Vive La Petite Difference: Camp, Obama, and Territoriality Reconsidered

7 Pages Posted: 4 Apr 2012 Last revised: 8 Feb 2014

Date Written: April 4, 2012


The recent tax reform proposals by Chairman Camp (R-MI) of the House Ways and Means Committee and by President Obama seem to offer starkly contrasting visions of how to reform the taxation of foreign source income earned by US-based multinationals (MNEs). Both acknowledge the problem, which is that US-based MNEs currently have over a trillion dollars of “permanently reinvested” income offshore, which they cannot bring back to the US without incurring a 35% tax penalty. However, they seem to offer radically different solutions: Under the Camp Proposal, a participation exemption will enable US-based MNEs to bring back the income without paying significant tax. Under the Obama Proposal, deferral will be abolished and US-based MNEs will have to pay a minimum tax on foreign source income earned by their controlled foreign corporations (CFCs) as it is earned. The result would be that the tax penalty on repatriating such income would be reduced because dividends would only be subject to tax at the difference between the statutory rate (reduced to 28% under the Obama Proposal) and the minimum rate.

However, a closer look reveals that these proposals have more in common than meets the eye. Specifically, the Obama Proposal’s minimum tax on foreign source income of CFCs is perfectly compatible with exempting such income from further tax when it is repatriated, as the Camp Proposal envisages. Conversely, the provisions to prevent income shifting in the Camp Proposal can in practice result in precisely the minimum tax on the foreign source income of CFCs that is the centerpiece of the Obama Proposal. This level of agreement suggests that a compromise embodying elements of both proposals should not be impossible to reach when tax legislation is enacted after the fall election.

Keywords: Tax Reform, Territoriality

JEL Classification: H25

Suggested Citation

Avi-Yonah, Reuven S., Vive La Petite Difference: Camp, Obama, and Territoriality Reconsidered (April 4, 2012). U of Michigan Public Law Working Paper No. 267, 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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