Cross-Border Tax Rules & Reform

The Tax Cuts and Jobs Act (TCJA) in 2017 took a new direction for the treatment of U.S. multinationals. Six significant reforms departed from the old system:

  1. The federal corporate tax rate was lowered from 35 percent to 21 percent.
  2. A participation exemption was created for foreign-earned dividends (territorial treatment).
  3. A new reduced tax rate was created for domestic income from intangibles earned from foreign sources (Foreign Derived Intangible Income, or FDII).
  4. A special minimum tax was imposed on foreign income (Global Intangible Low Tax Income, or GILTI).
  5. A tax was placed on cross-border expenses between a parent company and its subsidiaries (Base Erosion and Anti-abuse Tax, or BEAT).
  6. A temporary transition tax was levied on all previously unrepatriated earnings.

The U.S. no longer has a worldwide tax system for taxing corporate income. But it does not have a truly territorial system either. Instead, the U.S. now has a hybrid system with some worldwide taxation, without deferral, for certain foreign income because of GILTI and Subpart F and a tax on certain cross-border transactions. 

Countries participating in the OECD Inclusive Framework’s negotiations on cross-border tax rules hope to reach an agreement by mid-2021. After negotiations stalled somewhat in 2020, there is hope that US Treasury Secretary Janet Yellen’s commitment to reaching an agreement will allow progress to be made this year.

The posts below include our research and analysis of policies related to cross-border tax rules, including Global Intangible Low Tax Income (GILTI), Foreign Derived Intangible Income (FDII), Base Erosion and Anti-abuse Tax (BEAT), and the Global Anti-base Erosion (GloBE) rules in the context of the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

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Biden’s Tax Plan Would Restore U.S. Exceptionalism—But Not in a Good Way

April 9, 2021

No other country has tried to enforce some of the policies that the Biden administration is proposing. Embarking on such uncharted course would set the U.S. apart from global tax policy norms and best practices and could harm American competitiveness.

The Balancing Act of GILTI and FDII

April 7, 2021

The tax treatment of intangible assets has come into the spotlight recently with the Biden administration proposing to undo a policy adopted in 2017 to encourage intellectual property (IP) to be located in the U.S.

TCJA Is Not GILTI of Offshoring

March 18, 2021

Many members of Congress have taken issue with the 2017 tax reform. However, the reasoning that has led some to believe that GILTI provides a path to offshoring investment and jobs is flawed.

How GILTI Are U.S. Industries?

March 16, 2021

Both the Biden campaign and some Democratic members of Congress have recommended changes to GILTI, but before doing that, policymakers should consider how GILTI’s design can have ramifications for many U.S. companies and their tax burdens.

Base Erosion and Anti-Abuse Tax (BEAT)

March 12, 2021

Foreign Derived Intangible Income (FDII)

March 12, 2021

Global Intangible Low Tax Income (GILTI)

March 12, 2021

Can GILTI and the GloBE be Harmonized in a Biden Administration?

March 4, 2021

While there are several parts of the policy that are subject to further discussion and agreement, GloBE is expected to be different from GILTI in several ways.

Evaluating Proposals to Increase the Corporate Tax Rate and Levy a Minimum Tax on Corporate Book Income

February 24, 2021

President Biden and congressional policymakers have proposed several changes to the corporate income tax, including raising the rate from 21 percent to 28 percent and imposing a 15 percent minimum tax on the book income of large corporations, to raise revenue for new spending programs. Our new modeling analyzes the economic, revenue, and distributional impact of these proposals.

U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI

February 17, 2021

The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.

Personnel Is Policy: Biden International Tax Team Edition

February 4, 2021

This week, the Treasury Department added several new appointees as staffing continues following President Biden’s inauguration. Among them were three scholars of international tax policy: economist Kimberly Clausing and law professors Rebecca Kysar and Itai Grinberg. These three will be influential in developing the administration’s approach to changing U.S. tax rules for multinational corporations and negotiating international tax policy changes at the Organisation for Economic Co-operation and Development (OECD).

