Related Publications and Research
Tax Foundation, "2015 International Tax Competitiveness Index," September 2015.
Taxes are a crucial component of a country’s international competitiveness. In today’s globalized economy, the structure of a country’s tax code is an important factor for businesses when they decide where to invest, how much to invest, and which types of operations to locate in which countries. No longer can a country levy high taxes on business investment and activity without adversely affecting its economic performance. In recent years, many countries have recognized this fact and have moved to reform their tax codes to be more competitive. However, others have failed to do so and are falling behind the global movement.
Tax Foundation, "Corporate Income Tax Rates Around the World, 2014," August 20, 2014.
Among the 34 industrialized nations of the Organization for Economic Cooperation and Development (OECD), the United States has the highest corporate income tax rate -- a fact well known. The Tax Foundation took it one step further in this report, measuring how the United States stacks up against all of the countries and other tax jurisdictions throughout the world.
LIFT America, "Written Comments Submitted to the House Ways and Means Committee International Tax Reform Working Group," April 15, 2013.
To support U.S. competitiveness and job growth, the United States needs to enact a modern territorial tax system that strengthens America’s competitiveness in the global marketplace, promotes increased U.S. investment and protects America’s tax base. ... Transitioning to a competitive international system, similar to the one used by our trading partners, represents a balanced reform to our tax laws. U.S. companies would continue to pay the taxes they owe both here and abroad, while at the same time the United States would become a more attractive place to locate a business, invest and hire.
PwC (Prepared for Technology CEO Council), "Evolution of Territorial Tax Systems in the OECD," April 2013.
This report, prepared for the Technology CEO Council, documents the pronounced shift over the past 40 years toward use of territorial tax systems among the advanced economies that are members of the Organization for Economic Cooperation and Development (OECD).
Gary Clyde Hufbauer and Martin Vieiro, Peterson Institute for International Economics, "Corporate Taxation and U.S. MNCs: Ensuring a Competitive Economy," April 2013.
Most important, US parent companies of MNC groups can defer the repatriation of earnings from their subsidiaries abroad and thereby delay—perhaps permanently—the payment of high US corporate taxes. However, the formal structure of worldwide taxation is often used as the springboard for proposed “reforms” that would sharply increase the tax burden on foreign earnings. By contrast, most other countries practice territorial taxation, meaning that the active business income of foreign affiliates pays a sharply reduced (or zero) rate of taxation to the home country. ... Two decades ago, when Hufbauer and van Rooij (1992) first advocated a territorial tax system for the United States, theirs were lonely voices. Under a territorial system, profits earned by foreign subsidiaries abroad are not taxed at all by the home country, or are taxed at a reduced rate (e.g., 10 percent). Today a majority of knowledgeable commentators, like the Simpson-Bowles Commission, favor some form of territorial tax system.
Tax Foundation, "The Territorial Taxation Experience in the Netherlands," November 16, 2012.
In sum, the Netherlands has operated a competitive territorial system with substantially lower corporate tax rates than in the U.S. and it has experienced better labor outcomes and greater levels of corporate tax revenue. The Dutch case specifically rebuts each of the fears associated with territorial taxation and may be held up as an international tax exemplar.
Tax Foundation, "Germany Promotes Competition with Shift to Territorial Taxation System," November 15, 2012.
While operating a territorial system throughout the modern era, Germany has emerged as one of the most robust economies in the world and is considered the European continent’s “economic giant.” Its GDP per capita is $40,116, ranking in the top decile of all countries, and it is the third-leading exporter in the world. ... German policymakers have recognized the tradeoffs inherent to international taxation and as one of the world’s leading exporters, have chosen to promote the competitiveness of their companies over collecting more tax revenues.
Tax Foundation, "The United Kingdom's Move to Territorial Taxation," November 14, 2012.
For the 2011 budget, Chancellor George Osborne proclaimed that the highest ambitions for the British economy were to “have the most competitive tax system in the G20,” and “be the best place in Europe to start, finance and grow a business.” Along with tax rate reductions, the transition to a territorial system has served British ambitions. Within days of the announcement, two of the twenty-two recently inverted companies announced that they would consider a move back to the UK.
