By Bernie Becker - 05/12/11 10:50 AM ET
A quartet of top corporate financial officers on Thursday called for the U.S. to move toward a system where profits made outside the United States would not be taxed.
In testimony before Congress, the chief financial officers of United Technologies Corporation, Caterpillar, Zimmer Holdings and Kimberly-Clark all called for the U.S. to move to a so-called territorial system, saying it would bring the country in line with its major trading partners and increase competitiveness.
“The current U.S. worldwide tax system imposes a significant tax on foreign earnings that are brought back to the U.S. for reinvestment here at home, discouraging job-creating domestic investment,” Mark Buthman of Kimberly-Clark said in his prepared remarks before the House Ways and Means Committee. “By eliminating this extra layer of tax, the disincentive for American companies to reinvest their foreign earnings in the U.S. would be significantly reduced.”
The comments from the corporate world came at a hearing on tax reform, an area where Treasury officials and lawmakers are currently working.
As it stands, in the U.S.'s tax system, generally speaking, all of a corporation’s profits are taxable, regardless of where they are made.
U.S. multinationals can currently defer paying those taxes until they bring them into America. At 35 percent, the U.S. top corporate tax rate is high compared to other major economic powers, so corporations pay the difference of what they already paid to foreign governments when they repatriate funds to the U.S.
On some level, the CFO testimony is not a surprise – prominent business groups including the Business Roundtable and the U.S. Chamber of Commerce have also pushed for a territorial system. Rep. Dave Camp (R-Mich.), the Ways and Means chairman, also expressed concern about the current system of taxing worldwide profits, saying many believe it “is a further barrier to the growth of American companies.”
For his part, Rep. Sandy Levin (D-Mich.), the Ways and Means ranking member, said there were revenue implications of moving to a territorial system that would need to be examined. Liberal groups such as Citizens for Tax Justice have said that a territorial system encourages corporations to move jobs outside of the U.S.
Rep. Kevin Brady (R-Texas), also a Ways and Means member, has recently introduced legislation that would allow multinationals to temporarily bring offshore profits to the U.S. at a reduced rate. Some have called for that to occur in the interim, while policymakers work toward overhauling the tax code.
The Hill: Corporate CFOs call for territorial tax system