it'a pretty dry read, but I loved the "Extraterritorial Income (ETI) provisions" - looks like lots of loop-holes, approved by the congress/senate going way back
I like the flat tax idea, no loop-holes, no deductions, for corporate or personal income tax
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Likewise, every year, U.S.-based multinational corporations transfer hundreds of billions of dollars of goods and services between their affiliates in the United States and their foreign subsidiaries.
Although such transactions may be a part of normal business operations for multinational corporations, variations in corporate tax rates across countries create the potential for multinational corporations to engage in transactions with their foreign subsidiaries with the purpose
of reducing their overall tax burden. For example, multinational corporations may try to maximize the income they report in countries with low tax rates through the pricing of intercompany transactions of goods or services.
Pricing of intercompany transactions across tax
jurisdictions can affect the distribution of profits and, therefore, taxable income among related companies. Underpayment of U.S. income taxes can result from the inappropriate pricing of transactions between
interrelated companies with operations in both the United States and in a country with a lower tax rate.[Footnote 6] Likewise, multinational corporations may try to minimize income reported in the United States through deductible interest payments to their subsidiaries in low-tax
countries. Under certain circumstances, the interest expense that U.S. corporations pay on debt that their foreign subsidiaries issue them is deductible for U.S. tax purposes, and can serve to reduce a corporation's taxable income in the United States.
Transactions intended to reduce a corporation's overall tax burden may be particularly relevant to corporations with subsidiaries in tax haven countries that impose no or nominal tax on income.
The United States has, however, enacted various legislative provisions since the 1970s intended to reduce the amount of U.S. tax that U.S. corporations pay on income earned from the export of goods and services to foreign countries. One set of these provisions, the Foreign Sales Corporation (FSC) provisions, was enacted in 1984 as a replacement to
the Domestic International Sales Corporation (DISC) provisions (enacted in 1971).[Footnote 7] A Foreign Sales Corporation generally is not subject to U.S. income tax on certain foreign trade income, and a U.S. corporation generally is not subject to U.S. income tax on dividends
paid by a Foreign Sales Corporation out of certain earnings.
As such, Foreign Sales Corporations and their parent corporations can receive a tax benefit from income reported in the United States that is not available to U.S. corporations that report income from other types of
foreign subsidiaries, which is taxed without the FSC exemption, generally at the time it is repatriated to the United States.
The Internal Revenue Service (IRS) estimates that in 2000, the latest year for which data are available,[Footnote 8] there were 4,200 Foreign Sales Corporations representing gross receipts of $349.0 billion, total income of $43.9 billion, taxable income of $6.7 billion, and a tax
liability of $2.3 billion. An estimated 88 percent of these Foreign Sales Corporations reported receipts from the sale of manufactured products. Foreign Sales Corporations can only be established in U.S. possessions (excluding Puerto Rico) or countries with whom the United States has an agreement on the exchange of tax information, including a
number of tax haven countries.
In 2000, the FSC Repeal and Extraterritorial Income Exclusion act[Footnote 9] replaced the FSC provisions with the Extraterritorial Income (ETI) provisions.[Footnote 10] The ETI provisions provide corporations with tax benefits similar to those the FSC provisions provide. However, the ETI provisions permit corporations to exclude certain qualifying foreign trade income from U.S. tax, and are not
restricted to the export of goods and services through a foreign corporation. Although the FSC provisions were repealed in 2000, Foreign Sales Corporations in existence prior to September 30, 2000, can continue to use the FSC rules for transactions related to a binding contract with an outside party.
Over Half of the 100 Largest Publicly Traded Federal Contractors Report Having a Subsidiary in a Tax Haven Country, Including Some that Report Having a Foreign Sales Corporation in a Tax Haven Country. |
