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Planning and Policy Issues Raised by the Structure of the U.S. International Tax Rules Daniel Shaviro NYU Law School Broader context More on the broader context Ch 2: Planning Policy Issues from the U.S. Rules’ Main Building Blocks Plan of Chapter 2 Corporations as Taxpayers (1) Corporate residence Change the residence definition? (2) Source rules Defining source for active business income Source of passive income (3) Foreign tax credits with limits Effective MRRs 100%? (4) Deferral (5) Subpart F Arguments for applying subpart F to passive income but not base companies And in conclusion … * Chapter 2 of book-in-progress currently entitled “Fixing the U.S. International Tax Rules.” (Livelier suggestions welcomed.) Initial conception: “Current Intellectual State of the Play in U.S. International Tax Policy Debate.” Get past the “alphabet soup” of CEN / CIN / CON; address new research (e.g., finding outbound investment to be a complement not a substitute for home investment). “Alphabet soup” debate is fundamentally flawed - why only 1 margin; how do we link WW and national welfare. A better focus: market power in imposing WW residence-based tax, analogy to standard/optimal tariffs, prisoner’s dilemma if WW unilateral diverge. Project then expanded to include specific reform proposals. Proposal 1: exemption but with transition tax; fix source rules without regard to residence. No subpart F! Rationale: weakness of corporate residence concept; no windfall for prior outbound investment; fixing source rules for ALL multinationals obviates any need for subpart F. Proposal 2: If stuck with ceasefire-in-place, enact burden-neutral repeal of deferral foreign tax credit, with outbound rate declining to (say) 5%. Rationale: eliminate distortions incentive problems from deferral FTC planning; existing burden on outbound stays about the same. Two key facts about U.S. international tax rules: (1) Horrible ratio of tax planning compliance costs to revenue raised; huge beha