The European Commission and the Taxation of the Digital Economy

February 4, 2021

The consultation on the EU’s digital levy provides an opportunity for policymakers and taxpayers to reflect on the underlying issues of digital taxation and potential consequences from a digital levy. Unless the EU digital levy is designed with an OECD agreement in mind, it is likely to cause more uncertainty in cross-border tax policy.

Day 2 of OECD Consultation on International Tax Reform Blueprints

January 15, 2021

The OECD consultation is in the context of the Inclusive Framework on Base Erosion and Profit Shifting which is made up of delegates from more than 135 countries and is focused on policies that reduce opportunities for tax avoidance by multinational companies. The current proposals being considered would change both where and how much companies pay in corporate taxes.

Day 1 of OECD Consultation on International Tax Reform Blueprints

January 14, 2021

The first session was focused on Pillar 1 of the OECD proposal. The pieces in Pillar 1 would change tax rules so that companies would be paying more taxes in countries based on the location of customers. This approach would move more tax revenues into so-called “market countries.”

Tax Foundation Response to OECD Public Consultation Document: Reports on the Pillar One and Pillar Two Blueprints

December 14, 2020

The Tax Foundation response to the OECD public consultation document on the reports on the OECD Pillar 1 and OECD Pillar 2 blueprints.

Potential Regulatory Changes in Tax Policy Under the Biden Administration

November 24, 2020

President Biden may make greater use of regulatory changes to modify how tax law is interpreted and administered. There are several areas where a Biden Treasury Department, likely led by former Federal Reserve Chair Janet Yellen, may focus.

The UN Approach on Digital Taxation

October 22, 2020

The UN tax committee will be considering a change to the UN’s model tax treaty that, if adopted and implemented, could result in digital companies paying more taxes in countries where their customers are located even if those companies do not have physical locations there.

Two Roads Diverge in the OECD’s Impact Assessment

October 20, 2020

The difference that the OECD presents between the potential impact in the context of agreement compared to a harmful tax and trade war should show policymakers the value of continuing multilateral discussions.

Pillars, Blueprints, an Impact Assessment, and Construction Delays

October 13, 2020

The OECD released blueprints for proposals on changing international tax rules alongside an impact assessment based on the overall design of the proposals. While the blueprints cover proposals both for changing where large multinationals owe corporate tax and designing a global minimum tax, there are still many unanswered questions. In the meantime, other digital tax proposals are moving forward and have the potential to result in a harmful tax and trade war.

Designing a Global Minimum Tax with Full Expensing

September 23, 2020

The design and implementation of a global minimum tax is not simple and straightforward. There are dozens of challenging issues that policymakers will need to consider. So, when it comes to the way the minimum tax treats new investment, it seems clear that incorporating full expensing into the design would have significant benefits.

CFC Rules in Europe

August 20, 2020

To prevent businesses from minimizing their tax liability by taking advantage of cross-country differences in taxation, countries have implemented various anti-tax avoidance measures, one known as Controlled Foreign Corporation (CFC) rules.

Where Should the Money Come From?

August 12, 2020

The fiscal response to the COVID-19 pandemic will require policymakers to consider what revenue resources should be used to fill budget gaps. Tax policy experts have proposed wealth taxes, (global) corporate minimum taxes, excess profits taxes, and digital taxes as opportunities for governments to raise new revenues.

Tax Foundation Comments on the Initiation of Section 301 Investigations of Digital Services Taxes

July 9, 2020

Digital services taxes effectively ring-fence the digital economy by limiting the tax to certain revenue streams of digital businesses, discriminating in favor of more traditional sectors of the economy.

Decades in Corporate Taxation

July 8, 2020

Corporate taxation has evolved significantly, with rates coming down significantly over the last several decades. Countries have redesigned their tax bases by changing the treatment of losses, interest, and capital costs. A recent OECD report highlights the general stabilization of corporate tax revenues and statutory rates alongside major changes to address profit-shifting opportunities.

