Rethinking Foreign Tax Creditability
New York University School of Law
June 3, 2010
NYU Law and Economics Research Paper No. 10-30
International tax policy experts often mistakenly conflate two distinct margins: (1) the overall tax burden on outbound investment, and (2) the marginal reimbursement rate (MRR) for foreign taxes paid, which is 100 percent under a foreign tax credit system, but equals the marginal tax rate for foreign source income under an explicit or implicit deductibility system (such as exemption). From a unilateral national welfare standpoint, whatever the right answer at margin (1), deductibility is clearly optimal, and creditability dangerously over-generous, at margin (2).
Number of Pages in PDF File: 22
Keywords: international taxation, foreign tax credits, double taxation
JEL Classification: H20, H21, H25, H73
Date posted: June 4, 2010 ; Last revised: July 9, 2010
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