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The Economic Case for Foreign Tax Credits for Cash Flow Taxes

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  • McLure, Charles E. Jr.
  • Zodrow, George R.

Abstract

Since consumption-based direct taxes typically include a business-level cash flow tax (CFT), any foreign country considering such a tax system faces the risk that a CFT might not be eligible for foreign tax credits in the United States. In this paper, we present the economic case for granting creditability for CFTs, arguing that such treatment is appropriate under current U.S. law, regardless of whether one applies the fairly general wording of the statute or the highly mechanical tests of the regulations. Moreover, we argue that, if this position is rejected, U.S. law and/or regulations should be changed to make CFTs creditable.

Suggested Citation

  • McLure, Charles E. Jr. & Zodrow, George R., 1998. "The Economic Case for Foreign Tax Credits for Cash Flow Taxes," National Tax Journal, National Tax Association;National Tax Journal, vol. 51(1), pages 1-22, March.
  • Handle: RePEc:ntj:journl:v:51:y:1998:i:1:p:1-22
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    Citations

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    Cited by:

    1. Charles McLure & Jack Mintz & George Zodrow, 2015. "US Supreme Court unanimously chooses substance over form in foreign tax credit case: implications of the PPL decision for the creditability of cash-flow taxes," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 887-907, October.
    2. Evers, Maria Theresia & Finke, Katharina & Köstler, Melanie & Meier, Ina & Scheffler, Wolfram & Spengel, Christoph, 2014. "Gemeinsame Körperschaftsteuer-Bemessungsgrundlage in der EU: Konkretisierung der Gewinnermittlungsprinzipien und Weiterentwicklungen," ZEW Discussion Papers 14-112, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Paolo M. Panteghini, 2005. "Asymmetric Taxation under Incremental and Sequential Investment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 7(5), pages 761-779, December.
    4. Harry Grubert, 2004. "Tax Credits, Source Rules, Trade and Electronic Commerce: Behavioral Margins and the Design of International Tax Systems," CESifo Working Paper Series 1366, CESifo Group Munich.
    5. George Zodrow, 2006. "Capital Mobility and Source-Based Taxation of Capital Income in Small Open Economies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(2), pages 269-294, May.
    6. Charles E McLure & Jack Mintz & George R. Zodrow, 2014. "US Supreme Court Unanimously Chooses Substance over Form in Foreign Tax Credit," Working Papers 1411, Oxford University Centre for Business Taxation.
    7. Christian Keuschnigg & Martin Dietz, 2007. "A growth oriented dual income tax," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 14(2), pages 191-221, April.
    8. Ernst Fehr & Wolfgang Wiegard, 2001. "The Incidence of an Extended Ace Corporation Tax," CESifo Working Paper Series 484, CESifo Group Munich.

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