Digital Tax Deadlock: Where Do We Go from Here?

July 1, 2020

We recently hosted an exclusive webinar discussion to get up to speed on recent digital tax developments and gain insight from leading international tax experts on the OECD's BEPS project.

Watch: Taxing the Digital Economy

June 3, 2020

What changed in the global economy that disrupted traditional means of taxation? Is it worth finding a way to include tax digital goods and services in the tax base? Why are digital services taxes so problematic? Are there better options—ways to adapt our current system without introducing complex and economically harmful policies?

Digital Taxation Around the World

May 27, 2020

The digitalization of the economy has been a key focus of tax debates in recent years. Our new report reviews digital tax policies around the world with a focus on OECD countries, explores the various flaws and benefits associated with the wide set of proposals, and provides recommendations for lawmakers to consider.

Digital Services Taxes: Do They Comply with International Tax, Trade, and EU Law?

May 26, 2020

A digital services tax like the one implemented by France likely violates both the General Agreement on Trade in Services and a model U.S. free trade agreement. However, it is uncertain whether meaningful relief could be obtained under either regime.

Chaos to the Left of Me. Chaos to the Right of me.

May 5, 2020

The OECD recently announced that the negotiation timeline for new digital tax proposals has now been pushed back to October due to the COVID-19 pandemic, although the end-of-year deadline for the overall project is still in place.

Details and Analysis of President Joe Biden’s Tax Plan

October 22, 2020

What has President Joe Biden proposed in terms of tax policy changes? Our experts provide the details and analyze the potential economic, revenue, and distributional impacts.

Tax Policy After Coronavirus: Clearing a Path to Economic Recovery

April 22, 2020

Governments at all levels must work to remove the tax policy barriers that stand in the way of economic recovery and long-term prosperity following the COVID-19 crisis. Our new guide outlines several comprehensive options that policymakers can take at the federal and state levels.

Comparison of Cross-Border Effective Average Tax Rates in Europe and G7 Countries

March 12, 2020

As policymakers consider ways to facilitate investment, effective average tax rates provide a valuable perspective on where burdens on those activities are high and where they are low.

Kansas, Nebraska, and Utah Lawmakers Pursue “Not GILTI” Verdicts

February 14, 2020

Taxing GILTI puts states at a competitive disadvantage compared to their peers—all for a tax that makes very little sense at the state level, and which legislators never sought in the first place.

Summary of the OECD’s Impact Assessment on Pillar 1 and Pillar 2

March 17, 2020

The OECD presented its preliminary impact assessment on the Pillar 1 and Pillar 2 proposals. The impact assessment includes estimated revenue and investment effects presented at a country group level (low-, middle- and high-income countries and investment hubs). The OECD estimates global corporate income tax revenues to increase by 4 percent if both pillars get implemented, equaling $100 billion annually.

Bracing for Impact

February 11, 2020

Though they are limited by both data and assumptions, the OECD will face similar limitations. As policymakers work to fine-tune the proposals under both Pillar 1 and 2 the impact assessment should be a critical part of that discussion.

Profit Shifting: Evaluating the Evidence and Policies to Address It

January 31, 2020

The OECD has been working to assess the impact of their program of work, and it will be critical for this assessment to take into account impacts not only on revenues, but also on growth and investment.

FAQ on Digital Services Taxes and the OECD’s BEPS Project

January 30, 2020

What is a digital services tax (DST)? What countries have announced, proposed, or implemented a DST? What are some of the criticisms of a DST? What are alternatives to a DST? What is the OECD BEPS project and what is its main objective? What is the main objective of OECD Pillar 1? What is the main objective of OECD Pillar 2?

What European OECD Countries Are Doing about Digital Services Taxes

March 25, 2021

Despite ongoing multilateral negotiations in the OECD, about half of all European OECD countries have either announced, proposed, or implemented their own unilateral digital services tax.

