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1 Tracey Anne Kaye, The R & E Expense Allocation Rules 1 (1995)

handle is hein.taxfoundation/taxfaasc0001 and id is 1 raw text is: FATO FOUNDATION May 1995 The R & E Expense Allocation Rules House Ways & Means Committee Testimony The following testimony was presented on May 10, 1995, by Professor Kaye before the Subcommittee on Oversight of the House Ways & Means Committee. Introduction Thank you, Chairman Johnson, Congressman Matsui, and Members of the Subcommittee on Oversight, for the opportunity to testify before you today. I am Tracy Kaye, an Associate Professor of Law at Seton Hall University School of Law. I appear before you today to comment on Treasury Regulation Section 1.861-8(e)(3), The reality of the global marketplace is that our tax system must interact with other countries' tax systems. Therefore, Congress should consider other nations' tax systems in designing our own. the research and experimentation expense allocation rules, often referred to as the 861 R&D allocation rules. I am here to urge Congress to take into consideration international economic policy and the effects of any proposals on the competitiveness of U.S. corporations. U.S. international tax policy needs to minimize tax deterrents to productive international economic activities and avoid creating a hostile tax environment. Applying the United States income tax system to international transactions is inherently complex because cross-border transactions do not have a single geographic source. Thus, in order to avoid either double taxation or undertaxation of these transactions, a coherent set of rules for determining the geographical source of taxable income must be developed. To achieve a coherent system of international taxation, the United States should take note of how other countries tax international income.' The reality of the global marketplace is that our tax system must interact with other countries' tax systems. Therefore, Congress should consider other nations' tax systems in designing our own. Historical Background The United States taxes the worldwide income of its corporations and uses a foreign tax credit system to eliminate international double taxation. The foreign tax credit is limited to the United States tax liability on foreign source taxable income to ensure that the foreign tax credit does not reduce the U.S. corporation's taxes on its domestic income. To compute this limitation, sourcing of income and allocation of expense rules are necessary to determine By Tracy Anne Kaye Associate Professor of Law Seton Hall University Scbool of Law I - EF

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