The Competitive Burden: Tax Treatment of Multinationals
Special Academic Paper
Executive Summary On September 12, 1991, the Ways and Means Committee of the U .S. House of Representatives concluded ten days of hearings on factors affecting U.S. international competitiveness. Hopefully, these hearings will act as a catalyst to spark more interest in the issue of how U.S. tax policy affects the ability of U.S. multinationals to compete in a global market place.
This paper has a slightly more narrow focus than the Ways and Means Committee hearings, but also addresses the ability of the U.S. multinationals to compete abroad. The purpose of the paper is to compare the United States’ treatment of its multinationals to the way multinational corporations are treated under the tax policies of three of our international competitors: The Netherlands, Japan, and Germany. The Research and Policy Committee of the Committee for Economic Development in a Report released in July 1987, titled “Toll of the Twin Deficits” (Budget and Trade), p. 58, states:
“U.S. tax policy as applied to the taxation of foreign income should be sensitive to avoiding unreasonable and detrimental burdens on international trade. This is particularly so when our major trading partners do not impose similar burdens on their own multinational firms.
“The tax legislation of 1986 contains a series of provisions relating explicitly to the international operations of U .S. firms. It is widely acknowledged that these provisions were developed with little attention to their likely effects on international competitiveness. We are concerned that these provisions could have serious adverse effects on the competitive position of U.S. firms …”
This study has, therefore, selected for detailed analysis four major international trading countries, each illustrating a somewhat different tax policy toward its own multinational companies: the United States, The Netherlands, Japan and Germany.
The overall systems of these countries, while similar in many respects, differ significantly in certain key aspects that affect the relative competitiveness of their multinationals. These differences provide valuable insights into the type of tax policies that will promote United States multinational competitiveness. No attempt has been made to analyze the tax systems of all the international trading countries, since the tax systems of the countries chosen illustrate most of the tax policy questions involved and a wide range of solutions.