Expanded Worldwide Versus Territorial Taxation After the TCJA

18 Pages Posted: 19 Dec 2018 Last revised: 19 Mar 2019

See all articles by J. Clifton Fleming

J. Clifton Fleming

Brigham Young University - J. Reuben Clark Law School

Robert J. Peroni

University of Texas at Austin - School of Law

Stephen E. Shay

Harvard Law School

Date Written: December 3, 2018

Abstract

One of the principal U.S. tax policy issues leading up to the Tax Cuts and Jobs Act was how foreign-source active business income of U.S. multinational enterprises should be taxed by the United States if the system of deferring U.S. tax on active foreign income of a foreign subsidiary was ended. Much of the U.S. multinational business community urged that the United States adopt a territorial or exemption system, while others, including many labor-backed groups, favored adopting an expanded worldwide tax regime. As others have observed, Congress chose both. This report takes a preliminary look at the extent to which the TCJA's purely outbound international provisions caused a degree of movement in either direction.

The TCJA created a more complex international system that manages to include elements of territoriality, expanded worldwide taxation, and even deferral. Consequently, the TCJA does not resolve the territorial versus worldwide debate, but extends it.

When the one-time acceleration of tax on deferred earnings is set aside, the TCJA's ongoing outbound rules are estimated to actually lose revenue, thus supporting a conclusion that the U.S. international tax system has shifted toward territoriality, although not nearly so much as territoriality advocates had hoped.

The authors have concluded that expanded worldwide taxation is the normatively preferred position. The report explains how the new global intangible low-taxed income regime may serve as a platform to shift the U.S. international tax regime to expanded worldwide taxation and identifies steps that would accomplish that objective.

Keywords: International Income Taxation, Transnational Taxation, Tax Policy, Income Taxation

JEL Classification: H21, H25, H26, K34

Suggested Citation

Fleming, J. Clifton and Peroni, Robert Joseph and Shay, Stephen E., Expanded Worldwide Versus Territorial Taxation After the TCJA (December 3, 2018). Tax Notes, Vol. 161, 2018; BYU Law Research Paper No. 19-04. Available at SSRN: https://ssrn.com/abstract=3295849

J. Clifton Fleming (Contact Author)

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

Stephen E. Shay

Harvard Law School ( email )

1563 Manssachusetts Avenue
Cambridge, MA 02138
United States

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