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You mean the one that says the FairTax is an income tax for foreign entities? That's a lot of incentive to relocate.

Seems to me I remember that Conservative Goddess has weight in on this providing some insights on this provision in past threads. Perhaps she can weigh in here on those issues.

Facing a 23% tax on income earned in the United States by foreign Corporations would appear to be an excellent incentive for said corporations to relocate headquarters and manufacturing to the U.S. where they are not subject to such a tax.

I note it also provides an out in paragraph(c) providing a strong invitation for foreign governments to enter bilateral tax treaties with the U.S. that can provide protection of our corporations and business interests operating under the jurisdictions of their countries in return for lower tax rates and protections extended to their businesses operating here.

H.R.25

Fair Tax Act of 2005 (Introduced in House)
http://thomas.loc.gov/cgi-bin/query/z?c109:H.R.25:

`SEC. 905. WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN CORPORATIONS.

`(a) In General- All persons, in whatever capacity acting (including lessees or mortgagors or real or personal property, fiduciaries, employers, and all officers and employees of the United States) having control, receipt, custody, disposal, or payment of any income to the extent such income constitutes gross income from sources within the United States of any nonresident alien individual, foreign partnership, or foreign corporation shall deduct and withhold from that income a tax equal to 23 percent thereof.

`(b) Exception- No tax shall be required to be deducted from interest on portfolio debt investments.

`(c) Treaty Countries- In the case of payments to nonresident alien individuals, foreign partnerships, or foreign corporations that have a residence in (or the nationality of a country) that has entered into a tax treaty with the United States, then the rate of withholding tax prescribed by the treaty shall govern.'.

On the money, too, old fellow!!

The WTO Lovers will hate it along those countries trying to punish us tax wise (more than we already do ourselves, that is).

I note it also provides an out in paragraph(c) providing a strong invitation for foreign governments to enter bilateral tax treaties with the U.S. that can provide protection of our corporations and business interests operating under the jurisdictions of their countries in return for lower tax rates and protections extended to their businesses operating here.

Why couldn't they do that now? Oh, right. Everything is possible with the FairTax and only with the FairTax.

mmmmm...KoolAid!

Gentlemen,

I can offer two possible explanations for Section 905...

First, It may be necessary to withhold from foreign corporations and remit under an existing tax treaty or treaties. The OECD is pushing harmonization and information exchange and I believe GWB put an end to most of it, but there may be lingering obligations of which I'm not aware.

Second, is the incentive to reincorporate in the U.S. I would like to believe we learned a lesson from the 90's...vis a vis corporate inversions. Our current international tax laws are out of sync with much of the rest of the world. We insist on taxing global income and then allowing offsetting Foreign Tax Credits for taxes paid to other jurisdictions. That means that for the most successful multinationals, they are paying a 35% rate on world wide income. Our corporate tax rate is one of the highest of all OECD countries. Moreover, we have no integration between the individual and corporate tax systems....meaning distributed dividends/capital gains suffer an effective rate of 50%. Because of our self-imposed stupidity, the hurdle rate of return necessary on any project contemplated needs to be significantly higher than in other OECD countries. This drives investment offshore.

To add insult to injury, the WTO insists on maintaining an arcane distinction between direct and indirect taxes. Indirect taxes are those like the VAT, direct taxes are those like the Corporate Net Income Tax. For purposes of International trade, the VAT is border adjustable without penalty, the CNI is NOT. The argument goes like this: CNI is incident on potentially three groups, in an indeterminate and shifting manner. Border adjustment may result in subsidy, so no can do.

The VAT suffers from the same defect, however. To the extent that consumers reduce their consumption in response to the VAT, a portion of the incidence is shifted back onto the shareholders and employees. Blanket border adjustment of the full amount of the VAT, to the extent incident on the shareholders and employees, really is a subsidy to EU based business. This is what we call in the law, a distinction without a difference. Economically, the distinction is meaningless but it gives the bearueacrats a reason to disadvantage our goods under color of right. Nuts to that.

The FairTax will defang the WTO by removing their weapon, the CNI. To the extent that capital flows to where it is treated best, there is no doubt, that over time, capital will flow into the US. For businesses that are already here, reincorporation should occur rather rapidly. Over the course of years, capital stocks should grow as we draw new business. Here's a link to comments by Kenneth Dam, former assistant treasury secretary: http://www.useu.be/Categories/FSC/Nov1402DamFSCInternationalTaxation.html