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65 Tax L. Rev. 391 (2011-2012)
Taxing Multinational Corporations: Average Tax Rates

handle is hein.journals/taxlr65 and id is 405 raw text is: Taxing Multinational Corporations: Average Tax Rates MELISSA COSTA* AND JENNIFER GRAVELLE** I. INTRODUCTION As other countries, most recently the United Kingdom, have moved to territorial tax systems, questions about the potential for the United States to move to a territorial tax have become topics of interest. Key to making informed decisions on options for changing the tax treat- ment of foreign corporate income is a greater understanding of the taxes U.S. multinational corporations actually pay. This Article is a continuation of a previous analysis that used a new tax data source to provide more comprehensive estimates of average tax rates (ATRs) on foreign and domestic income of U.S. corpora- tions. The analysis we undertake in this Article is an extension of an earlier report by the Government Accountability Office.1 That report provided descriptive statistics on multinational corporations' activities and tax rates they faced. Previously we provided ATRs of U.S. con- trolled foreign corporations (CFCs)2 incorporated in different coun- tries.3 This Article expands on both prior works by including estimates of the ATRs of U.S. CFCs by industry and by providing updated estimates of U.S. ATRs on foreign and domestic income of multinational corporations. We employ a similar methodology with some refinements in the measures of domestic and foreign income. Details on our methodology and how it differs from the GAO report are provided in the Appendix. * Internal Revenue Service. ** Congressional Budget Office. The views expressed here are those of the authors and should not be interpreted as those of the Internal Revenue Service or the Congressional Budget Office. 1 Government Accountability Office, U.S. Multinational Corporations: Effective Tax Rates Are Correlated with Where Income Is Reported (Aug. 2008), available at http:// www.gao.gov/new.items/d08950.pdf. 2 A foreign corporation is considered to be a CFC if (on any day during the foreign corporation's tax year) U.S. shareholders own more than 50% of its outstanding voting stock, or more than 50% of the value of all its outstanding stock, and individually own at least 10%. IRC §§ 951(b), 957. 3 Melissa Costa & Jennifer Gravelle, U.S. Multinationals Business Activity: Effective Tax Rates and Location Decisions, Nat'l Tax Ass'n Proceedings of the 104th Annual Con- ference 91 (2010. 391 Imaged with the permission of Tax Law Review of New York University School of Law

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