By Kevin Drawbaugh
WASHINGTON (Reuters) - A senior Republican tax writer is set to lay out more details of a plan for tax law changes, including letting multinational corporations pay little or no taxes on their overseas profits.
Representative Dave Camp, chairman of the House of Representatives Ways and Means Committee, has scheduled a Wednesday afternoon news conference to discuss "tax reform."
As reported last week by Reuters, Camp favors transforming the corporate tax code to a "territorial system," an idea widely supported by multinationals, but not as enthusiastically embraced by smaller and mid-sized companies with less to gain.
Another component that may be in the Camp plan is some form of a repatriation tax holiday, a tax break being aggressively promoted by an army of corporate lobbyists on Capitol Hill.
Under current law, U.S. corporations must pay tax -- most at the top rate of 35 percent -- on profits earned at home or abroad, minus credits for taxes paid to foreign governments. For overseas profits, the U.S. corporate income tax need not be paid, however, until earnings come into the United States.
While some companies regularly bring home, or repatriate, their foreign income, many do not. Instead, they park these profits overseas to avoid taxes. An estimated $1.2 trillion to $1.5 trillion is stashed abroad for this reason.
Corporations have been waging a multimillion-dollar lobbying campaign in recent months seeking two related tax breaks.
The repatriation tax "holiday" would let them bring home foreign earning at a discounted tax rate. Some proposals circulating in Congress would set that rate as low as 5.25 percent, giving the companies a huge, one-year tax break.
Major corporations supporting a repatriation tax holiday include Apple, Cisco, Google, Microsoft, Oracle and Pfizer.
The other break sought by the companies is a territorial system that would permanently exempt most or all of their overseas profits from taxation. Camp favors this.
CRITICS HIT TERRITORIAL SYSTEM
Critics say a territorial system would hurt the economy by driving more U.S. investment and jobs offshore, while also worsening the federal deficit. Advocates say it would give the economy a boost and align the U.S. corporate tax code more closely with those of other major industrialized nations.
The White House's bipartisan Bowles-Simpson deficit reduction panel last year endorsed territorial taxation.
Such a system has been adopted, in one form or another and with limitations, by Canada, France, Germany, the Netherlands, Australia, Switzerland, Japan and Britain.
Nations that still have a worldwide system of taxation resembling the present U.S. regime include South Korea, Chile, Greece, Ireland, Israel and Mexico.
China, Brazil and India, growing economies with thriving manufacturing sectors, also tax the foreign income of their companies in much the same way the United States does.
Critics of the territorial system say a better idea would be to repeal the portion of the tax code that allows corporations to defer paying income tax on foreign profits.
A special deficit-reduction panel in Congress, known as the "super committee," has been mulling a possible cut in the 35 percent U.S. corporate tax rate. Such a measure could be coupled with ending some special interest tax breaks.
But the super committee is not expected to have enough time -- because of a November 23 deadline for finding at least $1.2 trillion in deficit reductions over 10 years -- to do a complete overhaul of the country's tax code.
(Additional reporting by Richard Cowan; Editing by Steve Orlofsky)