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Moving to Territoriality? Implications for the United States and the Rest of the World

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  • Peter J. Mullins
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    Abstract

    This paper reviews the tax policy debate in the United States on the move of the corporation tax from its present worldwide basis to a territorial basis, and considers the implications for the United States and the rest of the world. It finds that there is no clear view on whether the move would significantly benefit the United States. Such a move, however, could have significant implications for the rest of the world in terms foreign direct investment (FDI) from the United States, the intensity of tax competition, and tax revenues.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/161.

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    Length: 29
    Date of creation: 01 Jun 2006
    Date of revision:
    Handle: RePEc:imf:imfwpa:06/161

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    Keywords: Foreign direct investment; Income taxes; Tax revenues; Tax systems; tax system; tax competition; tax rate; foreign tax; corporate tax; international tax; tax reform; corporate tax rate; tax policy; corporate tax rates; tax treaties; direct investment; foreign tax credit; tax countries; corporate taxpayers; foreign tax credits; national tax journal; tax journal; investors; rate of tax; tax sparing; international taxation; tax liability; corporate taxes; federal tax; amount of tax; domestic investment; corporate income tax; tax deduction; optimal taxation; tax treatment; foreign taxes; tax incentive; low-tax countries; foreign investment; domestic tax; corporate tax competition; tax revenue; home country; tax on capital; corporation tax; investment income; tax structure; tax rates of return; tax measure; international tax competition; tax changes; foreign companies; excess foreign tax credits; dividend payout; tax concessions; parent company; indirect taxes; rates of return; rate of return; low corporate tax rate; tax relief; tax purposes; capital exporting countries; multinational firms; tax avoidance; retained earnings; tax expenditures; tax coordination; export tax; tax authorities; foreign investors; tax planning; low-tax jurisdictions; tax regime; average rate of tax; local tax rate; corporate tax collections; internal revenue; dividend distortions; country taxation; corporate income taxes; tax collections; foreign investment income; optimal tax; reduction in corporate tax rates; tax benefits; flow of capital; foreign sales; tax reforms; tax profitability; income tax rates; high tax countries; personal income tax; tax return; indirect tax; tax compliance; corporate tax revenues; high tax rates; rate of investment; corporate tax revenue; domestic tax base; tax differences; multinational companies;

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    1. Michael Devereux & Harold Freeman, 1995. "The impact of tax on foreign direct investment: Empirical evidence and the implications for tax integration schemes," International Tax and Public Finance, Springer, Springer, vol. 2(1), pages 85-106, February.
    2. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production: I--Production Efficiency," American Economic Review, American Economic Association, American Economic Association, vol. 61(1), pages 8-27, March.
    3. Altshuler, Rosanne & Grubert, Harry, 2001. "Where Will They Go if We Go Territorial? Dividend Exemption and the Location Decisions of U.S. Multinational Corporations," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 787-809, December.
    4. Gropp, Reint & Kostial, Kristina, 2000. "The disappearing tax base: is foreign direct investment eroding corporate income taxes?," Working Paper Series, European Central Bank 0031, European Central Bank.
    5. Sinn, H.W., 1990. "Taxation And The Birth Of Foreign Subsidiaries," Papers, Princeton, Woodrow Wilson School - Discussion Paper 66, Princeton, Woodrow Wilson School - Discussion Paper.
    6. Rosanne Altshuler & Timothy J. Goodspeed, 2002. "Follow the Leader? Evidence on European and U.S. Tax Competition," Departmental Working Papers, Rutgers University, Department of Economics 200226, Rutgers University, Department of Economics.
    7. Reint Gropp & Kristina Kostial, 2000. "The Disappearing Tax Base," IMF Working Papers 00/173, International Monetary Fund.
    8. Kelly Edmiston & Shannon Mudd & Neven Valev, 2003. "Tax Structures and FDI: The Deterrent Effects of Complexity and Uncertainty," Fiscal Studies, Institute for Fiscal Studies, Institute for Fiscal Studies, vol. 24(3), pages 341-359, September.
    9. Grubert, Harry, 2001. "Enacting Dividend Exemption and Tax Revenue," National Tax Journal, National Tax Association, vol. 54(n. 4), pages 811-27, December.
    10. Michael P. Devereux & Rachel Griffith & Alexander Klemm, 2002. "Corporate income tax reforms and international tax competition," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 17(35), pages 449-495, October.
    11. Kanbur, Ravi & Keen, Michael, 1993. "Jeux Sans Frontieres: Tax Competition and Tax Coordination When Countries Differ in Size," American Economic Review, American Economic Association, American Economic Association, vol. 83(4), pages 877-92, September.
    12. Martin Feldstein & David G. Hartman, 1980. "The Optimal Taxation of Foreign Source Investment Income," NBER Working Papers 0193, National Bureau of Economic Research, Inc.
    13. Gravelle, Jane G., 2004. "Issues in International Tax Policy," National Tax Journal, National Tax Association, vol. 57(3), pages 773-77, September.
    14. Gordon, Roger H, 1992. " Can Capital Income Taxes Survive in Open Economies?," Journal of Finance, American Finance Association, American Finance Association, vol. 47(3), pages 1159-80, July.
    15. James R. Hines, Jr., 1996. "Tax Policy and the Activities of Multinational Corporations," NBER Working Papers 5589, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Tajika, Eiji & Nakatani, Ryota, 2008. "Welcome Home to Japan: Repatriation of Foreign Profits by Japanese Multinationals," Discussion Papers 2008-04, Graduate School of Economics, Hitotsubashi University.
    2. Thomas Dalsgaard, 2008. "Japan's Corporate Income Tax," IMF Working Papers 08/70, International Monetary Fund.

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