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Tax Professionals Voice Support for a Territorial Tax System

November 17, 2011

This morning, the Ways and Means Subcommittee on Select Revenue Measures held a hearing with tax professionals in an ongoing effort to gather comments and analysis of the Committee’s international tax reform discussion draft.  The draft is designed to transition the United States from a worldwide to a territorial system of taxation and eliminate the double taxation U.S.-based companies face when bringing profits earned overseas back home.  During the hearing, witnesses praised the discussion draft as a catalyst for much-needed reform to make America a more competitive, attractive place to invest and hire.

Paul Oosterhuis, Partner, Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates:
“With the Discussion Draft, the Committee has offered a bold proposal that refocuses and advances the international tax reform debate in important ways.”

John Harrington, Partner, SNR Denton:  “I believe that the Discussion Draft’s participation exemption system is a fundamentally sound starting point.  In particular, I commend its use of the participation exemption system used by many other countries as a base, rather than creating a new ‘territorial’ system out of whole cloth.”

David Noren, Partner, McDermott, Will & Emery:  “I would like to start by commending the Committee leadership and staff for producing such a detailed and thoughtful proposal in a difficult and important area of the tax law.  For several years now, various official reports and proposals have recommended the adoption of a territorial dividend exemption system, but the debate could proceed only so far without detailed legislative language.  The Discussion Draft provides this detailed language and thereby makes a major contribution to the territorial debate.”

Tim Tuerff, Partner, Deloitte Tax LLP:  “A participation exemption system is a more competitive alternative to the current U.S. regime that imposes a residual level of U.S. tax on the remittance of foreign earnings back to the United States… An exemption system facilitates the ability of U.S. companies to address the needs of foreign markets while retaining support operations in the United States.  Under this system funds may be earned outside the United States and remitted to the United States to pay for research and development and corporate headquarters expenses.”   

Martin Sullivan, Contributing Editor, Tax Analysts:  “On October 26 Chairman Camp unveiled a draft international tax reform bill that would put the United States on a path toward a territorial tax system.  The significant rules in the draft language that would prevent profit shifting and the emphasis in the accompanying explanation on preserving revenue-neutrality suggest a territorial plan with teeth.”

More examples of support for a 25 percent rate and transition to a territorial tax system can be found below.

International Tax Reform, an Important Component of Comprehensive Tax Reform

Economists, Academics Push for Reform of Corporate Income Tax System

Facts Confirm Corporate Rate Can be Cut to 25 Percent

Territorial Tax System: Increasing U.S. Competitiveness and Economic Growth

Move to 25 Percent Corporate Rate & Territorial System Gaining More Support