Submission to House Ways & Means Committee in Connection with February 24, 2016, Hearings on Intl. Corp Tax Reform -- Taxation of Accumulated Deferred Foreign Income

Abstract

The Committee’s planned international tax reform draft (Draft) will undoubtedly suggest some transition from the present deferral system to some other system. As an integral part of that transition, it is expected as well that the Draft will impose taxation on all “accumulated deferred foreign income” existing as of the transition date.

This submission suggests two administratively workable mechanisms by which a favorable lower-then-35% tax rate can be appropriately applied to accumulated deferred foreign income that was earned through real business activities conducted outside the U.S., consistent with the Congressional intent of the current deferral tax system. On the other hand, any such accumulated deferred foreign income that has resulted from profit shifting activities should be taxed at the full 35%, including an interest charge.

Keywords: accumulated deferred foreign income, international tax reform, transition tax

JEL Classification: H21, H25, K34, E62