In the fine print of the Senate bailout plan were these words: “Extension of look-thru rule for related controlled foreign corporations.” I bet that only a few of you know what the look-thru rule means. Well, you should. It helps ship American jobs overseas, with benefits for American multinationals (such as G.E.)
“ The CFC(Controlled Foreign Corporations) look-through rule provides that certain dividends, interest, rents and royalties paid between foreign subsidiaries of the U.S. group, provided not allocable to other subpart F income, will not immediately be subject to federal income tax.” (from Rodney Lawrence and Rupert Ward, KPMG LLP: KPMG LLP is major audit, tax and advisory firm.)
The CFC look-through rule is especially helpful to U.S. multinationals’ doing business in China. According to Pepper Hamilton (corporate tax lawyer):
“…foreign invested enterprise under current Chinese law may receive a refund of the taxes paid on a dividend if the foreign invested enterprise distributes a dividend to its foreign parent and the foreign parent reinvests the dividend back into the foreign invested enterprise.”
U.S. multinationals can then decide to pay reduced Chinese taxes and have their American taxes deferred for three years. It is a big WIN-WIN for U.S. multinationals and China (who get more jobs and more tax dollars) and a big LOSE-LOSE for American workers.
The CFC look-through rule was a cornerstone of the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), which then Republican Majority Leader Frist and Majority Whip McConnell pushed through the Senate. The key vote on this measure was a motion to instruct conferees on H.R. 4297 (by Senator Lautenberg of New Jersey), which was defeated along party lines—54-46(Obama YAY; McCain NAY). The Look-through rule was scheduled to expire December 31, 2008.
Since 2005, the Republicans have tried to extend this rule. This extension was part of McConnell et al’s “Substitute Amendment To S. 3098 The Tax Extenders And Alternative Minimum Tax Relief Act Of 2008.” Thanks to the Senate bailout plan, the Look-Through rule has been extended for another year and probably longer.