How Controlled Foreign Corporation Rules Look Around the World: Colombia and a Perspective of Latin America

February 25, 2020

For Colombia, as well as for other countries in the world that are not capital exporters, one important question is whether CFC rules are necessary or are indirectly a requirement to be part of world organizations like the OECD (which Colombia is not a member) in order to be on the radar of larger economies.

How Controlled Foreign Corporation Rules Look Around the World: Germany

February 18, 2020

Germany has had a Controlled Foreign Corporation (CFC) regime since 1972, when the German Foreign Transactions Tax Act was enacted. Under the German regime, a CFC is a foreign company where its capital or voting rights are either directly or indirectly majority-owned by German residents at the end of its fiscal year.

How Controlled Foreign Corporation Rules Look Around the World: Spain

February 4, 2020

The CFC legislation in Spain is not as complicated as it is in some other countries, and it is aligned with the standards recommended by the OECD. The Spanish rules have evolved in a way that the rules are designed to comply with the EU principles not to interrupt the functioning of the Union and its single market.

How Controlled Foreign Corporation Rules Look Around the World: France

January 21, 2020

In France, Controlled Foreign Corporation (CFC) rules were first enacted in 1980. The French tax regime operates on a strict territorial basis, where only profits generated in the country are subject to tax in France.

How Controlled Foreign Corporation Rules Look Around the World: China

January 14, 2020

The Chinese approach to base erosion and profit shifting is more focused on the application of transfer pricing rules and not on the application of CFC rules. Even with the rules in place, the Chinese tax authorities have not enforced the rules as much as other countries have.

GILTI and Other Conformity Issues Still Loom for States in 2020

December 19, 2019

Even two years after enactment of the federal Tax Cuts and Jobs Act (TCJA), many states have yet to issue guidance explaining how they conform to key provisions of the law, particularly those pertaining to international income.

Two Years After Passage, Treasury Regulations for the Tax Cuts and Jobs Act Surpass 1,000 Pages

December 12, 2019

Treasury released final regulations on the base erosion and anti-abuse tax (BEAT), which is meant to dissuade firms from engaging in profit shifting abroad. Other high-profile releases from 2019 include final regulations guiding enforcement of Section 199A, commonly known as the pass-through deduction; final regulations on enforcing the new tax on global intangible low-tax income (GILTI); and final regulations on state-level workarounds to the $10,000 limit on the state and local tax deduction (SALT).

Tax Foundation Response to OECD Public Consultation Document: Global Anti-Base Erosion Proposal (“GloBE”) (Pillar Two)

December 2, 2019

The tax base for the income-inclusion rule will be just as important as determining the rate, and both the base and the rate will likely impact business decisions. Additionally, policymakers need to determine how the choice for blending fits with the overarching goal of the policy. And as the example of GILTI shows, it is essential to assess how current international tax regulations would interact with a global minimum tax.

The OECD’s Pillar 2 Proposal Raises Serious Questions

November 8, 2019

Addressing tax avoidance is a key political issue for many countries, but these policies should not be discussed without accounting for the size of the current problem, how recent policy changes have addressed it, and what potential impacts might come from this new approach.

Response to OECD Public Consultation Document: Secretariat Proposal for a “Unified Approach” under Pillar One

November 11, 2019

Unifying the proposal under sound principles in the context of clear economic analysis should allow the Inclusive Framework to minimize both the administrative and economic burdens that the Secretariat’s proposal could create.

The ABCs of the OECD Secretariat’s Unified Approach on Pillar 1

October 24, 2019

If there is double taxation due to digital services taxes or because a country is unwilling to conform to the structure of the Secretariat’s proposal, the impact would be a net negative for many businesses.

Next Steps from the OECD on BEPS 2.0

October 9, 2019

The continuation of this work is important, but the OECD and policymakers around the world should carefully consider whether these proposals will lead to more certainty, or if they will undermine that goal by simply be a step toward more unilateralism. The impact on cross-border investment will also be a critical issue to consider, and the ongoing impact assessment by the OECD is an important part of the work.

