Designing a 21st Century Corporate Tax -- An Advance U.S. Minimum Tax on Foreign Income and Other Measures to Protect the Base

61 Pages Posted: 28 Aug 2015 Last revised: 24 Nov 2015

See all articles by Stephen E. Shay

Stephen E. Shay

Harvard Law School

J. Clifton Fleming

Brigham Young University - J. Reuben Clark Law School

Robert J. Peroni

University of Texas at Austin - School of Law

Date Written: July 31, 2015

Abstract

The 21st Century has seen unprecedented levels of corporate tax aggressiveness and avoidance. This article continues our exploration of second best international tax reforms that would protect the U.S. corporate tax base and have some likelihood of adoption. In this case, we consider how a U.S. minimum tax on foreign income earned by a controlled foreign corporation should be designed to protect the United States against erosion of its corporate income tax base and to combat tax competition by low-tax intermediary countries. In the authors’ view, a minimum tax should be an interim levy that preserves the residual U.S. tax on foreign income, as distinguished from a final minimum tax that partially eliminates the U.S. residual tax. An interim minimum tax would be a significant improvement over current law and would more effectively limit incentives to seek low-taxed foreign income while ameliorating pressure to retain excess earnings abroad.

To achieve the objectives of such a minimum tax, corresponding changes should be made to the U.S. corporate resident definition, the source taxation of foreign MNCs, and the residence taxation of U.S. portfolio investors in foreign corporations to reduce tax advantages under current law for investments in foreign corporations. These changes would reduce tax advantages for foreign parent corporate groups and thereby further protect the U.S. tax base as well as reduce incentives for U.S. corporations to expatriate as a consequence of increased U.S. taxation of foreign income under an interim minimum tax.

Keywords: Corporate Tax, Minimum Tax, International Tax, Income Tax, Controlled Foreign Corporations, Base Erosion

JEL Classification: H21, H25, K34

Suggested Citation

Shay, Stephen E. and Fleming, J. Clifton and Peroni, Robert Joseph, Designing a 21st Century Corporate Tax -- An Advance U.S. Minimum Tax on Foreign Income and Other Measures to Protect the Base (July 31, 2015). Florida Tax Review, Vol. 17, 2015; BYU Law Research Paper No. 15-21. Available at SSRN: https://ssrn.com/abstract=2651928

Stephen E. Shay (Contact Author)

Harvard Law School ( email )

1563 Manssachusetts Avenue
Cambridge, MA 02138
United States

J. Clifton Fleming

Brigham Young University - J. Reuben Clark Law School ( email )

430 JRCB
Brigham Young University
Provo, UT 84602
United States

Robert Joseph Peroni

University of Texas at Austin - School of Law ( email )

727 East Dean Keeton Street
Austin, TX 78705
United States

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