Back to the Future? The Potential Revival of Territoriality

14 Pages Posted: 30 Jul 2008 Last revised: 14 Aug 2008

Date Written: July 29, 2008


Until 1993, the United States led the rest of the developed world in strengthening residence-based world-wide corporate and individual income taxation. However, since 1994 this trend seems to have been reversed, at least in part, and similar developments are taking place overseas (e.g., in France and the UK). Thus, there seems to be a trend to reduce the scope of residence jurisdiction, while increasing the emphasis on source jurisdiction. If this trend continues, it seems likely that both traditional territorial countries like France and traditional world-wide countries like to UK and the US would move toward territoriality and decrease emphasis on their CFC rules. In the author's opinion, the reason for the trend to restrict CFC rules is political and economic, not legal: It is part of tax competition, specifically the competition to be the headquarters jurisdiction for MNEs. However, the author also believes that the US and other jurisdictions do not need to go down this road, because the solution to the competitiveness issue is collaboration, not more competition.

Keywords: Territoriality, tax competition, Subpart F

JEL Classification: H25

Suggested Citation

Avi-Yonah, Reuven S., Back to the Future? The Potential Revival of Territoriality (July 29, 2008). U of Michigan Law & Economics, Olin Working Paper No. 08-012, U of Michigan Public Law Working Paper No. 114, Available at SSRN: or

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

625 South State Street
Ann Arbor, MI 48109-1215
United States
734-647-4033 (Phone)

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