OECD Tackling Harmful Tax Practices

September 18, 2019

Countries around the world often design their tax policies to become attractive targets for foreign investment. These policies can be anything from a system with special preferences for certain industries to a well-designed tax system based on principles of sound tax policy. Systems that are rife with special preferences and complexities can create distortions in local jurisdictions and across the global economy.

How Controlled Foreign Corporation Rules Look Around the World: United Kingdom

July 15, 2019

The UK rules are designed to arrive at the most accurate definition of foreign income that should be taxed in the home country. These rules apply one of the most detailed approaches to solving the issue of taxing the right type and amount of foreign income. The method can be considered more effective, but the compliance implications and derived costs may be higher compared to those that are derived from the application of other methods.

The Impacts of Tightening up on Transfer Pricing

July 11, 2019

As with other anti-base erosion policies, transfer pricing regulations reveal the challenges of designing rules that address problems associated with various strategies businesses use to minimize their tax burdens. While countries may want to target specific abuses, the way the rules are designed can have real economic impacts on cross-border investment.

How Controlled Foreign Corporation Rules Look Around the World: Netherlands

July 8, 2019

The Dutch tax system is characterized by its simplicity and the attractiveness to investors. With the incorporation of CFC rules, the Dutch government protected its tax base from erosion and profit shifting. The Netherlands is facing a whole series of adjustments that would create a more complex system adapted to the international standards recommended by the OECD and adopted by the European Union Council. When revising the rules authorities must be mindful about not making the system more complex and to avoid increasing the compliance burden in the country.

How Controlled Foreign Corporation Rules Look Around the World: Japan

July 3, 2019

Japan is a country with a complex multilayer system to calculate the corporate income tax. As a consequence, the CFC income determination has evolved as a complex set of rules to complement the corporate income tax. It would be a great idea for the Japanese authorities to address a simplification of the rules to facilitate the entry of new capital investments into their economy.

How Controlled Foreign Corporation Rules Look Around the World: United States of America

June 24, 2019

The United States was the first country to enact CFC rules, and it is probably the country with the most complex set of rules that will be presented in this blog series. The rules determine control using a combined ownership test: one for the corporation and the other at the shareholder level. The assessable income under the rules is generally passive income but the amount of foreign income subject to U.S. tax has expanded with the adoption of GILTI.

How Patent Boxes Impact Business Decisions

June 20, 2019

As with every change in tax policy, there are trade-offs. The Modified Nexus Approach adds an additional layer of complexity to the already complex issue of taxing IP income. Linking tax breaks for IP income to its associated R&D activity has changed the game and will likely result in some businesses restructuring and relocating their IP assets and R&D activity. Effective tax rates on IP income will likely play an important role in determining optimal locations, giving measures such as R&D credits more importance. Whether this new approach to IP taxation will impact profit shifting and which countries will be the winners and losers is yet to be seen.

CFC Rules Around the World

June 17, 2019

Our paper undertakes a review of controlled foreign corporation (CFC) rules around the world as a contribution to the global discussion over the possible expansion of existing anti-base erosion CFC regimes or the potential adoption of a minimum tax.

Summary and Analysis of the OECD’s Work Program for BEPS 2.0

June 18, 2019

From a broad standpoint, agreement at the OECD will require countries to give up some measure of their own tax sovereignty on policies they have designed to minimize the distortionary effects of the corporate income tax. Over the years tax competition has led to some countries adopting policies that are attractive to businesses because they have a more neutral rather than distortionary approach to taxing corporate income. This project could directly undermine that progress by introducing new levels of complexity and distortion that would ultimately have a negative impact on global trade and growth.

Ripple Effects from Controlled Foreign Corporation Rules

June 13, 2019

Governments should recognize these trade-offs as they implement controlled foreign corporation (CFC) rules or change their tax policies in ways that increase taxes on foreign subsidiaries.

