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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.
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
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
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).
Barry B. Anderson
(For Dan. Crippen, Director).
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
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
Agana, Guam, April 4, 2001.
Hon. James V. Hansen,
Chairman, Committee on Resources,
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
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.
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,
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
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
A resolution adopted by the Board of directors stating our
full support of the Guam Foreign Investment Equity Act is
enclosed for your consideration.
Thomas P. Michels,
Chairman of the Board.
Eloise R. Baza,
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;
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,
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.
* * * * * * *