![handle is hein.journals/tulr91 and id is 19 raw text is:
2016] TWO CHEERS FOR THE FOREIGN TAX CREDIT
excess of US. tax on foreign-source income means that it does not
strictly conform to the economic standard of capital export
neutrality; (2) it might encourage low-tax foreign countries to
plunder U.S. residual tax revenue by raising their rates of tax on US.
residents up to the US. rate;32 and (3) it does not provide U.S
taxpayers with an incentive to minimize their foreign tax liabilities so
that US. residual tax on their foreign income is maximized.3 Part II
of this Article deals with the relationship between the foreign tax
credit in a real worldwide system and capital export neutrality. Part
111 addresses the point that the foreign tax credit might motivate low-
tax foreign countries to appropriate U.S. residual tax revenue by
increasing their tax on income earned within their borders by U.S.
residents. Part IV discusses the possibility that the foreign tax credit
might make U.S. residents apathetic towards reducing their foreign tax
liabilities so long as those liabilities are not greater than the limitation
on the credit. In Part V we recognize that the foreign tax credit has an
important effect in addition to mitigating international double
taxation-it is a critical element in allocating the international income
tax base between residence countries and source countries. We then
evaluate the foreign tax credit as a tax base allocator in comparison to
an exemption for foreign-source income. In Part VI, we acknowledge
the necessity of a robust definition of corporate residence and preview
our forthcoming work on that topic. Part VII explains why the foreign
tax credit merits only two cheers in spite of its comparative virtues
that make it superior to all other approaches for mitigating double
taxation. The conclusion summarizes our analysis and findings.
31. See GRAVELLE, supm note 26, at 10-11; JOINT COMM., IMPACT OF INTERNATIONAL
TAX REFORM, supra note 9, at 3; AuLT & ARNOLD, supa note 5 at 454-55; 1 NAT'L FOREIGN
TRADE COUNCL, THE NFTC FOREIGN INCOME PROJECT: INTERNATIONAL TAX POLICY FOR THE
21sT CENTURY 5-6, 8 (2001) [hereinafter NFTC 1]; Ault & Bradford, supm note 30, at 40.
Capital export neutrality is an economic standard holding that taxation should be a
neutral factor in a taxpayer's choice between carrying on economic activity in the taxpayer's
residence country or in a foreign country. It is given effect in its purest form when the
taxpayer's residence country taxes each resident's worldwide income as it is earned and
provides the resident with an unlimited credit for foreign income taxes imposed on that
income. See GRAVELLE, supra note 26, at 5-6, 10-11; GusTAFSON, PERONI & PUGH, supra
note 3, at 20.
32. See Stanley S. Surrey, Cwrent Issues ib the Taxation of Corpomte Foreign
Investment 56 COLUM. L. REv 815, 823 (1956). Surrey did not, however, endorse this
criticism.
33. See DANIEL N. SHAvIRO, FIXING U.S. INTERNATIONAL TAXATION 24 (2014); Alan
D. Viard, PPL: Exposig the Flaws of the Foreign Tax Credit 139 TAX NOTES 553, 561-62
(2013); see also Martin A. Sullivan, Shaviok FiRing US. International Taxation, 143 TAX
NOTEs 641 (2014) (providing a complimentary review of Professor Shaviro's position).
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