Tax Foundation, "Japan Disproves Fears of Territorial Taxation," November 13, 2012.
In the first three years of the new territorial taxation policy in Japan, not one of the popular fears has become a reality. While outbound FDI is up from 2009, this is by the design of Japanese policymakers; foreign investment represents new growth opportunities for the domestic Japanese economy as its companies engage the world marketplace. The unemployment rate is down, wages are up, and corporate tax revenues have remained stable. This is antithetical to what opponents of a U.S. territorial system might expect.
Tax Foundation, "Canada's Experience with Territorial Taxation," November 10, 2012.
In spite of fears that foreign investment displaces domestic investment to the detriment of the home economy, the case of Canada demonstrates that foreign engagement, territorial taxation, and competitive tax rates can promote better economic performance. Canada’s economy has grown at an average real rate of 2.61 percent since 1995, which is 0.2 points stronger than the U.S. average and 0.4 point stronger than the OECD average. This has translated into more jobs in the Canadian economy.
Manhattan Institute for Policy Research, "The Merits of a Territorial Tax System," October 2012.
America’s corporate tax rate is one of the highest in the industrialized world. Currently, the U.S. corporate tax rate is 35 percent, compared with an average of 23 percent for its industrialized competitors. Reform is becoming increasingly urgent as the gap between American and foreign rates widens. Not only are U.S. corporations at a disadvantage when they operate abroad, but high tax rates are driving American companies overseas. For example, Aon Corporation, the Chicago-based insurance company, recently relocated its headquarters to London for tax reasons.
Tax Foundation, "A Global Perspective on Territorial Taxation," August 10, 2012.
It is not by coincidence that the territorial system has gained so many adherents; it provides very real economic advantages over its worldwide counterpart. In the case of the U.S., a transition to territorial taxation would free the $1.7 trillion dollars currently locked out of the U.S, place U.S.-based companies on equal footing with competitors in every market, reduce complexity and compliance costs, reduce the incentive to reincorporate abroad, and could be accompanied by improvements to anti-abuse protections.
Tax Foundation, "How Much Do U.S. Corporations Really Pay in Taxes?," February 6, 2012.
U.S. companies pay among the highest corporate tax rates in the world, even after accounting for all deductions and loopholes, according to a new video produced by the Tax Foundation. This explanation of "effective" tax rates for corporations, based on recent academic studies of tax systems around the globe, is the third in a 5-part series on corporate taxes.
Tax Foundation, "A New Way to Tax Corporations: Switching to a Territorial System," January 9, 2012.
Businesses in the United States face a strategic disadvantage when competing abroad due to the current structure of the U.S. tax code. Unlike most other countries in the world, the U.S. government taxes profits earned abroad on top of what companies pay to foreign countries. In order to spur greater investment and economic growth, the U.S. should follow the example of our closest trading partners and embrace a territorial tax system, according to the second in a new series of videos produced by the Tax Foundation.
Peterson Institute for International Economics, "US Tax Discrimination Against Large Corporations Should Be Discarded," October 2011.
Despite common sense and the teachings of economics, tax discrimination is alive and well… If the targets of discrimination are the nation’s largest firms (the norm in the United States) the country will find it harder to compete on a global scale in industries that require dedicated research for decades, industries that exhibit huge scale economies, and industries that network across national borders.
Tax Foundation, "Ten Reasons the U.S. Should Move to a Territorial System of Taxing Foreign Earnings" (Special Report), May 11, 2011.
Based on the tax system changes being undertaken by our major trading partners, as well as the trends in economic research, lawmakers would do well to consider the following 10 reasons why our current international tax rules should be replaced with a territorial or exemption regime that exempts most foreign profits from U.S. tax.
Gary Clyde Hufbauer, Peterson Institute for International Economics, Interview: "Taxing Firms That Ship Jobs Overseas: Will It Backfire?," May 3, 2010.
Gary Clyde Hufbauer argues that Obama's proposal to punish firms that ship jobs overseas would hurt the very firms that export products made in America.
