RealTime IT News

Senate Approves Tech Corporate Tax Break

A key provision favored by U.S.-based multi-nationals in a corporate bill has survived a final vote by the U.S. Senate.

Part of a much broader, complex bill aimed at halting European Union (EU) trade sanctions, the provision enacted late Tuesday reduces foreign dividend taxes from 35 percent to 5.25 percent for one year.

Tech proponents say the tax break will "repatriate" more than $300 billion into the U.S. economy and create as many as a half million new jobs. Critics of the provision say it rewards companies for shipping jobs overseas.

The tech tax break has drawn the outspoken support of TechNet, the influential political lobbying group of CEOs and senior partners whose members include Intel , Cisco , Hewlett-Packard and Microsoft .

The bill now moves to the House of Representatives, which has its own version of the legislation that does not include the foreign dividends tax relief. Two weeks ago, the Senate sent a limited Internet access tax moratorium bill to the House, which favors a permanent moratorium.

Senate and House staff members close to both pieces of legislation told internetnews.com no compromise has been reached on either bill.

"We are very pleased this legislation has passed the Senate. The bill contains several provisions that are critical to the information technology sector and continued innovation and economic growth," Rhett Dawson, president and CEO of Information Technology Industry Council, said a statement.

The overall bill passed by the Senate Tuesday -- the Jumpstart Our Business Strength (JOBS) Act -- is aimed at addressing The sanctions that went into effect March 1, when the EU began collecting a five percent penalty tariff on a wide variety of U.S. goods. The penalty increases by one percent per month over the next year.

The sanctions followed a ruling last year by the World Trade Organization (WTO) that called an annual $5 billion tax break given to U.S. exporters an illegal export subsidy. The WTO set a March 1 deadline for Washington to change its tax code or be penalized. The Senate fix is the JOBS Act, which alters portions of the corporate tax code in order to satisfy the WTO and redistribute the tax breaks.

Democrats attempted to attach a number of amendments to the Senate bill to underscore their concern over offshore outsourcing. Last week, Bob Graham (D-Fla.) moved to substitute payroll tax cuts for the foreign dividends tax break and Diane Feinstein (D-Calif.) pushed for an amendment to "ensure the repatriated tax breaks would be used for job creation." Both efforts were defeated.

In March, Democrat Christopher Dodd of Connecticut used the same legislation to win an amendment prohibiting federal contractors from moving government-funded IT contracts overseas. If ever actually enacted, the amendment extends indefinitely a congressional moratorium requiring that government jobs shifted to private contractors have to stay in the United States.

However, significant exemptions allow federal contractors to continue offshoring with the 28 European Union and Pacific Rim nations that are members of the WTO's government procurement code. Neither India nor China is a member of the WTO code.

In addition, waivers are included for contracts involving national defense and homeland security, since some military systems incorporate parts made overseas. In any event, Republicans insisted on and won language requiring the Commerce Department to prove the amendment won't harm the economy or lead to more job losses before it can be enacted.