Defending American Jobs and Investment Act
Defending American Jobs and Investment Act would create a new enforcement framework to address “extraterritorial” and “discriminatory” taxes imposed by foreign countries. The core idea is to identify foreign countries that levy taxes deemed extraterritorial or discriminatory against U.S. persons, monitor and report these taxes regularly, and then use a mix of diplomatic, treaty, trade, and tax measures to pressure countries to repeal or adjust such taxes. If a country is listed as having extraterritorial or discriminatory taxes, the secretary would engage with that country and, as a remedial step, could raise U.S. tax rates (and withholding) on certain “applicable persons” from that country, restrict federal procurement of goods/services from those persons, and influence whether the U.S. enters into or updates tax or trade agreements with that country. The law defines how to determine when a country has such taxes, how to categorize “applicable persons,” and a schedule for rate increases that widen over time. In short, the bill equips the U.S. to respond to foreign tax policies it views as unfair or retaliatory by registering a formal list, engaging diplomatically, and applying escalating U.S. tax and policy countermeasures against citizens and entities from those countries.
Key Points
- 1Establishment of a new enforcement section (Section 899) to identify and report foreign extraterritorial and discriminatory taxes, with a rolling schedule of reporting every 180 days after an initial 90-day window.
- 2Remedial actions framework:
- 3- Increased tax rates on “applicable persons” (foreign individuals, foreign corporations, and certain foreign partnerships) from listed countries, with specific references to how the increases apply to various U.S. income and withholding tax provisions.
- 4- A phased increase plan: 5 percentage points in the first year after the applicable date, then 10, 15, and 20 points in successive periods.
- 5- Adjustments related to FIRPTA (U.S. real property tax implications) to avoid double counting in certain cases.
- 6- Withholding tax increases for payments to applicable persons, and higher rates for dispositions of U.S. real property interests, all “notwithstanding treaty obligations” (i.e., they would override existing tax treaties in those cases).
- 7- A definition of “applicable person” (foreign individuals from listed countries, foreign corporations organized there or subject to its tax laws, and certain foreign partnerships).
- 8- An “applicable date” tied to the first reporting period after a country is listed, and a mechanism to cease applying the increases if the foreign country repeals the extraterritorial/discriminatory taxes.
- 9Non-tax and policy remedies:
- 10- Federal procurement restrictions: the President could bar the U.S. government from buying goods/services from applicable persons for a period, with a 30-day congressional notification requirement.
- 11- Tax treaties: the secretary must consider these extraterritorial/discriminatory taxes when negotiating or updating bilateral tax treaties, with a 30-day congressional notice of negotiations.
- 12- Trade agreements: the U.S. Trade Representative and the Secretary of Commerce must consider such taxes when evaluating free trade or executive trade agreements, again with 30-day congressional notice of negotiations.
- 13Definitions and scope:
- 14- Extraterritorial tax: a tax tied to income or profits of a person due to ownership connections across chains, not simply due to direct ownership.
- 15- Discriminatory tax: a tax that is unusually targeted at nonresidents/foreign entities, is not a standard income tax, or bears characteristics seen as selective or punitive.
- 16- “Appropriate committees” are key congressional panels in both chambers (Senate Finance, Senate Foreign Relations; House Ways and Means, House Foreign Affairs).
- 17Regulatory authority: the Secretary can issue regulations or guidance to implement the act and prevent avoidance.