Dual Capacity Taxpayers

Background

As a fundamental principle, the U.S. tax system allows a taxpayer to take a tax credit for foreign taxes paid on income earned in other countries. The credit is applied against U.S. tax owed on that same income. Not allowing the offsetting credit for foreign income taxes paid subjects the income to double taxation. Denial of foreign tax credits discriminates against U.S. oil and natural gas producers and undermines their ability to compete with foreign oil companies.

Raising foreign income taxes will put U.S.-based companies at a disadvantage.

Congress should not alter the current rules governing the treatment of foreign income taxes. Here's why.

The change is not needed as there is no problem. At one time, policy makers were concerned if tax payments to a foreign government were a business expense of income tax. But 30 years in the development of foreign tax laws have produced an effective and consistent set of rules.

Eliminating foreign tax credits would subject companies to double taxation. They would be required to pay U.S. taxes on income that had already been taxed by another country.

U.S. oil and natural gas companies must consider a higher tax burden when contemplating foreign projects. The additional cost would put U.S.-based companies at a competitive disadvantage. And when U.S. companies are outbid for a foreign project, it means fewer opportunities for American businesses and workers.

Many foreign oil companies, which are owned by their governments, seek the rights to petroleum reserves to be used for their own country. When U.S. companies cannot submit a winning bid because their tax costs are too high, that means less oil flowing to the United States, and that can lead to tighter supplies and increased price volatility.