Feb. 1 (Bloomberg) -- A proposal allowing U.S. companies to pay a reduced tax rate on overseas profits they bring home will be included in corporate tax overhaul legislation that Senator Robert Portman said he plans to unveil soon.

“International operations of U.S. businesses simply don’t fit with our tax code,” the Ohio Republican, a former U.S. trade representative, said today in Washington. “Our tax code today gives firms a choice between keeping their earnings abroad tax-free permanently or paying a very steep tax bill if and when they choose to bring their money home.”

Portman said the repatriation proposal, which he said would prompt as much as $1.8 trillion in annual corporate profits to be subject to taxation, should be included only as part of a shift to a territorial system in which U.S. companies’ overseas profits wouldn’t be taxed at the corporate rate.

The U.S. currently taxes worldwide income at a top rate of 35 percent. Most companies pay lower effective rates because they can claim credits for payments to other governments and defer taxation until bringing profits home.

Portman said he wants to introduce corporate tax overhaul legislation “early in this year.” He said it will build on the deficit-reduction supercommittee’s work by lowering the corporate rate and streamlining “an inefficient and complex maze of tax preferences.” Portman’s proposal would reduce the corporate rate to 25 percent.

Taxing Overseas Profits

House Ways and Means Chairman Dave Camp, a Michigan Republican, has proposed letting companies exempt 95 percent of their overseas earnings from U.S. taxation, putting him and Portman at odds with President Barack Obama. In his Jan. 24 State of the Union address, Obama said U.S. companies should pay a “basic minimum tax ” on offshore profits.

The treatment of profits held overseas by U.S. companies would be a central element of a tax code overhaul that Obama and congressional Republicans say they want to pursue.

Portman said his legislation would be “revenue neutral” - based on an analysis by the Joint Committee on Taxation - and that he was working to bring Democrats, including Senator Bill Nelson of Florida, on board.

“This is going to be a tough year to legislate,” Portman said, though he added, “There are some targeted, specific areas where we can make progress and actually get something done, and I think this is one of them.”

Portman spoke at a Washington event organized by the RATE Coalition, a group of 26 companies including AT&T Inc., Boeing Co., Capital One Financial Corp. and Verizon Communications Inc. that advocates for a lower corporate tax rate.

--Editors: Jodi Schneider, Laurie Asseo

To contact the reporter on this story: Kathleen Hunter in Washington at khunter9@bloomberg.net

To contact the editor responsible for this story: Katherine Rizzo at krizzo5@bloomberg.net or Jodi Schneider at jschneider50@bloomberg.net