Paul L. Caron

Tuesday, December 20, 2005

Fleming & Peroni on Exploring the Contours of a Proposed U.S. Exemption (Territorial) Tax System

Tax_analysts_215 J. Clifton Fleming, Jr. (BYU) & Robert J. Peroni (Texas) have published Exploring the Contours of a Proposed U.S. Exemption (Treritorial) Tax System, 109 Tax Notes 1557 (Dec. 19, 2005), also available on the Tax Analysts web site as Doc 2005-24240, 2005 TNT 243-29.  Here is the abstract:

The President's Advisory Panel on Federal Tax Reform and the Joint Committee on Taxation staff have recently advanced similar proposals for a U.S. exemption system regarding particular foreign- source income of particular U.S. corporate taxpayers. Both proposals are well meaning but ultimately flawed attempts to simplify the U.S. international tax rules. The proposals, if enacted, would do little to provide simplification for most taxpayers and would intensify complexities in existing law while adding new complexities of their own. Moreover, the "new" ownership neutrality defense of those exemption plans is largely capital import neutrality under a new label but with all the old defects. It is not surprising that the proposed exemption systems would exacerbate the economic distortions caused by the current U.S. tax rules and that the reform panel's exemption proposal would largely continue the economic bias resulting from the deferral privilege. Further, if fundamental international tax reform is to be accomplished, the Bush administration and Congress should consider replacing the present, largely ineffective, antideferral rules with a passthrough system for foreign corporations owned by U.S. persons that ends deferral completely for those shareholders. That approach would simplify the U.S. international tax system and substantially improve its economic efficiency and fairness.

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