Gary Clyde Hufbauer and Theodore H. Moran, Peterson Institute for International Economics, "Destroying Jobs and Hobbling Exports," June 2010.
This policy brief focuses on the "American Jobs and Closing Tax Loopholes Act" (HR 4213). According to the authors, this bill, which has just been passed by the U.S. House of Representatives, will hurt American workers, reduce American exports, and make American companies less competitive in the international marketplace.
McKinsey Global Institute, "Growth and Competitiveness in the United States: The Role of Its Multinationals," June 2010.
Although US multinationals include many of biggest companies in the United States, the full extent of their economic impacts are less well known. MGI seeks to provide a fuller picture by assessing the contributions of MNCs across the key metrics of economic performance. U.S. multinationals represent less than 1 percent of all U.S. companies, yet they contribute disproportionately to the U.S. economy’s growth and health in many ways.
Gary Clyde Hufbauer and Theodore H. Moran, Peterson Institute for International Economics, "Higher Taxes on U.S.-Based Multinationals Would Hurt U.S. Workers and Exports," May 2010.
This policy brief explains how the Administration's proposed changes to the U.S. international tax system would have a negative impact on the competitiveness of worldwide American companies.
Ernst & Young LLP, "The U.S. International Tax System At a Crossroads," April 5, 2010.
In a special report published exclusively in Tax Notes, four senior tax leaders of Ernst & Young LLP and Ernst & Young Global — all former Treasury officials — caution that the U.S. international tax system stands at a crossroads. It is outdated, overly complicated, and increasingly ineffective in supporting the goals of either government or businesses in today’s competitive global marketplace.
Matthew J. Slaughter, "How U.S. Multinationals Strengthen the U.S. Economy," March 2010.
This report demonstrates that U.S. multinational companies are, first and foremost, American companies. They perform large shares of America’s productivity-enhancing activities—capital investment, research and development, and trade—that lead to jobs and high compensation.
Organization for Economic Cooperation and Development, "A Progress Report on the Jurisdictions Surveyed by the OECD Global Forum in Implementing the Internationally Agreed Tax Standard," October 12, 2009.
This OECD progress report lists jurisdictions that have substantially implemented the internationally agreed tax standard; jurisdictions that have committed to the internationally agreed tax standard, but have not yet substantially improved; and the jurisdictions that have not committed to the internationally agreed tax standard. This report was referenced in an October 15, 2009 letter sent by the National Foreign Trade Council to Senate Finance Committee leaders regarding the “Stop Tax Haven Abuse Act."
Ernst & Young LLP, "The Changing Landscape of Headquarter Locations and Headquarter Taxation of Fortune Global 500 Companies," October 2009.
Changes in the Fortune Global 500 over the past decade provides a valuable insight into how global competition and U.S. taxes impact worldwide American companies.
Robert D. Atkinson, The Information Technolology & Innovation Foundation, "Effective Corporate Tax Reform in the Global Innovation Economy," July 2009.
An effective corporate tax system reflects current economic realities. As such, there is a need for fundamental reform of the U.S. corporate tax system for it is based on principles that may have made sense a generation ago, but no longer do. However, while there is increasing interest in corporate tax reform, including Obama administration proposals to limit deferral of foreign source income, there is little agreement on what reform should look like. This paper seeks to inform this debate by articulating principles to guide reform and proposing recommendations based on those principles.
Robert J. Shapiro and Aparna Mathur, "The Economic Benefits of Provisions Allowing U.S. Multinational Companies to Defer U.S. Corporate Tax on their Foreign Earnings and the Costs to the U.S. Economy of Repealing Deferral," June 2009.
This study analyzes the economic effects of repealing the deferral rules that have governed the way we tax the foreign earnings of U.S. companies since the advent of the corporate income tax in 1913. The administration proposal would not repeal deferral completely, but it does move significantly in that direction. The results will be same – making U.S. companies less competitive in global markets and costing American jobs.
