A Burden-Neutral Shift from Foreign Tax Creditability to Deductibility?

23 Pages Posted: 24 Aug 2010 Last revised: 9 Oct 2011

See all articles by Kimberly A. Clausing

Kimberly A. Clausing

UCLA School of Law

Daniel Shaviro

New York University School of Law

Date Written: October 27, 2010

Abstract

Observers of international tax rules have long conflated two distinct effects of the foreign tax credit on multinational firms: the effect on the incentive to invest abroad and the effect on foreign tax sensitivity. With national welfare as the policy objective, we discuss how a burden neutral shift from foreign tax credits to deductibility could be designed to improve distortions associated with insensitivity to foreign taxation without raising aggregate burdens on outward foreign investment. We also provide new evidence suggesting that the tax sensitivity of outward foreign direct investment is indeed reduced for OECD countries using foreign tax credits, in comparison with other OECD countries. Finally, we discuss policy considerations surrounding a possible burden-neutral shift from foreign tax creditability to deductibility.

Keywords: International Taxation, Foreign Tax Credits

JEL Classification: H20, H21, H25, H73

Suggested Citation

Clausing, Kimberly A. and Shaviro, Daniel, A Burden-Neutral Shift from Foreign Tax Creditability to Deductibility? (October 27, 2010). Tax Law Review, Vol. 64, No. 4, 2011, NYU Law and Economics Research Paper No. 10-39, Available at SSRN: https://ssrn.com/abstract=1663771

Daniel Shaviro (Contact Author)

New York University School of Law ( email )

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