Submission to Hearing on Ways and Means International Tax Reform Discussion Draft

32 Pages Posted: 4 Feb 2012 Last revised: 20 Feb 2012

See all articles by Jeffery M. Kadet

Jeffery M. Kadet

University of Washington - School of Law

Date Written: November 17, 2011

Abstract

The House Ways & Means Committee Discussion Draft proposes a territorial system for the United States. This document is the author's comments as submitted to the Committee in conjunction with a hearing held on 17 November 2011.

The draft importantly includes a dividend-received deduction of 95% instead of 100% as a mechanism to disallow expenses that are attributable to exempt foreign earnings. This mechanism causes the receipt of a dividend to be a "taxable event". The Draft also proposes elimination of the section 956 "investment in U.S. property rules." This elimination along with a dividend being a taxable event will continue the current encouragement of U.S. MNCs to stockpile earnings overseas in tax havens and will encourage intercompany loans of such funds that will further reduce the US tax base from the interest charged. Changes are suggested that will eliminate these detrimental effects.

Comments and suggested changes are also proposed for a number of other matters within the Discussion Draft.

The submission includes discussion under the following headings:

1. New §965 – Adjustment Needed to Avoid Rewarding Tax Structured Vehicles

2. New §245A and §956 – Dividend-Received Deduction Structure and Erosion of US Domestic Tax Base – A Flawed Mechanism Requiring Change

3. New §245A – Effect of Subpart F §954(b)(3)(A) De Minimis Rule – Need to Amend to Reflect Territorial System or Eliminate Completely

4. New §245A(b)(2)(A) – Treatment of Foreign Branches

5. New §245A(b)(2)(B) – Foreign Branch Defined

6. New §245A and §246(c)(5) – Effect of Becoming a CFC

7. New §1247 – Issues Concerning Sales and Exchanges

8. New §245A – Noncontrolled 10/50 Corporations – Foreign Tax Credit

9. New §904(b)(3) – Indirectly Allocable Expenses – Erosion of Domestic Tax Base

10. Deletion of §904(d) – Separate “Baskets”

11. §909 – Repeal

12. §§959 and 961 – Elimination

13. §1248 – Continued Application

14. §960 – Effect of Elimination of §902

15. Option A – New category of subpart F income for intangibles

16. Option B – New Low-Taxed Cross-Border Foreign Income

17. Option C – New Foreign Intangible Income

18. Which of the Three Options Should Be Used?

Keywords: Territorial, International Taxation, Discussion Draft, International Tax Policy

Suggested Citation

Kadet, Jeffery M., Submission to Hearing on Ways and Means International Tax Reform Discussion Draft (November 17, 2011). Available at SSRN: https://ssrn.com/abstract=1997482 or http://dx.doi.org/10.2139/ssrn.1997482

Jeffery M. Kadet (Contact Author)

University of Washington - School of Law ( email )

William H. Gates Hall
Box 353020
Seattle, WA 98105-3020
United States

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