(Updates with Chamber comments starting in third paragraph.
Nov. 17 (Bloomberg) -- The U.S. Chamber of Commerce raised concerns about an international tax draft proposed by House Ways and Means Committee Chairman Dave Camp, listing several ways in which the plan could hurt U.S.-based companies.
Camp’s proposal, released Oct. 26, recommends moving to a territorial system that would exempt from taxation the overseas profits of U.S.-based companies. In concept, it is the kind of system that the Chamber and other business groups have sought.
“It is imperative to shift to a territorial tax system but that system must not be overly onerous to companies seeking to grow, compete and innovate,” the Chamber, the nation’s largest business group, wrote in comments submitted in conjunction with a Ways and Means hearing today.
The Chamber was responding to Camp’s call for opinions from businesses and tax practitioners. Its comments demonstrate some of the challenges that the Michigan Republican will face as he tries to respond to multinational corporations’ call for a more favorable tax system without reducing revenue.
Under current law, U.S.-based companies are taxed at a top rate of 35 percent on income earned around the world. They are eligible for foreign tax credits for payments to other countries and defer U.S. taxation until they bring the money home.
Territorial Tax System
Most other major countries, including Japan and the U.K., employ a territorial system in which overseas earnings are exempt from domestic taxation. U.S. companies say they have difficulty competing against companies based elsewhere.
Camp’s proposal would exempt 95 percent of foreign profits from active business operations. It would require U.S.-based companies to pay 5.25 percent tax on their accumulated foreign earnings, which now total more than $1 trillion.
In his proposal, Camp included three options aimed at limiting erosion of the U.S. tax base. Companies could, for example, move operations or profits to low-tax foreign jurisdictions, a shift that would be easier for companies in the pharmaceutical and technology industries, which generate profits from intellectual property.
The Chamber’s comments challenge these fundamental pieces of Camp’s draft proposal. The group wrote that Congress should consider exempting from taxation 100 percent of foreign profits, not 95 percent. The tax on offshore earnings perhaps shouldn’t apply to hard assets such as factories and equipment, the group wrote.
The Chamber also criticized the measures designed to protect the domestic tax base.
“The Chamber questions the need for any of these alternatives, since other countries that have switched” to territorial systems don’t appear to have seen erosion in their tax base, according to the statement.
The Chamber questioned several pieces of the proposal that it said would hurt U.S.-based companies that aren’t organized as corporations.
--Editors: Jodi Schneider, Leslie Hoffecker
To contact the reporter on this story: Richard Rubin in Washington at email@example.com
To contact the editor responsible for this story: Mark Silva at firstname.lastname@example.org
© Copyright 2014 Bloomberg News. All rights reserved.