Stephen E. Shay, J. Clifton Fleming Jr., and Robert J. Peroni, 𝘋𝘦𝘴𝘪𝘨𝘯𝘪𝘯𝘨 𝘢 21𝘴𝘵 𝘊𝘦𝘯𝘵𝘶𝘳𝘺 𝘊𝘰𝘳𝘱𝘰𝘳𝘢𝘵𝘦 𝘛𝘢𝘹 -- 𝘈𝘯 𝘈𝘥𝘷𝘢𝘯𝘤𝘦 𝘜.𝘚. 𝘔𝘪𝘯𝘪𝘮𝘶𝘮 𝘛𝘢𝘹 𝘰𝘯 𝘍𝘰𝘳𝘦𝘪𝘨𝘯 𝘐𝘯𝘤𝘰𝘮𝘦 𝘢𝘯𝘥 𝘖𝘵𝘩𝘦𝘳 𝘔𝘦𝘢𝘴𝘶𝘳𝘦𝘴 𝘵𝘰 𝘗𝘳𝘰𝘵𝘦𝘤𝘵 𝘵𝘩𝘦 𝘉𝘢𝘴𝘦, 17 Fʟᴀ. Tᴀx Rᴇᴠ. 669 (2015).
The 21st Century has seen unprecedented levels of corporate tax aggressiveness and avoidance. This article continues our exploration of second best international tax reforms that would protect the U.S. corporate tax base and have some likelihood of adoption. In this case, we consider how a U.S. minimum tax on foreign income earned by a controlled foreign corporation should be designed to protect the United States against erosion of its corporate income tax base and to combat tax competition by low-tax intermediary countries. In the authors’ view, a minimum tax should be an interim levy that preserves the residual U.S. tax on foreign income, as distinguished from a final minimum tax that partially eliminates the U.S. residual tax. An interim minimum tax would be a significant improvement over current law and would more effectively limit incentives to seek low-taxed foreign income while ameliorating pressure to retain excess earnings abroad. To achieve the objectives of such a minimum tax, corresponding changes should be made to the U.S. corporate resident definition, the source taxation of foreign MNCs, and the residence taxation of U.S. portfolio investors in foreign corporations to reduce tax advantages under current law for investments in foreign corporations. These changes would reduce tax advantages for foreign parent corporate groups and thereby further protect the U.S. tax base as well as reduce incentives for U.S. corporations to expatriate as a consequence of increased U.S. taxation of foreign income under an interim minimum tax.
17 Fla. Tax Rev.
Florida Tax Review