From The Heritage Foundation:
Budget & Taxation
Rethinking U.S. Taxation of Overseas Operations: Subpart F, Territoriality, and the Exception for Active Royalties
by Joseph Henchman
Tax Foundation
November 28, 2011
U.S. corporations operating overseas face a combination of burdens not borne by their international competitors: taxes owed to the United States, taxes owed to the country where the operating activity takes place, and a complex tax system that attempts to reduce the resultant economic harm but involves an array of credits and definitions (Subpart F). To enhance international trade competitiveness a territorial taxation system would be more favorable and would reduce compliance costs, prevent capital “lockout” effects, and remove impediments that discourage foreign firms from headquartering in the United States. Subpart F should be scrubbed of policies that no longer work in today’s global economy. The “related parties” exception may have been meant to discourage firms from operating as overseas tax havens, but instead introduces uncertainty and distortions for legitimate business activity.
URL: taxfoundation.org/files/sr197.pdf
Budget & Taxation
Rethinking U.S. Taxation of Overseas Operations: Subpart F, Territoriality, and the Exception for Active Royalties
by Joseph Henchman
Tax Foundation
November 28, 2011
U.S. corporations operating overseas face a combination of burdens not borne by their international competitors: taxes owed to the United States, taxes owed to the country where the operating activity takes place, and a complex tax system that attempts to reduce the resultant economic harm but involves an array of credits and definitions (Subpart F). To enhance international trade competitiveness a territorial taxation system would be more favorable and would reduce compliance costs, prevent capital “lockout” effects, and remove impediments that discourage foreign firms from headquartering in the United States. Subpart F should be scrubbed of policies that no longer work in today’s global economy. The “related parties” exception may have been meant to discourage firms from operating as overseas tax havens, but instead introduces uncertainty and distortions for legitimate business activity.
URL: taxfoundation.org/files/sr197.pdf
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