US Firms Urge Reinstatement Of Repealed Tax Breaks

by Mike Godfrey, Tax-News.com, Washington

29 May 2006

A coalition of US service companies is lobbying Congress to reinstate a tax break, which was repealed under recent tax legislation in order to comply with World Trade Organisation rules and avoid continuing the trade war with the European Union.

The Tax Increase Prevention and Reconciliation Act, signed by President Bush earlier in the month, removed the last vestiges of the now defunct Foreign Sales Corporation and Extraterritorial Income Exclusion Act, by eliminating grandfather clauses that would have continued to benefit US exporters with sales or leasing contracts in effect in 2003 with the banned tax breaks.

These grandfather clauses were removed after the European Union threatened to apply new tariffs on US goods. However, according to a group of US financial services companies under the banner of the Coalition of Services Industries, which includes Bank of America, State Street, New York Life, Verizon and the US Chamber of Commerce, the US Congress went too far by eliminating the tax break for leasing contracts as well as for sales contracts.

The coalition is arguing that the European Union was prepared to waive its threat of sanctions on the US as long as lawmakers ensured that the legislation repealed the grandfather clauses on sales contracts.

"The US companies built these benefits into the leases they signed and passed on the benefit to their customers through lower rates," stated Bob Vastine, president of the Coalition for Service Industries, according to the Financial Times.

"The deals companies signed are still in existence but under the new law the tax break has disappeared. They could lose a lot of money," he warned.

Defending the legislation, Bill Thomas, House Ways and Means Committee Chairman, told Dow Jones Newswires that a total repeal of the FSC-ETI legislation will give the EU no grounds for future retaliation.

"That is the last vestige that they hold on to, and once that is removed, there is absolutely nothing else left" that they can challenge, he stated.

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