill, which is set for a vote on the House floor Thursday. The legislation aimed solely at U.S. subsidiaries of foreign-based companies could represent a tax increase of $7.5 billion on these companies.

 

 

 

Rep. Doggett's bill ("Fairness in International Tax") would only apply to U.S. subsidiaries of foreign-based companies. The legislation is in direct violation of many of the bilateral tax treaties negotiated by the Treasury Department and affirmed by the Senate because it forces companies to pay higher withholding tax rates on payments (royalties, interest or management fees) to their foreign affiliates. It may also result in retaliatory action by U.S. tax treaty partners against U.S. based companies with foreign-based affiliates. This legislation, which represents a major change to U.S. tax law, has never been the subject of a hearing.

"This legislative proposal results in a protectionist tax hike on companies bringing jobs into the United States," said Bill Reinsch, President of the NFTC, an association of some 300 U.S. business enterprises engaged in all aspects of international trade and investment. "Our global trading partners are already concerned about trade protectionism in Congress, the imposition of a new discriminatory tax on U.S. affiliates of foreign-based companies won't be well received in the international marketplace and will invite retaliation."

Congressman Doggett accuses foreign companies of engaging in unfair tax practices that harm the competitiveness of U.S. based companies. However, the Doggett legislation impacts operations in the United States, like the Samsung semiconductor plant in Austin, Texas where thousands of Doggett's own constituents work.

According to Reinsch, "The NFTC would like Members of Congress to understand before they vote, that this tax provision will harm the ability of the U.S. to enter into or amend tax treaties in the future. If the U.S. cannot be relied upon to uphold tax treaty obligations, other countries will be less willing to enter into negotiations with the U.S. The threat to the tax treaty network could result in the increased incidence of double taxation of U.S. based companies."

U.S. subsidiaries of foreign companies provide 5.1 million jobs, supporting an annual payroll of $324.5 billion.

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Advancing Global Commerce for Over 90 Years
The National Foreign Trade Council (
www.nftc.org) is a leading business organization advocating an open, rules-based global trading system. Founded in 1914 by a broad-based group of American companies, the NFTC now serves hundreds of member companies through its offices in Washington and New York.