July 29: When Reuven Avi-Yonah and Kimberly Clausing unveiled their formulary apportionment corporate tax proposal (available at http://www1.hamiltonproject.org/views/papers/200706clausing_aviyonah.htm) at the Hamilton Project meeting in June, I thought their goal of removing the incentive to shift income to low-tax countries was laudable but unlikely to ever see legislative daylight. The passage of the amended Farm Bill this week by the U.S. House of Representatives changed all that.

Of course, the Farm Bill (H.R. 2419) (available at http://www.martintittle.com/publications/HR2419.pdf) does not embrace formulary apportionment. It does, however, include a revenue raiser (originally submitted as a separate bill, H.R. 3160, (available at http://www.martintittle.com/publications/HR3160.pdf) by Rep. Lloyd Doggett, D-Texas) that undermines the international income shifting of non-U.S. parent companies in a fairly aggressive way. If the U.S. subsidiary of a foreign company makes payments to a foreign subsidiary of the foreign company, and if those payments are subject to IRC Chapter 3 withholding, then the withholding rate will be either the rate in effect for payments to the country of the subsidiary or the home country of the parent, whichever is higher. This amounts to a kind of mandatory “check the box” provision, in which the separate corporate existence of the foreign subsidiary disappears for withholding tax purposes whenever the rate of withholding for the parent’s home country would yield higher withholding tax revenue.

The day after the Doggett amendment was announced, the U.S. administration (through the Office of Management and Budget) came out against it, (see http://www.martintittle.com/publications/hr2419sap-r.pdf) saying

1) that it would “discourage foreign investment in the United States, override tax treaties the U.S. has with many nations, and raise questions under other international agreements” and

2) that if it (and other objectionable provisions) were included in the final legislation, “the President’s senior advisors would recommend that he veto the bill.”

Business spokespeople also chimed in, noting that the amendment would be particularly hard on parent companies in countries like Brazil and the Republic of China/Taiwan that have no tax treaty with the U.S.

The Senate is scheduled to begin deliberations on the Farm Bill after Labor Day.

Aug. 1: Chuck Grassley, R-Iowa and ranking member of the U.S. Senate Finance Committee (SFC), came out against the Doggett amendment today in an interview with BNA.

Aug. 2: Yesterday, SFC Chair Max Baucus, D-Montana, confirmed that the Doggett amendment will not be in the Senate version of the Farm Bill. Whether House members will be able to slip some version of it back in during conference negotiations remains to be seen.

Aug. 7 and 15: Sen. Grassley came out against the Doggett amendment again on these two days in telephone press conferences.