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107th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     107-48

======================================================================



 
                   GUAM FOREIGN INVESTMENT EQUITY ACT

                                _______
                                

 April 24, 2001.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Hansen, from the Committee on Resources, submitted the following

                              R E P O R T

                        [To accompany H.R. 309]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Resources, to whom was referred the bill 
(H.R. 309) to provide for the determination of withholding tax 
rates under the Guam income tax, having considered the same, 
report favorably thereon without amendment and recommend that 
the bill do pass.

                          Purpose of the Bill

    The purpose of H.R. 309 is to provide for the determination 
of withholding tax rates under the Guam income tax.

                  Background and Need for Legislation

    Under the U.S. Internal Revenue Code, there is a standard 
30% State income tax rate for foreign investors in the United 
States. Since Guam's territorial tax law mirrors the rate 
established under the U.S. Code, the territorial income tax 
rate for foreign investors in Guam is 30%.
    It is a common feature of tax treaties negotiated by the 
U.S. to provide for lower tax rates on investment income for 
the other countries' investors. Unfortunately, Guam is not 
included in any of these treaty definitions as being part of 
the ``United States.'' Such omissions have adversely impacted 
Guam since 75% of Guam's commercial development is funded by 
foreign investors. As an example, under a treaty with Japan, 
the rate at which states may tax Japanese investors is 10%. 
That means while a Japanese investor's income would be taxed at 
a rate of 10% in any of the fifty states, that same investor's 
income would be taxed at a rate of 30% in Guam.
    In the 106th Congress, the House passed almost identical 
language to H.R. 309 in Section 3 of the Guam Omnibus 
Opportunities Act (H.R. 2462). However, while under 
consideration by the Senate, the Treasury Department raised 
concerns that the provision would allow foreign investors who 
benefit from Section 3 to simultaneously benefit from other tax 
rebates under Guam territorial law. H.R. 309 reflects language 
which addresses this concern.
    H.R. 309 amends the Organic Act of Guam to provide the 
government of Guam with the authority to tax foreign investors 
at the same rates as states under U.S. tax treaties with 
foreign nations since Guam cannot change the withholding tax 
rate on its own under current law. The Committee finds that the 
imposition of the withholding tax of 30% on foreign investors 
reflected in the U.S. ``mirror- image'' tax system of the 
government of Guam hampers the island's ability to expand its 
economy. The Committee notes that if U.S. treaties included 
U.S. insular areas in defining the United States in future 
negotiated treaties then Guam would be able to benefit from 
other economic opportunities afforded to the 50 states.

                            Committee Action

    H.R. 309 was introduced on January 30, 2001, by Congressman 
Robert A. Underwood (D-GU). The bill was referred to the 
Committee on Resources. On March 28, 2001, the Full Resources 
Committee met to consider the bill. No amendments were offered 
and the bill was ordered favorably reported to the House of 
Representatives by voice vote.

            Committee Oversight Findings and Recommendations

    Regarding clause 2(b)(1) of rule X and clause 3(c)(1) of 
rule XIII of the Rules of the House of Representatives, the 
Committee on Resources' oversight findings and recommendations 
are reflected in the body of this report.

                   Constitutional Authority Statement

    Article I, section 8 and Article IV, section 3 of the 
Constitution of the United States grant Congress the authority 
to enact this bill.

                    Compliance With House Rule XIII

    1. Cost of Legislation. Clause 3(d)(2) of Rule XIII of the 
Rules of the House of Representatives requires an estimate and 
a comparison by the Committee of the costs which would be 
incurred in carrying out this bill. However, clause 3(d)(3)(B) 
of that rule provides that this requirement does not apply when 
the Committee has included in its report a timely submitted 
cost estimate of the bill prepared by the Director of the 
Congressional Budget Office under section 402 of the 
Congressional Budget Act of 1974.
    2. Congressional Budget Act. As required by clause 3(c)(2) 
of rule XIII of the Rules of the House of Representatives and 
section 308(a) of the Congressional Budget Act of 1974, this 
bill does not contain any new budget authority, spending 
authority, credit authority, or an increase or decrease in 
revenues or tax expenditures.
    3. General Performance Goals and Objectives. This bill does 
not authorize funding and therefore, clause 3(c)(4) of rule 
XIII of the Rules of the House of Representatives does not 
apply.
    4. Congressional Budget Office Cost Estimate. Under clause 
3(c)(3) of rule XIII of the Rules of the House of 
Representatives and section 403 of the Congressional Budget Act 
of 1974, the Committee has received the following cost estimate 
for this bill from the Director of the Congressional Budget 
Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 30, 2001.
Hon. James V. Hansen,
Chairman, Committee on Resources,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 309, the Guam 
Foreign Investment Equity Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBS staff contacts are John R. 
Righter (for federal costs) and Marjorie Miller (for the state 
and local impact).
            Sincerely,
                                          Barry B. Anderson
                                      (For Dan. Crippen, Director).
    Enclosure.

