January 14, 2005
The United States Treasury Department issued rules on Thursday related to a provision in HR 4520. Rep. Adam Smith (D-WA-09) has been a leader in advocating for this proposal since he introduced HR 1162, “The Invest in America Act” which was introduced in March of 2003.
“I’m pleased that the Treasury Department has issued guidelines for the reinvestment provisions contained in last year’s broader tax legislation,” said Smith. “In introducing the Democratic version of this provision, my goal was to enact a fiscally responsible, short-term tax incentive designed to stimulate the economy, encourage job growth and promote investment in domestic needs. This has been a long fight but companies today have some guidance to make business decisions that will bring funds back to the United States and help grow our economy.”
Smith introduced HR 1162 in March 2003 and garnered the support of 29 House colleagues. This legislation was a key priority of the New Democrat Coalition (NDC) and was broadly supported by the NDC membership. Smith led the Democratic effort to ensure inclusion of this proposal in the larger tax legislation.
The law approved by Congress would let companies take advantage of the lower rate if they put forward a board-approved domestic reinvestment plan to reinvest their profits in ways that enhance employment in the United States. Specifically, it allows companies a one-time opportunity to bring a total of as much as $500 billion in foreign profits into the United States and pay a tax rate of 5.25 percent, instead of the standard corporate tax rate of 35 percent.
Under the guidelines announced by the Treasury Department today, firms can use the repatriated earnings for hiring and training workers, capital investments, research and development, certain acquisitions, and advertising and marketing. The repatriated funds cannot be used for executive compensation, intercompany transactions, increased dividends, stock redemptions, portfolio investments, purchase of debt instruments or tax payments.
“I’m pleased that the Treasury Department has adopted rules that will ensure companies using the repatriation tax provision will truly be investing in America’s economy,” Smith said. “I’ll continue to monitor the law as we move forward.”