A Two-Pronged Approach to Reforming International Corporate Taxes in the U.S.

Abstract:     
This article proposes a modified territorial system for the U.S. taxation of foreign source income of corporations. First, Congress should exempt from U.S. taxes all corporate income (other than mobile income) earned in foreign countries with an effective corporate tax rate of 20 percent or higher. Such income could be repatriated at any time to the U.S., subject to payment of an administrative charge of 5 percent.

Second, Congress should end the current deferral system for foreign-source income earned by U.S. corporations in countries with effective tax rates under 20 percent. That portion of foreign-source income would be taxed every year in the U.S. at a rate equal to the difference between 20 percent and the actual rate paid by the U.S. corporation in the tax haven.

Number of Pages in PDF File: 5

Keywords: Modified territorial system, minimum tax, foreign controlled corporations, tax havens

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