Putting the Pieces Together on BEPS

June 6, 2019

Taxes matter for decisions to be made by businesses, individuals, and families, and it is important for policymakers to understand that rules can be designed to be neutral rather than distortionary.

Initial Thoughts on the OECD’s Inclusive Framework “Work Plan” to Resolve the Taxation of the Digital Economy

May 31, 2019

The members of the OECD’s Inclusive Framework have set out an ambitious work plan to come to a consensus by 2020 on revising the way the digital economy is taxed. While the details of the policy changes under consideration are certainly important, equally important is the inclusion of a set of guidelines for performing comprehensive economic analysis of these policies and producing impact assessments that can inform member decision-making.

Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries

May 2, 2019

The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.

What’s up with Being GILTI?

March 14, 2019

The Tax Cuts and Jobs Act made significant changes to the way U.S. multinationals’ foreign profits are taxed. GILTI, or “Global Intangible Low Tax Income,” was introduced as an outbound anti-base erosion provision.

Tax Foundation Response to OECD Public Consultation Document: Addressing the Tax Challenges of the Digitalization of the Economy

March 4, 2019

Though the challenges to international tax policy are many, the OECD has a chance to work toward a system that creates fewer distortions and negative economic effects than the current one. However, given the policies on the table, it will certainly take quite an effort to avoid further complexity of international tax rules that creates challenges to global trade and economic prosperity.

What Happens When Everyone is GILTI?

March 1, 2019

Secretary Mnuchin, Finance Minister Le Maire, and other tax policy leaders should encourage the OECD and their own research staff to perform serious economic analysis on the alternatives for changing international tax rules before moving forward. It would be quite unfortunate for the world to learn the wrong lessons from U.S. tax reform.

GILTI Minds: Why Some States Want to Tax International Income—And Why They Shouldn’t

January 28, 2019

The new federal tax on Global Intangible Low-Taxed Income (GILTI) is something of a misnomer: it’s certainly global and it’s definitely income, but the rest of it is, at best, an approximation. It’s not exclusively levied on low-taxed income, nor just on the economic returns from intangible property. So what is GILTI, why might states tax it, and what’s the problem with that?

Toward a State of Conformity: State Tax Codes a Year After Federal Tax Reform

January 28, 2019

States incorporate provisions of the federal tax code into their own codes in varying degrees, meaning that federal tax reform has implications for state revenue beyond any broader economic effects of tax reform.

A Hybrid Approach: The Treatment of Foreign Profits under the Tax Cuts and Jobs Act

May 3, 2018

The Tax Cuts and Jobs Act moved the U.S. toward more of a territorial corporate tax system used by most other OECD countries. However, the U.S. law contains key differences in the treatment of foreign profits.

Biden’s Tax Plan Would Restore U.S. Exceptionalism—But Not in a Good Way

April 9, 2021

No other country has tried to enforce some of the policies that the Biden administration is proposing. Embarking on such uncharted course would set the U.S. apart from global tax policy norms and best practices and could harm American competitiveness.

The Balancing Act of GILTI and FDII

April 7, 2021

The tax treatment of intangible assets has come into the spotlight recently with the Biden administration proposing to undo a policy adopted in 2017 to encourage intellectual property (IP) to be located in the U.S.

TCJA Is Not GILTI of Offshoring

March 18, 2021

Many members of Congress have taken issue with the 2017 tax reform. However, the reasoning that has led some to believe that GILTI provides a path to offshoring investment and jobs is flawed.

How GILTI Are U.S. Industries?

March 16, 2021

Both the Biden campaign and some Democratic members of Congress have recommended changes to GILTI, but before doing that, policymakers should consider how GILTI’s design can have ramifications for many U.S. companies and their tax burdens.

Global Intangible Low Tax Income (GILTI)

March 12, 2021

Can GILTI and the GloBE be Harmonized in a Biden Administration?

March 4, 2021

While there are several parts of the policy that are subject to further discussion and agreement, GloBE is expected to be different from GILTI in several ways.

