Roth Outlines Criteria for International Taxation Reform
Announces March 11 Hearing on International Taxation
WASHINGTON -- In a speech before the International Fiscal Association today, Senate Finance Committee Chairman William V. Roth, Jr. (R-DE) outlined five specific criteria for reforming the international taxation system:
• Eliminate unnecessary complexity in the international provisions of the tax code.
• Maintain and develop export opportunities that exist in our tax policies and make sure that they are consistent with our international obligations.
• Assure that whatever revisions we undertake strengthen the integrity of our tax system.
• Ensure that our policies recognize and respond to the tax-related challenges of new technologies that facilitate not only financial transactions but traditional transactions.
• Keep our eye on the long-term.
Roth also announced that the Finance Committee will hold a series of hearings on international taxation, beginning March 11. The hearings will explore the ramifications of the changing world economy and the reforms that are needed in the international tax area. The Chairman's speech follows:
"Thank you. It's a pleasure to join you this morning -- to have this opportunity to discuss an area of tax law that is as important as it is timely. There is no question that we are living in a global community, that the barriers separating us and our customers, clients, and competitors abroad are becoming less inhibiting while the opportunities and challenges are increasing.
"This changing environment offers both tremendous challenges as well as promise, and it gives us good reason, as a nation, to focus on and seek to help address the Asian economic crisis. It compels us to pay attention to the financial upheaval in Brazil. It urges us to care about the policies being adopted by the European Community. And it creates awe and a hope for even greater opportunity as we look to the potential of China.
"It is an exciting time in which we live -- a time we have dreamed of... a time we have worked for... a time that if marked by the right kinds of policies here at home can go on to benefit generations yet to come, creating opportunities and jobs for workers and their families.
"But just like any revolutionary period -- and believe me this is a period of incredible revolution -- we must be prepared to go beyond old icons and policies. We must be daring enough to break from our set ways -- ways that were developed for an industrial age, an age when it took weeks to travel from one country to the next, when it took hours to wait for an international telephone line, and when money and documents were transferred by courier and not through cyberspace.
"In the slow-going industrial age, American firms manufactured largely in America, Japanese firms in Japan, and European firms in Europe. Buyers and sellers in two different countries bargained at arms length over the international sale of finished goods. Each stage of commercial activity -- capital formation, production, and marketing -- was simple to follow... and simple to tax.
"Not so today. Capital investment, financial services, sales transactions, as well as communication, travel as quickly as it takes to click a computer key. American businesses no longer consist solely of American firms, manufacturing on American soil, and participating in the international market only through export sales. Today our firms buy components from overseas subsidiaries. They manufacture capital equipment and consumer goods from a multitude of areas around the globe, and then depend on an overseas subsidiary to market their products, close transactions, and provide follow-up support.
"Blessed with natural resources, enterprising spirit, honed business know-how, and changing trade policies to meet their needs, American businesses are leading the world in investment, financing, service, and exports. We have more to gain in this revolutionary environment than anyone. As a consequence, each day our businesses look to new methods of operation that allow them to organize and operate in the most efficient and competitive basis possible in the global environment. Many of our trade laws have changed to allow this process to take place. But unfortunately, our tax policies have not kept pace.
"One reason for the lack of constructive change was due to the natural reluctance to re-engineer the complexities of international tax laws during a time of immense change. Indeed, more has taken place in the last ten years to alter the nature and potential of international commerce than has taken place in the last two thousand years!
"This past year I announced a thorough review of our trade policy to meet the international challenges we face. Already this year the Finance Committee has held hearings on the impact of globalization on our trade policy. Those hearings underscored the need to fundamentally rethink our engagement in the world economy.
"Similarly, we need to fundamentally rethink the tax code with a view to enhancing American competitiveness. To ensure that we enact policies that will lead the United States into a bright and prosperous twenty-first century, I intend to hold hearings over the coming year to explore the ramifications of the changing world economy and the reforms that are needed in the international tax area. The first of these hearings begins on March 11.
"The cornerstones of these hearings will be ensuring growth in our domestic economy and competitiveness overseas. In short, our objective will be to make world commerce more accessible for our businesses -- our manufacturing, agriculture, marketing, financial and service industries. Our hearings will give us the opportunity to listen to the experts -- businessmen and -women as well as academics, industry representatives and other interested parties.
"As our hearings get underway and Congress looks to new legislation in this important area, it will be my objective, as Chairman of the Senate Finance Committee, to see that our work is defined by five specific criteria.
"First, we must eliminate unnecessary complexity in the international provisions of the tax code. These include getting rid of duplicative filing requirements, simplifying the foreign tax credit rules, and facilitating and promoting advance pricing agreements.
"Second, we must maintain and develop export opportunities that exist in our tax policies and make sure that they are consistent with our international obligations. Our primary objective here must be to preserve the export source rule and the foreign sales corporation rules. These ensure that our firms are not placed at a competitive disadvantage by our own tax rules.
"Third, we must assure that whatever revisions we undertake strengthen the integrity of our tax system. Our policies must ensure against those who might try to abuse the system. They must be policies that are fair and that will not interfere with legitimate long-term business planning, policies that will be to our benefit as they help legitimate businesses thrive overseas, without the taint or appearance of being engaged in tax schemes.
"Fourth, our policies must recognize and respond to the tax-related challenges of new technologies that facilitate not only financial transactions but traditional transactions. The Treasury Department is currently engaged in international discussions through OECD and BIAC to develop rules to address the issues that arise from global electronic commerce. I intend to see that the Finance Committee keeps abreast of these developments and the advent of new technologies.
"Finally, we must keep our eye on the long-term. When it comes to future changes in the global marketplace, we can only say that the past is prologue. The rapid -- almost miraculous -- changes of the last ten years only hint at things to come. We must keep American companies on the vanguard of the global economy. We must dare to ask tough questions -- redefining questions. For example, is the objective of the United States' worldwide tax system consistent with a fully competitive U.S. economy? Should we strive for business integration where income is taxed only once, as is generally practiced overseas? A complete and effective overhaul of our international tax policy will require us to look at treaty obligations and other agreements with our international partners in the global economy. How do we ensure that these agreements keep pace?
"As you can see, it is time to think outside of the international policy box. And that is what I intend to do with our coming hearings. It is my hope that those hearings will provide the traction that is needed to ensure that whatever policy reforms are called for will help American companies and American workers. The international tax community is well aware of the widening divide between competing approaches to tax policy. In order to ensure that American companies can effectively compete in the new global economy, it is essential to have our country's pro-growth trade policies meld with our international tax rules. More competitive companies will, in turn, yield higher paying jobs for the American workforce. I look forward to working with you to achieve these goals."
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