Policy Options for U.S. Export Taxation (CRS Report for Congress)
| Release Date |
Sept. 21, 2006 |
| Report Number |
RS21143 |
| Report Type |
Report |
| Authors |
David L. Brumbaugh, Government and Finance Division |
| Source Agency |
Congressional Research Service |
Summary:
Prior to 2004 the Extraterritorial Income (ETI) provisions of the U.S. tax codeprovided a tax benefit for exporters. ETI, like the Foreign Sales Corporation (FSC)provisions they replaced, was designed to boost U.S. exports. The European Union(EU), however, filed complaints with the World Trade Organization (WTO), chargingthat ETI and FSC were export subsidies and so violated the WTO agreements. In asuccession of rulings, the WTO upheld the EU's charges, and authorized the EU to levyretaliatory tariffs on U.S. goods. The EU began a phased-in application of tariffs inMarch 2004. Several policy options for the United States were proposed in Congress,including retaining ETI and accepting whatever tariffs would be imposed; overhaulingthe U.S. method of taxing foreign-source income by adopting a "territorial" tax system;reforming the U.S. tax system in general by adopting a consumption tax similar to thevalue-added taxes levied by European countries; attempting negotiations with the EU;and repealing the ETI provisions while replacing them with tax cuts elsewhere. The lastof these approaches was ultimately taken by Congress in October 2004 with theenactment of the American Jobs Creation Act (AJCA; P.L. 108-357). Although the EUlifted its tariffs in January 2005, it also lodged a WTO complaint against transitionprovisions in AJCA, which had the effect of rescinding the ETI only gradually in certaincases. In May 2006, a provision of the Tax Increase Prevention and Reconciliation Act(P.L. 109-222) repealed the transition rules, apparently bringing an end to the longsimmeringcontroversy.
