CFP Says Territorial Taxation Is Answer To Expatriating US Corporations

Tax-News.com, New York

18 April 2002

The Centre for Freedom and Prosperity says that America's system of "worldwide" taxation is to blame for the flight of many US coporations to offshore jurisdictions, and is therefore to blame for the protectionist legislation introduced by several members of the Congress.

First, Representatives Richard Neal (D-MA) and Scott McInnis (R-CO) introduced similar bills, H. R. 3884 and H.R. 3857 respectively, that would allow the IRS to tax the non-U.S. income of non-U.S. companies. Then, last week, ranking Democrat and Republican members of the Senate Finance Committee, Max Baucus (Dem. Montana) and Charles Grassley (Rep. Iowa) also announced that they would shortly introduce legislation to block companies from renouncing their US corporate citizenship simply by setting up a shell office abroad.

All four Members of Congress, says the Centre, are trying to make bad tax law even worse. America's "worldwide" system of taxing corporate income is very anti-competitive, causing many companies to give up their U.S. charters and instead become foreign-based companies.

At least now there is a debate on the issue: on one side are lawmakers who want to meet the challenge of foreign competition, preferably by junking "worldwide" taxation and instead shifting to a "territorial" system that would only tax companies on their U.S. income. On the other side are politicians who want to preserve "worldwide" taxation and instead impose restrictions on the ability of companies to re-charter in other jurisdictions.

In March, the Centre proclaimed: "Fiscal protectionism is bad tax policy, and the Center for Freedom and Prosperity will oppose and work vigorously to defeat any legislation introduced to stifle tax competition. Tax competition is a liberalizing force in the world economy. It should be celebrated not persecuted. In fact, High-tax California should not be allowed to stop companies from moving to low-tax Nevada, and Washington politicians likewise should not be able to stop companies from
escaping bad U.S. tax law."

The CFP says that over the next several weeks it and other free-market groups who are active in the Coalition for Tax Competition will launch a major education campaign for lawmakers, the media and the American people.

The Center for Freedom and Prosperity, the nation's leader in the fight for international tax competition, announced today that it will vigorously resist all legislation to restrict the freedom of companies to locate in jurisdictions that have more attractive tax and regulatory environments. Andrew Quinlan, President of the Center, remarked, "Fiscal protectionism is bad policy, and the Center for Freedom and Prosperity will oppose and work vigorously to defeat any legislation seeking to stifle tax competition." Quinlan explained that, "High-tax California should not be allowed to stop companies from moving to low-tax Nevada, and Washington politicians likewise should not be able to stop companies from escaping bad U.S. tax law."

Proponents assert that legislation is needed because companies choosing to re-charter in other jurisdictions will evade or avoid U.S. tax, but Daniel Mitchell, Heritage Foundation Senior Fellow, dismissed this charge. "All corporations, regardless of where they are based, pay tax to the IRS on all profits they earn in the United States," he explained. Responding to the charge that these companies are being unpatriotic since expatriation means they no longer would be obliged to pay taxes to the IRS on income they earn outside America's borders, Mitchell said, "America should not be taxing income earned in other nations. If politicians want to preserve bad tax law, they are the ones who should be blamed when companies are forced to relocate."

Veronique de Rugy of the Cato Institute added, "The correct response is to fix the internal revenue code. These companies are relocating because worldwide taxation makes it very difficult for U.S.-chartered firms to compete. Territorial taxation is the answer." She also explained that, "Expatriation helps U.S. workers and U.S. shareholders. The newly formed foreign company still maintains its U.S. operations, but now is able to more effectively compete with businesses that operate overseas."

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