The treasurer of a U.S. company that is projecting a global taxrate of less than 3 percent this year said the country's tax systemmakes it difficult to compete in overseas markets.

Anthony Smith of Thermo Fisher Scientific Inc. told the SenateFinance Committee Tuesday that the U.S. needs to lower the 35percent corporate tax rate and make it easier for U.S. companies tobring profits home.

Thermo Fisher, which makes laboratory equipment, reported a 9.2percent tax rate for 2014 and hasn't reported a tax rate above 12percent since 2008, according to securities filings.

Still, Smith said, the potential for owing taxes uponrepatriation means that having a U.S. headquarters can be adisadvantage in competing with companies around the world.

“Thermo Fisher has been outbid several times in the competitionfor strategic acquisitions,” he said.

For its own planning and for investors, Thermo Fisher doesn'tuse the accounting definition of tax rate, which includes bothcurrent and deferred taxes. Instead, Smith said, the company looksmore at the taxes it pays in cash each year.

By that measure, he said, Thermo Fisher pays about 30 percent inthe U.S. and 15 percent to 20 percent outside the country, with itsincome about evenly divided between domestic and foreignsources.

The accounting measure that yields the 3 percent rate isaffected by acquisitions and other transactions, Ron O'Brien, acompany spokesman, said in an e-mail. The company also provides anadjusted tax rate for investors that it says is more meaningful.That rate was 14.5 percent last year and is projected to be about14 percent this year, O'Brien said.

The gap between the rate that Thermo Fisher reports foraccounting purposes and what it uses for investors is an example ofthe difficulty policy makers face in implementing tax changes,because differences in methodology can make it hard to tell exactlyhow much tax U.S. companies are paying.

Smith's testimony came as lawmakers continue debating how torevamp the U.S. international tax system.

Under current law, U.S. companies owe the full 35 percent taxrate on income they earn around the world. They receive tax creditsfor payments to foreign governments and don't have to pay theresidual U.S. tax until they bring the money home.

That system encourages U.S.-based companies to book profits inlow-tax countries and leave them there.

'Significant Activities'

Thermo Fisher, for example, has “significant activities inSingapore and has received considerable tax incentives,” accordingto its most recent annual report.

Smith said Thermo Fisher, based in Waltham, Massachusetts,borrows money instead of repatriating its foreign profits.

He said a revamped tax system should lower the corporate taxrate to between 25 and 30 percent and retain breaks for domesticmanufacturing and research in the U.S.

Other benefits of being in the U.S., he said, mean that the U.S.doesn't need to match other countries' lower rates.

As a trade-off, Smith said the U.S. should eliminate last- in,first-out accounting rules and accelerated depreciation.

Lawmakers are divided on international taxes.

Republicans favor a system that would let companies repatriateforeign income with little or no U.S. taxes.

“If we want companies to remain in the U.S., or to incorporatehere to begin with, we should not build figurative or legal wallsaround America,” said Senator Orrin Hatch of Utah, chairman of theFinance Committee. “We should fix our broken tax code.”

The Obama administration, by contrast, wants to impose a 19percent minimum tax on U.S. companies' foreign income.

Senator Charles Schumer, a New York Democrat, asked whether theU.S. should consider lower taxes on income generated fromintellectual property, as other countries have done.

“The rest of the world has already acted; we sit around talkingin theory about tax reform,” he said. “It's a game of Hungry HungryHippos and we're sitting on our hands and other countries aregobbling up the field.”

Bloomberg News

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