Salvador Barrios, Harry Huizinga, Luc Laeven, Gaëtan Nicodème, “International Taxation and Multinational Firm Location Decisions,” April 2009.
Using a large international firm-level data set, the authors of this paper estimate separate effects of host and parent country taxation on the location decisions of multinational firms. For the cross-section of multinational firms, the paper finds that parent firms tend to be located in countries with a relatively low taxation of foreign-source income. Overall, the results show that parent-country taxation – despite the general possibility of deferral of taxation until income repatriation – is instrumental in shaping the structure of multinational enterprise.
Gaëtan Nicodème, “Corporate Income Tax and Economic Distortions,” April 2009.
As any non-lump-sum tax, corporate income taxation creates distortions in economic choices, reducing its efficiency. This paper reviews some of these domestic and international distortions and their most recent estimates from the economic literature. Distortions originating from income shifting between capital and labour sources, profit shifting across jurisdictions, the effects of taxation on business location and foreign direct investment are the major sources of distortions.
Kevin Markle and Douglas A. Shackleford, “Corporate Income Tax Burdens at Home and Abroad,” March 9, 2009.
This paper provides the most comprehensive analysis of firm-level corporate income tax burdens to date. The authors found that multinationals and companies operating in only one country had similar AETRs. The paper provides some empirical underpinning for ongoing policy debates about the taxation of multinational profits. In addition to the paper, click here for a presentation of the key findings.
Mihir Desai, "Securing Jobs or the New Protectionism?: Taxing the Overseas Activities of Multinational Firms," March 2009.
This paper analyzes the available evidence on two related claims i) that the current U.S. policy of deferring taxation of foreign profits represents a subsidy to American firms and ii) that activity abroad by multinational firms represents the displacement of activity that would have otherwise been undertaken at home. These two tempting claims are found to have limited, if any, systematic support.
Gary Clyde Hufbauer and Jisun Kim, “U.S. Taxation of Multinational Corporations: What Makes Sense, What Doesn’t,” March 2009.
President Barack Obama proposes to translate his rhetoric directed against "tax breaks to corporations that ship jobs overseas" into new tax measures that will penalize investment abroad by US-based multinational corporations (MNCs). Hufbauer and Kim believe that the United States should not try to constrain the overseas operations of these firms. Instead, the United States should reform its enormously complex tax system at home and create a business-friendly environment. Tax reform should be designed to boost both the domestic and international activities of US-based MNCs and bring more foreign investment to American shores.
Peter R. Merrill, “Competitive Tax Rates for U.S. Companies: How Low to Go?,” February 23, 2009.
Both Democrats and Republicans have advanced proposals that would reduce the top federal corporate income tax rate from its current level of 35 percent. Looking ahead, a key question for policymakers is whether a reduction in the corporate tax rate to the 28 percent to 31 percent range advocated in recent proposals, discussed below, would be sufficient to match international benchmarks.
Raymond J. Mataloni, “U.S. Multinational Companies: Operations in 2006,” Survey of Current Business, November 2008.
Three key measures of the worldwide operations of non-bank U.S. multinational companies (MNCs) – value added, employment, and capital expenditures – continued to increase in 2006, according to preliminary results from the annual survey of U.S. direct investment abroad conducted by the Bureau of Economic Analysis (BEA).
United Nations Conference on Trade and Investment, World Investment Report, September 2008.
After four consecutive years of growth, global FDI inflows rose in 2007 by 30% to reach $1,833 billion, well above the previous all-time high set in 2000. The increase in FDI largely reflected relatively high economic growth and strong corporate performance in many parts of the world. Reinvested earnings accounted for about 30% of total FDI inflows as a result of increased profits of foreign affiliates, notably in developing countries.
Rangel Bill Proposes Sweeping Changes to Taxation of U.S.-Based Multinationals,” Marc J. Gerson and Rocco V. Femia, March – April 2008.
