A controversial tax treaty negotiated last year between the United States and the United Kingdom finally is scheduled to come up for a vote in committee today, with prospects that it will win initial approval but face a fight on the Senate floor.
After months of delay, the Senate Foreign Relations Committee is expected to approve the measure this morning, although possibly by a close vote. But all sides acknowledge the treaty is likely to provoke a floor battle. Some 19 senators already have expressed reservations.
The major opposition stems from a provision in the treaty that would prohibit individual states from basing taxes on British-owned companies which have branches in their jurisdiction on those companies' Total worldwide income.
Instead, a state would be required to compute a firm's taxes solely on the basis of the income it earns from business they do in that state. In taxing U.S. multinationals, states use widely differing methods, but that, too, is a subject of dispute.
Although the restriction would result in revenue losses only for California, Alaska and Oregon, tax commissioners from several states have begun lobbying against the measure - in large part to protest the "principle" of federal control over state taxation.
Liberals also are displeased with a second provision in the tax treaty that would allow U.S. oil companies doing business in Great Britain to treat as a U.S. foreign tax credit payments under the British petroleum revenue tax.
The liberals claim the British tax should be treated as a standard business deduction when the U.S. companies compute their federal income taxes, and not as a foreign tax credit, which allows them a substantially larger writeoff. The difference could net them $300 billion a year.
Tax experts are divided on the issues; many disagree with the liberals' contention that the treaty is a giveaway. On the provision involving state taxes, the administration was preparing last fall to seek the same restrictions on taxation of U.S. firms as well.
Moreover, conservatives point out that the treaty provides key concessions for U.S.-owned corporations, which already are heavily taxed in Great Britain. Among these is equal treatment along with British-owned firms in reducing the "double" taxation of profits and dividends.
The U.S.-U.K. treaty actually was negotiated last year, but has been held up in the Foreign Relations Committee, ostensibly because of a possible conflict with Senate ratification of the Panama Canal treaty. State tax commissioners have been lobbying heavily against the tax treaty.
Treasury officials hope the treaty would serve as a precedent for present U.S. negotiations with Canada, West Germany, France and Denmark, all areas where U.S. businesses have substantial investments. There is no accurate estimate of the treaty's impact on tax revenues.