The Resource Throw territorial taxation from the train

Throw territorial taxation from the train

Throw territorial taxation from the train
Throw territorial taxation from the train
This report reviews the case for replacing the U.S. Internal Revenue Code's complex rules for taxing foreign direct investment with a territorial tax system. It first summarizes the basic features of the business entity income tax (BEIT). Then it explains the reasons to reject territorial taxation: practical implementations of territoriality; the critical importance of transfer pricing; territoriality and transfer pricing; and competitiveness and economic neutrality. Finally it considers 'full-inclusion' but pro-competitive: transfer pricing and repatriation neutrality; applying BEIT to outbound investment. The report acknowledges that a territorial system offers one unambiguous advantage over current law, which is that it removes U.S. tax frictions on repatriating foreign profits. The report argues, however, that a territorial tax system would vastly exacerbate cross-border transfer pricing problems by rewarding successful transfer pricing gamers as "instant winners" of the tax lottery. In the light of the overwhelming evidence of pervasive transfer pricing problems today, the author argues that this alone is sufficient reason not to move to a territorial tax system. He also argues that other purported advantages of territorial systems, including simplicity and a more competitive tax environment for U.S. multinationals, are overstated
Citation source
In: Tax notes international. - Arlington. - Vol. 46 (2007),
Kleinbard, E.D
Geographic coverage
North America
Language note
  • foreign investment
  • corporate income tax
  • territoriality principle
  • transfer pricing
Throw territorial taxation from the train
Throw territorial taxation from the train

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