This article focuses on two of the proposed changes to the U.S. taxation of U.S.-based multinationals: (1) the deferral of deductions otherwise allowable to a U.S. taxpayer to the extent such deductions are allocated to un-repatriated income earned by the taxpayer’s controlled foreign corporations (CFCs); and (2) a limitation on foreign tax credits based on an average foreign tax rate imposed on the sum of the foreign source income of the taxpayer and the unrepatriated income earned by the taxpayer’s CFCs.
European Commission, Taxation Trends in the European Union, 2008 Edition.
This is the second issue of “Taxation Trends in the European Union,” an expanded and improved version of a previous annual publication, “Structures of the taxation systems in the European Union.” The objective of the report remains unchanged: to present a complete view of the structure, level and trends of taxation in the Union over a medium- to long-term period.
“Decline in the U.S.-Controlled Share of the Open Registry Merchant Shipping Fleet since 1975,” September 10, 2007.
This article explores industry’s experience with deferral and taxation under subpart F over the past quarter century and examines the reasons cited by policymakers for the 1986 and 2004 act changes. There are lessons to be learned, lessons about unintended consequences that are directly relevant to the policy debate unfolding today in the international tax arena.
Carol Corrado, Paul Lengermann, and Larry Slifman, “The Contribution of Multinational Corporations to U.S. Productivity,” Finance and Economics Discussion Series Paper 2007-21, Federal Reserve Board, February 9, 2007.
In this paper, the authors decompose aggregate labor productivity growth in order to gauge the relative importance of multinational corporations (MNCs) to the economic performance of the United States in the 1990s. The paper concludes, among other findings, that the MNC sector accounted for more than half of the acceleration in labor productivity growth of all U.S. non-farm private businesses.
Mihir Desai, C. Fritz Foley, and James R. Hines, Jr., “Foreign Direct Investment and Domestic Economic Activity,” National Bureau of Economic Research Working Paper no. 11717, October 2005.
This paper addresses the question of how rising foreign investment influences economic activity. Firms whose foreign operations grow rapidly exhibit coincident rapid growth of domestic operations, but this pattern alone is inconclusive, as foreign and domestic business activities are jointly determined. This study uses foreign GDP growth rates, interacted with lagged firm-specific geographic distributions of foreign investment, to predict changes in foreign investment by a large panel of American firms.
Mihir Desai, C. Fritz Foley, and James R. Hines, Jr., “Foreign Direct Investment and the Domestic Capital Stock,” National Bureau of Economic Research Working Paper no. 11075, January 2005.
This paper evaluates evidence of the impact of outbound foreign direct investment (FDI) on domestic investment rates. OECD countries with high rates of outbound FDI in the 1980s and 1990s exhibited lower domestic investment than other countries, which suggests that FDI and domestic investment are substitutes. U.S. time series data tell a very different story, however: years in which American multinational firms have greater foreign capital expenditures coincide with greater domestic capital spending by the same firms.
President’s Advisory Panel on Federal Tax Reform, Simple, Fair, and Pro-Growth: Proposals to Fix America’s Tax System, 2005.
The Panel examined the current corporate and individual income tax systems, evaluated a variety of proposals, and made recommendations for reform.
Mark E. Doms and J. Bradford Jensen, “Comparing Wages, Skills, and Productivity between Domestically and Foreign-Owned Manufacturing Establishments in the United States,” in Robert E. Baldwin, Robert E. Lipsey, and J. David Richardson (eds.) Geography
Organization for Economic Cooperation and Development, Open Markets Matter: The Benefits of Trade and Investment Liberalization, 1998.
This Policy Brief summarizes an OECD study of the benefits of open markets. The study’s chief purpose is to help governments better explain the clear net benefits of keeping markets open to international trade and investment and of staying the course of market-led reforms.
Martin Feldstein, “Taxes, Leverage and the National Return on Outbound Foreign Direct Investment,” National Bureau of Economic Research Working Paper no. 4689, March 1994.
The effect of outbound foreign direct investment (FDI) on the national income of the parent firm's country depends on the relative importance of two countervailing factors: the loss of tax revenue to the foreign government and the increased use of foreign debt. This paper develops an explicit analysis of these two factors in the context of the segmented international capital market in which most national saving remains in the country in which the saving is done.