H.R. 309--Guam Foreign Investment Equity Act

    H.R. 309 would amend the Organic Act of Guam to require the 
government of Guam to tax the earnings of foreign investors at 
the same rates as those applied by the 50 states under U.S. tax 
treaties with foreign countries. Because the bill would not 
affect federal tax rates, CBO estimates that implementing H.R. 
309 would have no impact on the federal budget. Because the 
bill would not affect direct spending or governmental receipts, 
pay-as-you-go procedures would not apply.
    H.R. 309 contains no private-sector or intergovernmental 
mandates as defined in the Unfunded Mandates Reform Act. The 
bill would change the tax rate applied to income earned by 
foreign (i.e., non-U.S. and non-Guamanian) investors under the 
Guam territorial income tax. This change would allow income 
earned in Guam by foreign investors to be taxed at the same 
rates as would apply to such income earned in the 50 states--
rates established by tax treaties with foreign countries. In 
the short term, this change would result in decreased revenues 
from the Guam territorial income tax. In the long term, 
however, those losses could be offset to the extent that 
increased foreign investment in the territory generates 
increased tax revenues.
    Enactment of this legislation would have no significant 
impact on the budgets of other state, local, or tribal 
governments.
    The CBO staff contacts are John R. Righter (for federal 
costs) and Majorie Miller (for the state and local impact). 
This estimate was approved by Peter H. Fontaine, Deputy 
Assistant Director for Budget Analysis.

                    Compliance With Public Law 104-4

    This bill contains no unfunded mandates.

                Preemption of State, Local or Tribal Law

    This bill is not intended to preempt any State, local or 
tribal law.

                        Committee Correspondence

                                        Agana, Guam, April 4, 2001.
Hon. James V. Hansen,
Chairman, Committee on Resources,
Washington, DC.
    Dear Chairman Hansen: I am writing in support of H.R. 309, 
the Guam Foreign Investment Equity Act, which is scheduled for 
committee markup on March 28 in the Committee on Resources. 
This bill is supported by the Guam Chamber of Commerce and it 
is a priority of my administration for Guam's economic 
recovery.
    The Guam Foreign Investment Equity Act would remove a 
disparity that now exists wherein foreign investors may receive 
more favorable tax treatment by investing in all fifty states 
and all the other U.S. territories. Guam alone is unable to 
offer the same tax withholding benefits that every state and 
territory are afforded when a tax treaty is implemented between 
the United States and a foreign government. H.R. 309 would 
amend the Organic Act of Guam to establish lower withholding 
tax rates for foreign investors on Guam so that this disparity 
is eliminated. We would no longer be at a disadvantage in 
attracting foreign investments to our island and we hope to be 
able to increase the investments in our tourism infrastructure 
in the years to come to create new jobs.
    With our current unemployment rate of 15% and a slowly 
recovering economy (Guam is literally in Asia), H.R. 309 would 
be a new tax incentive that we hope will result in new interest 
in Guam. We had worked with Congressman Underwood and the 
previous administration to craft the compromise language that 
is incorporated in H.R. 309, and we support the bill as it is 
now written. Thank you for placing H.R. 309 on the markup 
calendar for March 28. I hope that the Committee on Resources 
will recommend H.R. 309 to the House for passage on the floor.
            Sincerely,
                                       Carl T.C. Gutierrez,
                                                  Governor of Guam.
                                ------                                

