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Structuring an Exemption System for Foreign Income of U.S. Corporations

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  • Graetz, Michael J.
  • Oosterhuis, Paul W.

Abstract

About half the OECD countries provide a tax credit for foreign taxes on foreign source business income earned by multinational corporations; the other half exempt from domestic taxation active business income earned abroad. We undertake a preliminary inquiry here into the potential structure of such an exemption system for the U.S. Most of the issues raised by an exemption system parallel those debated under the current credit system. This is not surprising; both systems share the same general goal: avoiding international double taxation without stimulating U.S. taxpayers to shift operations, assets or earnings abroad. Shifting to an exemption system might simplify U.S. international income tax law, but only if simplification is made a priority. Some of the potential simplifications of the rules governing international taxation of business suggested here could be adopted whether or not exemption is enacted.

Suggested Citation

  • Graetz, Michael J. & Oosterhuis, Paul W., 2001. "Structuring an Exemption System for Foreign Income of U.S. Corporations," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(4), pages 771-786, December.
    • Handle: RePEc:ntj:journl:v:54:y:2001:i:4:p:771-86
    DOI: 10.17310/ntj.2001.4.06
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    References listed on IDEAS

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    1. Grubert, Harry, 1998. "Taxes and the division of foreign operating income among royalties, interest, dividends and retained earnings," Journal of Public Economics, Elsevier, vol. 68(2), pages 269-290, May.
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    Cited by:

    1. Altshuler, Rosanne & Grubert, Harry, 2001. "Where Will They Go if We Go Territorial? Dividend Exemption and the Location Decisions of U.S. Multinational Corporations," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(4), pages 787-809, December.
    2. Anken, F. & Beasley, J.E., 2012. "Corporate structure optimisation for multinational companies," Omega, Elsevier, vol. 40(2), pages 230-243, April.
    3. Daniel N. Shaviro, 2009. "Planning and Policy Issues Raised by the Structure of the U.S. International Tax Rules," Working Papers 0915, Oxford University Centre for Business Taxation.
    4. Tajika, Eiji & 田近, 栄治 & Nakatani, Ryota & 中谷, 亮太, 2008. "Welcome Home to Japan: Repatriation of Foreign Profits by Japanese Multinationals," Discussion Papers 2008-04, Graduate School of Economics, Hitotsubashi University.

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