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Foreign Procurement Fee Funds 9/11 Health Act

by Mike Godfrey, Tax-News.com, Washington

27 December 2010


Changes made in both the total cost and the funding of the health bill for 9/11 first responders have led to its acceptance by both the United States House of Representatives and Senate on the last day of the current 'lame duck' session of Congress.

The James Zadroga 9/11 Health and Compensation Act will provide health care for 9/11 first responders who rushed to Ground Zero in the days after the World Trade Center attack. In a bipartisan move between Republican and Democrats, it was passed in the Senate, and then returned to the House for re-confirmation, after its cost over 10 years was further reduced from USD6.2bn to USD4.2bn.

The original USD7.4bn cost of the bill was to have been financed by a limitation on the possibility for US companies with overseas parents based in tax haven countries to reduce or eliminate the 30% withholding tax on certain payments (principally dividends, interest, and royalties) made to those parents, by routing them through a country with which the US has a tax treaty. Companies with parents based in tax haven countries are able to do so by routing payments through an affiliate in a tax treaty country, which then transfers the funds to the parent company.

It had been proposed, therefore, that the bill would contain a provision to limit this practice by retaining the withholding tax on certain deductible payments to a foreign-based affiliate, unless the tax would be reduced under a treaty if the payment were made directly to the company’s parent corporation.

After a rejection by the Senate of that proposal, the total 10-year cost of the bill will now be funded by a 2% excise fee on certain foreign companies that receive US government contracts.

It was pointed out that, every year, the US spends between USD35bn to USD40bn per year on the procurement of goods and services from foreign manufacturers and companies located abroad in countries that are not members of the Agreement on Government Procurement (GPA), instead of from American companies. The proposed 2% excise fee would therefore be imposed on foreign manufacturing companies located in non-GPA countries receiving government disbursements made pursuant to future procurement agreements. The proposal would also operate to prohibit companies from raising their prices to offset the new fee.

TAGS: tax | royalties | fees | agreements | health care | withholding tax | United States | dividends

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