Senators Max Baucus (D-Mont.) and Orrin Hatch (R-Utah) have introduced legislation
which they say will protect the jobs that US financial services companies have
created in the US, by keeping the industry on an equal tax footing with its
international competitors.
When foreign financial services companies earn income abroad, it’s not
subject to taxation until the money is brought back to the parent company at
home. The law giving American companies this tax treatment here at home is set
to expire next year. The Senators’ bill would make the 'Subpart F' exception
for active financing income permanent, so that US firms and their workers are not
disadvantaged by tax burdens their competitors don’t face.
“We need to make sure that US tax rules don’t make financial services
companies less competitive in the world arena, and less able to keep good-paying
jobs here at home," Baucus stated. "Making this active financing provision
permanent will let US companies make business decisions on a long-term basis.”
“America’s tax laws shouldn’t handicap companies striving
to lead in a very competitive global marketplace,” Hatch added. “Considerable
overseas business is at stake. Salt Lake City is home to firms that would benefit
from this legislation, and Utah jobs could be hurt if US-based companies cannot
fairly compete in the international marketplace.”
Deferral of US tax for active financial services income was the law for the
first seventy-seven years of the corporate income tax. The deferral was reinstated
in 1997 as a temporary provision and Congress has renewed it four times. Current
law includes stringent safeguards to ensure that the income eligible for deferral
of US tax is real business income and is earned by local operations serving
local markets. If the current law exception expired, Subpart F of the tax code
would impose tax immediately on the income earned by foreign subsidiaries of
US companies, even if their income has not been brought back to the United States.
The current law exception for active financing and insurance income generally
applies to the US-based financial services and insurance industries and also
to domestic manufacturers who finance sales of large equipment to foreign customers.
This is the exception the Senators are seeking to make permanent, to keep those
companies on a level playing field worldwide.
“When we tax US companies working overseas, we increase their overhead
and allow their competitors to undercut them,” Hatch noted. “That
hurts American workers, business, our influence abroad, and – ultimately
– the tax revenue we’re able to collect. Renewing legislation that
puts our top-notch financial companies on competitive footing is good for business
and good for our country.”
Baucus added: “The US financial services industry is a global leader.
Global financial services markets are fiercely competitive. If US companies
were forced to bear current US tax, they would not be able to compete in the
global marketplace. The US would lose its financial services leadership role.
In that case, the thousands of jobs necessary to support a global financial
services operation would not be in the US. This legislation is critical to the
continuing vitality of the US financial services industry, it is a crucial pillar
supporting tens of thousands of US jobs, and it is the right tax policy answer.”
Senator Mike Crapo (R-Idaho) is also an original co-sponsor of the bill. The
legislation is expected to be referred to the Senate Finance Committee. Baucus
is the Chairman and Hatch and Crapo are members of that panel.
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