US International Tax Law Needs Simplification Says Olson

by Leroy Baker, Tax-News.com, New York

17 July 2003

Assistant Treasury Secretary Pamela Olson this week urged legislators to simplify US international taxation law as part of the legislative program that will replace the foreign export subsidy system ruled illegal by the WTO.

Speaking to the Senate Finance Committee, Olson told lawmakers that the present framework of international taxes "impedes the ability of U.S. Companies to expand and compete abroad," and asked Congressmen to consider rules that would help simplify the system for multinationals, such as rules governing income earned through overseas subsidiaries.

The EU has the blessing of the WTO to impose $4 billion worth of retaliatory tariffs if the US does not take action to end 'extraterritorial income exclusion' - a partial tax exemption on certain foreign sales and leasing transactions. As yet, Congress has not come up with a definitive bill that will replace this system, though two bills are emerging as the most likely contenders. One proposal from Rep. Phil Crane (R - Il), Rep. Charles Rangel (D - NY) and Don Manzullo (R - Il) will reduce taxation on manufacturers from 35% to 31.5% to compensate for the loss of the subsidy.

However, observers have suggested that the bill will face a tough test in the House Ways and Means Committee, chaired by California Republican Bill Thomas. Mr Thomas is planning to introduce his own bill, due to be unveiled next week.

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