Updated at 4:30 p.m. on Nov. 24 to reflect continuing legislation.
Definition
One proposed change to international tax policy would delay until 2020 a tax benefit passed by Congress in 2004 that had already been delayed once before. The benefit would have allowed multinational firms to take advantage of a more lenient foreign tax credit limitation rule for worldwide allocation of the cost of borrowing money between U.S. and foreign sources.
Another change in international tax policy would make foreign multinational corporations that are incorporated in tax haven countries pay taxes in the U.S. on income earned in the U.S.
Executive Summary
Changes to international taxes don't have much to do with health care, except that they could raise cash to pay for it. But some taxes attract less resistance than others.
The delay of the worldwide allocation of interest tax benefit is unlikely to ruffle many feathers because the benefits have yet to be felt, some tax experts say. Plus the complications involved with coordinating international tax rules would make the worldwide allocation of interest difficult to implement anyway.
"In my opinion, that's never going to go into place," David Rosenbloom, an international tax lawyer with Caplin & Drysdale, said of the tax benefit. "Whenever you do anything with things taking place outside of the U.S., the administrative burden of compliance becomes very difficult."
Making multinational companies pay U.S. taxes, on the other hand, would not be so well received. Rosenbloom predicted that corporations "will go nuts" over the provision because it would eliminate the common practice of "treaty shopping," in which companies avoid paying withholding taxes by routing income through countries that have tax treaties with the U.S.
Plans
Neither the House nor the Senate bill increase international taxes to pay for health care reform.
Max Savings
The House committees have not estimated how much revenue would be saved or raised through their proposed international tax changes. A bill similar to the provision that limits tax treaty benefits was passed by the House, though not the Senate, last year, and would have raised about $7 billion over 10 years.
In May, President Obama suggested that international tax changes similar to those included in the House bill would save taxpayers $210 billion over the next 10 years.
Links
• Obama Proposal To Reform International Tax Policy
• "Democratic Health Bill Details Tax Changes" -- CongressDaily, July 14 (subscription)
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