A Corporate Offshore Profits Transition Tax
57 Pages Posted: 14 Nov 2012 Last revised: 3 Feb 2013
Date Written: January 23, 2013
Congress might repeal the residual U.S. tax imposed when non-U.S. subsidiaries repatriate earnings to U.S. parent corporations. Repeal would raise the transition issue of how to tax the $1 trillion to $2 trillion of offshore earnings held by such non-U.S. subsidiaries. This article proposes a 5%-10% corporate offshore profits transition tax on non-U.S. subsidiaries' untaxed earnings and profits, without downward adjustment for a foreign tax credit. It suggests using the financial accounting measure of unremitted earnings to help determine pre-1987 earnings and police aggressive efforts to reduce the earnings and profits base. The article’s policy analysis is based on the metrics of efficiency, administrability and equity.
Keywords: transition tax, territoriality, repatriation, unremitted earnings, permanently reinvested earnings
JEL Classification: K34
Suggested Citation: Suggested Citation