On May 11, Congressmen Kevin Brady (R-TX), Jim Matheson (D-UT), Robert Dold (R-IL), Jim Cooper (D-TN), Devin Nunes (R-CA) and Jared Polis (D-CO) filed H.R. 1834, the "Freedom to Invest Act of 2011."
Background. Under Code Sec. 965, which was added by the American Jobs Creation Act, U.S. companies could repatriate earnings from their foreign subsidiaries at a reduced tax rate if several conditions and restrictions are satisfied. Specifically, under Code Sec. 965, U.S. companies could elect, for one tax year, an 85% dividends received deduction for eligible dividends from their foreign subsidiaries. Code Sec. 965 generally applied to the first tax year beginning on or after Oct. 22, 2004 (i.e., the Jobs Act enactment date). Thus, it applied to 2005 for calendar-year taxpayers, or a taxpayer could alternatively choose to apply it to the preceding tax year (2004 for calendar-year taxpayers).
The "Freedom to Invest Act" would similarly provide for a dividends received deduction rate of 85%, which companies could elect to apply in either 2011 or 2012. The bill also includes a penalty for companies that take advantage of the repatriation holiday then reduce their employment levels. The penalty is presumably intended to bolster supports from those who criticized the effectiveness of the 2004 repatriation holiday.
According to its sponsors, the bill would encourage domestic investment and bring up to $1 trillion in capital back into the U.S.'s economy.