U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI

February 17, 2021

The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.

Personnel Is Policy: Biden International Tax Team Edition

February 4, 2021

This week, the Treasury Department added several new appointees as staffing continues following President Biden’s inauguration. Among them were three scholars of international tax policy: economist Kimberly Clausing and law professors Rebecca Kysar and Itai Grinberg. These three will be influential in developing the administration’s approach to changing U.S. tax rules for multinational corporations and negotiating international tax policy changes at the Organisation for Economic Co-operation and Development (OECD).

Potential Regulatory Changes in Tax Policy Under the Biden Administration

November 24, 2020

President Biden may make greater use of regulatory changes to modify how tax law is interpreted and administered. There are several areas where a Biden Treasury Department, likely led by former Federal Reserve Chair Janet Yellen, may focus.

Details and Analysis of President Joe Biden’s Tax Plan

October 22, 2020

What has President Joe Biden proposed in terms of tax policy changes? Our experts provide the details and analyze the potential economic, revenue, and distributional impacts.

Tax Policy After Coronavirus: Clearing a Path to Economic Recovery

April 22, 2020

Governments at all levels must work to remove the tax policy barriers that stand in the way of economic recovery and long-term prosperity following the COVID-19 crisis. Our new guide outlines several comprehensive options that policymakers can take at the federal and state levels.

Kansas, Nebraska, and Utah Lawmakers Pursue “Not GILTI” Verdicts

February 14, 2020

Taxing GILTI puts states at a competitive disadvantage compared to their peers—all for a tax that makes very little sense at the state level, and which legislators never sought in the first place.

GILTI and Other Conformity Issues Still Loom for States in 2020

December 19, 2019

Even two years after enactment of the federal Tax Cuts and Jobs Act (TCJA), many states have yet to issue guidance explaining how they conform to key provisions of the law, particularly those pertaining to international income.

CFC Rules Around the World

June 17, 2019

Our paper undertakes a review of controlled foreign corporation (CFC) rules around the world as a contribution to the global discussion over the possible expansion of existing anti-base erosion CFC regimes or the potential adoption of a minimum tax.

Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries

May 2, 2019

The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.

What’s up with Being GILTI?

March 14, 2019

The Tax Cuts and Jobs Act made significant changes to the way U.S. multinationals’ foreign profits are taxed. GILTI, or “Global Intangible Low Tax Income,” was introduced as an outbound anti-base erosion provision.

What Happens When Everyone is GILTI?

March 1, 2019

Secretary Mnuchin, Finance Minister Le Maire, and other tax policy leaders should encourage the OECD and their own research staff to perform serious economic analysis on the alternatives for changing international tax rules before moving forward. It would be quite unfortunate for the world to learn the wrong lessons from U.S. tax reform.

GILTI Minds: Why Some States Want to Tax International Income—And Why They Shouldn’t

January 28, 2019

The new federal tax on Global Intangible Low-Taxed Income (GILTI) is something of a misnomer: it’s certainly global and it’s definitely income, but the rest of it is, at best, an approximation. It’s not exclusively levied on low-taxed income, nor just on the economic returns from intangible property. So what is GILTI, why might states tax it, and what’s the problem with that?

Toward a State of Conformity: State Tax Codes a Year After Federal Tax Reform

January 28, 2019

States incorporate provisions of the federal tax code into their own codes in varying degrees, meaning that federal tax reform has implications for state revenue beyond any broader economic effects of tax reform.

A Hybrid Approach: The Treatment of Foreign Profits under the Tax Cuts and Jobs Act

May 3, 2018

The Tax Cuts and Jobs Act moved the U.S. toward more of a territorial corporate tax system used by most other OECD countries. However, the U.S. law contains key differences in the treatment of foreign profits.

Base Erosion and Anti-Abuse Tax (BEAT)

March 12, 2021

U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI

February 17, 2021

The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.

