US Senate Finally Approves Key International Tax Bill

by Mike Godfrey, Tax-News.com, Washington

13 May 2004

A key international tax bill designed to abide by a WTO ruling and end European Union-imposed tariffs on US exports was finally approved by Senators this week, although US firms may have some time to wait yet before the bill finally becomes law.

The main purpose of the ‘JOBS’ bill (Jumpstart Our Business Strength) is to repeal the Extra Territorial Income Exclusion Act, after the WTO agreed with the EU that the law gave US firms unfair subsidies.

It aims to replace the existing tax breaks with an effective 3% corporate tax cut for domestic manufacturers and by doing so, the hope is that the new legislation will convince the EU to remove tariffs on US goods that began in March at a rate of 5%, and are rising at a rate of 1% per month.

The bill’s passage through the Senate has been fraught with delays, after lawmakers loaded the legislation with a series of unrelated amendments ranging from special tax breaks for archery firms to breaks for the auto-racing industry. Nevertheless, the Senate managed to agree on a final version in a 92-5 vote on Tuesday.

The bill also contains some important offsetting measures, including a tightening up of rules surrounding large tax deductions claimed by firms through the lease-back of public infrastructure. Even so, the package contains an estimated $170 billion in tax relief, more than double the amount that lawmakers had hoped to provide.

Ironically, it is unlikely that many of the special interest amendments that have been stalling the legislation for so long will survive as far as the statute book as the bill is passed to the House for negotiations, and it may be some months yet before a final version is approved.

The House is also still considering its own bill to replace the ETI Act, championed by Ways and Means Committee Chairman Bill Thomas (R – Calif).

The House proposals also offer tax cuts, but concentrate more on reform of the international tax code, although they have been criticised for favouring multinational firms at the expense of domestic manufacturers.

Recommended