A Utility Group Commences an Effort

A Utility Group Commences an Effort

November 11, 1998 | By Keith Martin in Washington, DC

All US companies doing business overseas run quickly into a double taxation problem. The US claims the right to tax US companies on worldwide income. In theory, it lets anyone who has already paid taxes abroad on the same income claim a credit for these taxes in the US. However, the foreign tax credit rules are so full of fine print that few US power companies are able to claim such credits in practice. The main problem is that interest paid on borrowing in the US is treated partly as a cost of foreign operations, even if the borrowed money was put to use solely in the US. This reduces earnings from overseas and reduces capacity to claim foreign tax credits, since the US only allows credits for up to 35% of foreign earnings. Senator Mack (R.-Fla.) introduced a bill on October 14 that would fix the problem only for companies that are consolidated for federal income tax purposes with a regulated electric or gas utility. Mack is a member of the Senate tax-writing committee. The bill will feature in the international tax reform debate next year.