                                  Guam Chamber of Commerce,
                                              Guam, March 23, 2001.
Hon. James V. Hansen,
Chairman, Committee on Resources, House of Representatives, Washington, 
        DC.
    Dear Mr. Chairman: The Guam Chamber of Commerce is seeking 
your vote in support of enactment of the Guam Foreign 
Investment Equity Act, H.R. 309, introduced by our Washington 
Delegate, Congressman Robert A. Underwood.
    The Guam Foreign Investment Equity Act will provide 
Americans in Guam with the same tax advantages long enjoyed by 
other Americans in our United States. It is also essential to 
the recovery of our island economy.
    The weakened Asian economies continue to weigh on Guam's 
tourism industry, as prospective projects have become too 
marginal given the effect withholding taxes have on projected 
returns. Consequently, many long established businesses in Guam 
owned by foreign investors have closed or will be closing soon. 
Investment capital from Asian countries have funded more than 
three-fourths of the commercial development on our island. Your 
vote for enactment of the Guam Foreign Investment Equity Act 
will be responsible to our need for immediate relief for it 
will address our major problem of an extremely high rate of 
withholding tax on diminishing profits as well as debt 
repayment.
    We are America in Asia, the closest U.S. destination to 
America's major trading partners in Asia, key markets for 
Guam's tourism industry, our largest industry. H.R. 309 is 
critical to Guam's future development for it will expand our 
financial relationship with countries supportive of development 
opportunities on our island.
    The Guam Chamber of Commerce has served the Guam community 
for 77 years. Our membership manages sales volumes in excess of 
$2 billion that equates to 70% of Guam's Gross Island Product. 
We represent all sectors of Guam's business community, with 
small micro-businesses as our largest component totaling 48% of 
member companies. We are a member of the U.S. Chamber of 
Commerce and the Asia-Pacific Council of American Chambers of 
Commerce.
    A resolution adopted by the Board of directors stating our 
full support of the Guam Foreign Investment Equity Act is 
enclosed for your consideration.
            Sincerely,
                                   Thomas P. Michels,
                                           Chairman of the Board.
                                   Eloise R. Baza,
                                           President.
    Enclosure.
                                ------                                


  Resolution on the Guam Foreign Investment Equity Act Adopted by the 
              Board of Directors, Guam Chamber of Commerce

    Whereas, since the inception of civil government in 1950 
the people of Guam has struggled with the ``mirror image'' 
application of the Internal Revenue Code of the United States; 
and
    Whereas, a significant barrier to foreign investment in 
Guam is the statutory 30% withholding tax rate on dividends, 
interest and other forms of passive income remitted to foreign 
investors from their investment projects in Guam, a rate which 
Guam has no authority to change; and
    Whereas, Guam is at a serious disadvantage to other 
jurisdictions in the United States in attracting foreign 
investment because tax treaties between the United States and 
foreign nations intended to balance the effective corporate tax 
rates between trading countries, do not apply to Guam; Now 
therefore be it
    Resolved, the Guam Chamber of Commerce recommends as 
essential to Guam's developing island economy, legislation 
permitting Guam to apply the same withholding tax rates as if 
Guam were treated as part of the United States for purposes of 
the treaty obligations of the United States as proposed in the 
Guam Foreign Investment Equity Act; and be it further
    Resolved, that the Guam Chamber of Commerce strongly 
endorses the enactment of the Guam Foreign Investment Equity 
Act introduced on January 30, 2001 as H.R. 309 by Delegate 
Robert A. Underwood (Guam).

    Adopted by the Board of Directors on the 23rd day of March, 
2001.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                 SECTION 31 OF THE ORGANIC ACT OF GUAM

  Sec. 31. (a) The income-tax laws in force in the United 
States of America and those which may hereafter be enacted 
shall be held to be likewise in force in Guam: Provided, That 
notwithstanding any other provision of law, the Legislature of 
Guam may levy a separate tax on all taxpayers in an amount not 
to exceed 10 per centum of their annual income tax obligation 
to the Government of Guam.

           *       *       *       *       *       *       *

  (d)(1) * * *

           *       *       *       *       *       *       *

  (3) In applying as the Guam Territorial income tax the 
income-tax laws in force in Guam pursuant to subsection (a) of 
this section, the rate of tax under sections 871, 881, 884, 
1441, 1442, 1443, 1445, and 1446 of the Internal Revenue Code 
of 1986 on any item of income from sources within Guam shall be 
the same as the rate which would apply with respect to such 
item were Guam treated as part of the United States for 
purposes of the treaty obligations of the United States. The 
preceding sentence shall not apply to determine the rate of tax 
on any item of income received from a Guam payor if, for any 
taxable year, the taxes of the Guam payor were rebated under 
Guam law. For purposes of this subsection, the term ``Guam 
payor'' means the person from whom the item of income would be 
deemed to be received for purposes of claiming treaty benefits 
were Guam treated as part of the United States.

           *       *       *       *       *       *       *