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76 IRET Policy Bulletin 1 (1999)

handle is hein.taxfoundation/iretpbul0035 and id is 1 raw text is: April 23, 1999 -No. 76 INTERNATIONAL TAX ARBITRAGE: GROUNDS FOR TAX REFORM, NOT TAX OVERKILL* The U.S. Treasury approaches international tax issues with several objectives in mind. First, the Treasury does not want foreign governments to capture what it feels should be U.S. tax base and revenue. Second, the Treasury wants to create a tax system in which investment decisions of American companies are not driven by differences in taxation across countries. Treasury fears that relatively low tax rates abroad might result in runaway plants or distortion of investment decisions. Consequently, Treasury favors the taxation of global income, imposing tax on the foreign earnings of U.S. taxpayers insofar as the U.S. tax rate exceeds that imposed on the same income by foreign tax authorities. Third, however, the Treasury wants U.S. businesses and individuals to be competitive with foreign businesses and individuals operating abroad. Toward that end, the U.S. allows a tax credit for foreign taxes paid to avoid double taxation of foreign source income that would render dealings by U.S. entities impractical. Taxation of global income runs afoul of differences am ong various national tax systems. Numerous types of international transactions allow firms to reduce their U.S. orforeign tax liabilities by taking advantage ofndiscrepancies anong national tax systems in the definition of taxable income, the tax rates applied to various types of income, the treatment of subsidiaries as independent entities or partnerships, and other differences. These practices are oftenl referred to as tax arbitrage . Taxation of global income runs afoul of differences among various national tax systems. Numerous types of international transactions allow firms to reduce their U.S. or foreign tax liabilities This is an expansion of remarks delivered to the International Fiscal Association, USA Branch, 1999 Annual Meeting, Washington, D.C., February 26, 1999. Institute for IRET is a non-profit, tax exempt 501(c)3 economic policy research and educational Research organization devoted to informing the public about policies that will promote on theeconomic growth and efficient operation of the market economy. Economics of 1730 K Street, N.W., Suite 910 * Washington, D.C. 20006 Taxation (202) 463-1400 . Fax (202) 463-6199 e Internet www.iret.org

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