[Senate Report 107-173]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 438
107th Congress                                                   Report
                                 SENATE
 2d Session                                                     107-173

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                   GUAM FOREIGN INVESTMENT EQUITY ACT

                                _______
                                

                 June 24, 2002.--Ordered to be printed

                                _______
                                

   Mr. Bingaman, from the Committee on Energy and Natural Resources, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 309]

    The Committee on Energy and Natural Resources, to which was 
referred the Act (H.R. 309) to provide for the determination of 
withholding tax rates under the Guam income tax, having 
considered the same, reports favorably thereon without 
amendment and recommends that the Act do pass.

                                Purpose

    The purpose of H.R. 309 is to authorize the Government of 
Guam to tax foreign investors at the same rates that States tax 
them under tax treaties between the United States and foreign 
nations.

                          Background and Need

    The Federal Internal Revenue Code of 1986 levies a tax on 
nonresident aliens in the amount of 30 percent of the income 
the nonresident alien receives from investments in the United 
States. 26 U.S.C. 871(a). The United States has, however, 
entered into tax treaties with many nations, which lower the 
tax rate for investors from any nation that has entered into 
such a treaty. The treaties typically lower the tax rate from 
30 percent to between 5 and 15 percent. The lower tax rate 
encourages foreign investment in the United States.
    Guam is an unincorporated territory of the United States 
and its residents are citizens of the United States. Guam is 
governed by an organic act approved by Congress. The Organic 
Act of Guam applies the income tax laws in force in the United 
States to Guam. Guam collects the federal income tax in the 
form of a separate Guam territorial income tax. 48 U.S.C. 
1421i. Since the Guam territorial income tax must mirror the 
Federal Internal Revenue Code of 1986, Guam must tax foreign 
investors at the 30 percent rate.
    Although tax treaties lower the tax on foreign investment 
in the United States, Guam is not considered part of the United 
States for purposes of those treaties. As a result, the tax on 
foreign investment continues to be taxed at the 30 percent rate 
in Guam, while it is typically only 5 to 15 percent on foreign 
investment in the United States.
    Guam needs to lower its tax rate to help it attract foreign 
investment. Federal legislation is needed to lower the tax rate 
because the Organic Act of Guam ties Guam's tax rate to the 
rate set in the Federal Internal Revenue Code.
    H.R. 309 would lower the tax rate on foreign investment in 
Guam by amending the Organic Act of Guam to authorize Guam to 
apply the tax rate that would apply ``were Guam treated as part 
of the United States for purposes of'' the tax treaties.

                          Legislative History

    H.R. 309 was introduced by Representative Underwood and 
referred to the House Committee on Resources on January 30, 
2001. The Committee on resources ordered the bill reported by 
voice vote on March 28, 2001. H. Rept. 107-48. The House or 
Representatives passed the bill by voice vote on May 1, 2001.
    During the 106th Congress, similar legislation appeared as 
section 3 of H.R. 2462, the Guam Omnibus Opportunities Act, 
when it passed the House of Representatives on July 25, 2000. 
The Senate struck the provision, House of Representatives 
agreed to the Senate amendment, and H.R. 2462 became Public Law 
106-504 without addressing the issue.
    The Committee on Energy and Natural Resources held a 
hearing on H.R. 309 on July 27, 2001. The Committee considered 
H.R. 309 at its business meeting on June 5, 2002, and ordered 
the bill favorably reported.

                        Committee Recommendation

    The Senate Committee on Energy and Natural Resources, in 
open business session on June 5, 2002, by a voice vote of a 
quorum present, recommends that the Senate pass H.R. 309 
without amendment.

                           Section-by-Section

    The provisions of H.R. 309 are self-explanatory.

                   Cost and Budgetary Considerations

    The following estimate of the costs of this measure has 
been provided by the Congressional Budget Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 14, 2002.
Hon. Jeff Bingaman,
Chairman, Committee on Energy and Natural Resources,
U.S. Senate, 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 CBO staff contacts are Matthew 
Pickford (for federal costs) and Marjorie Miller (for the state 
and local impact).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. 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 act would not 
affect federal tax rates, CBO estimates that implementing H.R. 
309 would have no impact on the federal budget. Because the 
legislation 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 
act 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.
    On March 28, 2001, CBO transmitted a cost estimate for H.R. 
309 as ordered reported by the House Committee on Resources. 
The two versions of the legislation are identical, and our cost 
estimates are the same.
    The CBO staff contacts for this estimate are Matthew 
Pickford (for federal costs) and Marjorie Miller (for the state 
and local impact). This estimate was approved by Peter H. 
Fontaine, Deputy Assistant Director for Budget Analysis.

                      Regulatory Impact Evaluation

    In compliance with paragraph 11(b) of the rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
evaluation of the regulatory impact which would be incurred in 
carrying out H.R. 309.
    The bill is not a regulatory measure in the sense of 
imposing Government established standards or significant 
economic responsibilities on private individuals and 
businesses.
    No personal information would be collected in administering 
the program. Therefore, there would be no impact on personal 
privacy.
    Little, if any additional paperwork would result from the 
enactment of H.R. 309.

                        Executive Communications

    On July 25, 2001, the Committee on Energy and Natural 
Resources requested legislative reports from the Department of 
the Interior and the Office of Management and Budget setting 
forth executive views on H.R. 309. These reports have not been 
received at the time the report was filed. The testimony 
provided by the Department of the Interior at the Committee 
hearing follows:

Statement of Christopher Kearney, Deputy Assistant Secretary for Policy 
         and International Affairs, Department of the Interior

    Mr. Chairman and members of the Committee, it is a pleasure 
for me to appear before you today to discuss the 
Administration's views on H.R. 309--the Guam Foreign Investment 
Equity Act.


                               BACKGROUND


    Foreign investors, who do not reside in Guam, contribute 
significantly to the economy of Guam. Under current United 
States law, such investors pay tax to Guam at a rate of thirty 
percent on the gross amount of interest, dividend, rent, 
royalty and other periodic income derived from their 
investments. With respect to investment within the fifty 
states, foreign non-resident investors pay United States taxes, 
but the rate of such tax is often reduced significantly under 
one of the over sixty income tax treaties to which the United 
States is a party. This disparity in tax rates has proven to be 
a disincentive for investment in Guam by foreign investors.
    There are three ways to lessen the taxation of foreign 
investors who do not reside in Guam. The first would be the re-
negotiation of current United States treaties to cover Guam. 
Such an undertaking would be a time-consuming and expensive 
governmental task. Second, under the 1986 tax act, Guam could 
reduce its tax rates if it chose to de-link its tax system from 
the Federal system. Guam has chosen not to de-link. Third, the 
Congress, by law, can assign the benefit of the tax treaties to 
foreign investors on Guam.
    This last alternative is embodied in H.R. 309. Under the 
bill, foreign investor income would be subject to tax at the 
rate that would apply were Guam covered by United States tax 
treaties. H.R. 309 would level the playing field for Guam, and 
bolster its economy.


                        ADMINISTRATION POSITION


    The Administration supports the enactment of H.R. 309.

                        Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the act H.R. 309, as ordered reported, are shown as follows 
(existing law proposed to be omitted is enclosed in brackets, 
new matter is printed in italic, existing law in which no 
change is proposed is shown in roman):

                   PUBLIC LAWS--CH. 512--AUG. 1, 1950


                             [CHAPTER 512]

 AN ACT To provide a civil government for Guam, and for other purposes

    Be it enacted by the Senate and House of Representatives of 
the United States of America in Congress assembled, That this 
Act may be cited as 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.

           *       *       *       *       *       *       *