U.S. and foreign tax rules increasingly influence where multinational companies are reporting their income is being earned, according to a new report that may influence tax legislation in Congress.

The rules also influence company decision about how many workers to employ and how much to invest in particular activities and locations, according to a report from the Government Accountability Office. The GAO found that the number of foreign operations of U.S. companies has been increasing, with the largest companies often paying the lowest effective tax rates and more income being reported in lower tax rate jurisdictions outside the U.S.

"Tax regimes - both those of the United States and of foreign countries - will have some influence over where business activity is actually located; however, they also provide some incentive for businesses to report net income as coming from locations other than where factors of production, such as labor and physical capital, actually generated the income," said the report.

Leaders of the Senate Finance Committee said they intend to weigh the report in the changes they are considering to the Tax Code.

"I've said before that we will tackle tax reform in 2009 and this report underscores the need to review business taxes as part of our tax reform efforts in the next Congress," said Chairman Max Baucus (pictured), D-Mont., in a statement. "Simply put, I do not intend to allow U.S. multinationals to sidestep their fair share of taxes by moving income offshore."

He intends to work with other committee members on roundtables and additional hearings to prepare for full-fledged tax reform in the next Congress.

"The Finance Committee has always been vigilant on transfer pricing issues," said ranking member Charles Grassley, R-Iowa. "It's a complicated area of tax policy theory and practice, especially if intangible assets are involved. We'll continue to work toward a system that's less burdensome on taxpayers and tax administrators but assures that shared business activities are properly accounted for in how U.S.-based taxable income is determined."

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