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Punitive Double Taxation Threatens Nation’s Long-Term Energy Security
• Manufacturers consume one-third of the nation’s energy and are committed to a viable and competitive domestic energy industry. Maintaining diverse, reliable and affordable sources of energy is crucial to jobs, competitiveness and overall economic growth. Preserving U.S. energy companies’ access to global natural resources is critical to U.S. energy security. • U.S. energy companies with overseas exploration and production operations—so-called “dual-capacity” taxpayers—are subject to both U.S. and foreign taxes while their non-U.S. competitors generally pay taxes only where income is earned. • Current rules for dual-capacity taxpayers, already stricter than rules for other taxpayers, reduce the potential of double taxation of income in the U.S. worldwide tax system and limit foreign tax credits to payments that are truly in the nature of income taxes. Existing rules specifically deny foreign tax credits for payments such as royalties paid to access a natural resource. • The President’s fiscal 2011 budget includes a proposal that would deny foreign tax credits even for income taxes paid by dual-capacity taxpayers. It would unfairly and retroactively overturn well-established and long-standing rules, subjecting American energy companies to harmful double taxation on new and existing investments. • The value of existing oil and gas investments would immediately drop for American companies, with many investments becoming unprofitable. New investments in strategic energy markets would be lost to foreign and state-owned competitors not burdened by double taxation, compromising U.S. energy and national security and foreign policy interests.
How Congress Can Help
Oppose efforts to change the current tax treatment of dual-capacity taxpayers.
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U.S. energy companies’ ability to compete for global natural resources is critical to U.S. energy security. Their overseas exploration and production operations help ensure a stable energy supply, which ensures a competitive and robust manufacturing sector in the United States. In addition, overseas investments by U.S. energy companies generate and support domestic jobs in the energy industry and throughout the broader economy. The successful capture of a single overseas project by a U.S. energy company can translate into thousands of jobs for manufacturers in the United States. U.S. Companies Already Are Losing Ground to Government–Run Oil Companies A recent study1 of the global upstream oil and gas industry concludes that, over the past three decades, U.S. energy companies have lost out to overseas oil companies (both foreign and investorowned) in terms of production volume, acreage and exploration activity overseas. This is due in part to the widespread emergence of government-owned oil companies as well as the interaction between the U.S. and foreign tax systems and U.S. policy objectives. Tax issues alone, the study says, may account for differences in what a company can afford to bid for mineral rights by as much as 100 percent. Moreover, proposals to increase taxes on so-called dual-capacity U.S. energy companies will make matters worse, putting American companies at a further competitive disadvantage to their major competitors, including companies based in Brazil, China, India, Kuwait, Norway and Russia. The following chart illustrates the changes in production outside North America over the past three decades by international oil companies (INOCs), U.S. investorowned companies (US IOCs) and non-U.S. investor-owned companies (non-US IOCs).
Altering the treatment of dual-capacity taxpayers would lead to harmful double taxation on worldwide American energy companies, place them at a competitive disadvantage in the global marketplace and destroy jobs in the United States.
“Fiscal Fitness: How Taxes at Home Help Determine Competitiveness Abroad,” Daniel Yergin and David Hobbs, Cambridge Energy Research Associates (CERA), August 2010.
Web: www.nam.org/tax E-mail: firstname.lastname@example.org January 2011