 | |
| Full title | Offshore Finances Repatriation and Reinvestment Act of 2017 |
|---|---|
| Acronym | OFRRA |
| Colloquial name(s) | Offshore Reinvestment Act Schuman-Porter |
| Enacted by the | 115th United States Congress |
| Citations | |
| Legislative history | |
The Offshore Finances Repatriation and Reinvestment Act (OFFRA) is a piece of legislation first introduced in the United States Senate on March 27th, 2017, by Chuck Schumer (D-NY) and Rob Portman (R-OH) with the twin aims of raising revenue for infrastructure investment while repatriating revenue held by United States companies held in offshore accounts.
It was signed into law by President Hillary Clinton on May 24th, 2017.
Background[]
The bill has its origins in the International Tax Reform Working Group of the Senate Finance Committee, co-chaired by Schumer and Portman. The results of the Committee - the Bipartisan Framework for International Tax Reform - identified five areas where action is needed:
- Ending the Lock-Out Effect
- Patent Box Regime
- Base Erosion
- Interest Expense Limitations
- Deemed Repatriation
The Schumer-Portman framework received bipartisan support in the Senate, including support from Senators Pat Roberts (R-KS), Sherrod Brown (D-OH), Mike Enzi (R-WY), Tom Carper (D-DE), David Dewhurst (R-TX), and Mark Warner (D-VA).
Overview[]
According to forecaster Capital Economics, as of 2017, American companies hold approximately $2.5 trillion abroad, in tax havens like Ireland, Switzerland, or the Cayman Islands. Under current U.S. law, if any of this held money is brought back to the United States - termed repatriation - it would be taxed under the corporate tax rate of 35%.
The twin aims of the bill are to encourage American companies to repatriate this money held overseas at a discounted rate - down to 18.5% - and use the revenue raised to pay for infrastructure projects. In addition, the bill would permanently cut the tax rate on foreign profits.
Provisions[]
Title I - Ending the Lock-Out Effect[]
Title I implements a dividend exemption regime in conjunction with appropriate base erosion rules.
Title II - Patent Box Regime Reform[]
Title II implements an innovation box regime that encourages the development and ownership of intellectual property (IP) in the United States, along with associated domestic manufacturing. Appropriate eligibility criteria for covered IP is established, as well as a mechanism for the domestication of currently offshore IP.
Title III - Addressing Base Erosion[]
Clear, manageable standards are established, that take into account the fact that losses can cause low effective tax rates in particular years and designing rules that dissuade companies from shifting money to tax haven jurisdictions.
Subtitle A[]
A minimum level of tax on a subset of earnings by Controlled Foreign Companies (CFSs) is imposed.
Title IV - Interest Expense Limitations[]
Title IV establishes the appropriate net limitation necessary to allow for legitimate intra-group lending while at the same time stopping disproportionate leveraging to avoid U.S. taxation and gaming of interest expense limits in place.
Title V - Deemed Repatriation[]
A one-time transition toll charge at a rate significantly lower than the statutory corporate rate for businesses moving offshore money back to the United States is implemented, reducing the rate from 35% to 18.5%
A bifurcated rate structure with a lower tax rate on “non-cash” holdings is established, to account for the fact that many companies have reinvested a significant part of their foreign earnings in hard, brick-and-mortar assets.
Title VI - FIRPTA Reforms[]
Title VI aims to amend the Foreign Investment in Real Property Tax Act.
Subtitle A[]
The ownership stake that a foreign investor can take in a U.S. publicly traded REIT without triggering Foreign Investment in Real Property Tax Act (FIRPTA) liability by increasing the FIRPTA exemption for portfolio investors in a U.S. publicly traded REIT is increased from 5 percent to 10 percent.
Subtitle B[]
Foreign pension funds are put on a level playing field with domestic pension funds by exempting foreign pension funds from FIRPTA.
Title VII - Use of Repatriated Funds[]
The use of the projected $389 billion in revenue raised is set to be used in specific ways. Among the provisions:
- $30 billion in expanding rural broadband infrastructure.
- $50 billion in repairing and expanding highway and transportation infrastructure, including the repair of at-risk bridges.
- $15 billion for repairing and modernizing the aerospace system and infrastructure.
- $20 billion in block grants to school districts, assigned per capita, for renovations and expansion of educational materials and access; federal guidelines are proposed, but states have the authority to issue their own guidelines.
- $50 billion for expanding and promoting clean energy industries and infrastructure systems.
- $45 billion federal funds for improving aging or inadequate water supply systems and repairing dams, levees, and wastewater systems; an additional $2 billion is allocated to address the cumulative health costs of unsafe drinking water in cities such as Flint, Michigan and Crestwood, Illinois.
- $30 billion for developing regionally coordinated infrastructure strategies with cities, states, and rural communities.
- $10 billion for "Make It in America" partnerships.
- $25 billion for a National Infrastructure Bank, to support up to an additional $225 billion in direct loans, loan guarantees, and other forms of credit enhancement.
- $14 billion in grants to historically black colleges and universities.
The remaining $100 billion is allocated to the states in the form of block grants, given per capita, for states to invest in infrastructure programs of their own choosing.
Title VIII - Territorial Tax Reform[]
Title VIII deals with tax reform issues that focus primarily on Puerto Rico and other U.S. possessions - increased funding is provided to health services in the state, accompanied by reductions in territorial corporate tax rates.
Ryan-Comstock Amendment[]
In April 2017, Representatives Tim Ryan (D-OH) and Barbara Comstock (R-VA) worked with members of the Progressive Caucus and the Tuesday Group to amend the bill. The resulting change, termed the Ryan-Comstock Amendment, amended Title VII; the $100 billion in block grants allocated to the states would receive federal matching funds for particular investments, such as highway repairs, while states would also be incentivized to institute a one-time tax holiday for businesses registered in their state.
Criticism[]
In its original form, the bill has drawn criticism from members on each side of the aisle. Senator Elizabeth Warren (D-MA) repeated her claim that it was a "giant wet kiss for the tax dodgers" while Representative Joe Barton (R-TX) called it a "betrayal of the American taxpayer." Representative Justin Amash (L-MI) referred to the bill as "fiscally irresponsible and fundamentally opposed to free-market principles."
Americans for Tax Fairness and the Goldwater Institute have each come out against the legislation.
Opponents of the bill from the right have given it the nickname "Hillary Giveaway" - a term coined by 2016 Republican nominee Donald Trump - while opponents from the left have echoed Warren's terminology.
Opinion Polling[]
The first national polling about the OFRRA bill, conducted by Gallup, found that 40% of the respondents supported the bill while 46% were against; 14% were unsure or had no opinion about the bill. A second national polling of the bill found 43% of respondents were for the bill, while 44% were against. Other polls have similarly found the public split on the OFRRA bill.
Passage[]
The OFRRA bill passed the United States Senate on May 4th, 2017. The House of Representatives passed the bill on May 24th, 2017; President Clinton signed the legislation into law later the same day.