Personnel Is Policy: Biden International Tax Team Edition

February 4, 2021

This week, the Treasury Department added several new appointees as staffing continues following President Biden’s inauguration. Among them were three scholars of international tax policy: economist Kimberly Clausing and law professors Rebecca Kysar and Itai Grinberg. These three will be influential in developing the administration’s approach to changing U.S. tax rules for multinational corporations and negotiating international tax policy changes at the Organisation for Economic Co-operation and Development (OECD).

Tax Policy After Coronavirus: Clearing a Path to Economic Recovery

April 22, 2020

Governments at all levels must work to remove the tax policy barriers that stand in the way of economic recovery and long-term prosperity following the COVID-19 crisis. Our new guide outlines several comprehensive options that policymakers can take at the federal and state levels.

Two Years After Passage, Treasury Regulations for the Tax Cuts and Jobs Act Surpass 1,000 Pages

December 12, 2019

Treasury released final regulations on the base erosion and anti-abuse tax (BEAT), which is meant to dissuade firms from engaging in profit shifting abroad. Other high-profile releases from 2019 include final regulations guiding enforcement of Section 199A, commonly known as the pass-through deduction; final regulations on enforcing the new tax on global intangible low-tax income (GILTI); and final regulations on state-level workarounds to the $10,000 limit on the state and local tax deduction (SALT).

The OECD’s Pillar 2 Proposal Raises Serious Questions

November 8, 2019

Addressing tax avoidance is a key political issue for many countries, but these policies should not be discussed without accounting for the size of the current problem, how recent policy changes have addressed it, and what potential impacts might come from this new approach.

Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries

May 2, 2019

The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.

A Hybrid Approach: The Treatment of Foreign Profits under the Tax Cuts and Jobs Act

May 3, 2018

The Tax Cuts and Jobs Act moved the U.S. toward more of a territorial corporate tax system used by most other OECD countries. However, the U.S. law contains key differences in the treatment of foreign profits.

The Balancing Act of GILTI and FDII

April 7, 2021

The tax treatment of intangible assets has come into the spotlight recently with the Biden administration proposing to undo a policy adopted in 2017 to encourage intellectual property (IP) to be located in the U.S.

Foreign Derived Intangible Income (FDII)

March 12, 2021

Evaluating Proposals to Increase the Corporate Tax Rate and Levy a Minimum Tax on Corporate Book Income

February 24, 2021

President Biden and congressional policymakers have proposed several changes to the corporate income tax, including raising the rate from 21 percent to 28 percent and imposing a 15 percent minimum tax on the book income of large corporations, to raise revenue for new spending programs. Our new modeling analyzes the economic, revenue, and distributional impact of these proposals.

U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI

February 17, 2021

The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.

Comparison of Cross-Border Effective Average Tax Rates in Europe and G7 Countries

March 12, 2020

As policymakers consider ways to facilitate investment, effective average tax rates provide a valuable perspective on where burdens on those activities are high and where they are low.

GILTI and Other Conformity Issues Still Loom for States in 2020

December 19, 2019

Even two years after enactment of the federal Tax Cuts and Jobs Act (TCJA), many states have yet to issue guidance explaining how they conform to key provisions of the law, particularly those pertaining to international income.

The Impacts of Tightening up on Transfer Pricing

July 11, 2019

As with other anti-base erosion policies, transfer pricing regulations reveal the challenges of designing rules that address problems associated with various strategies businesses use to minimize their tax burdens. While countries may want to target specific abuses, the way the rules are designed can have real economic impacts on cross-border investment.

Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries

May 2, 2019

The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.

A Hybrid Approach: The Treatment of Foreign Profits under the Tax Cuts and Jobs Act

May 3, 2018

The Tax Cuts and Jobs Act moved the U.S. toward more of a territorial corporate tax system used by most other OECD countries. However, the U.S. law contains key differences in the treatment of foreign profits.

U.S. Cross-border Tax Reform and the Cautionary Tale of GILTI

February 17, 2021

The Biden campaign and Senate Democrats identified changes to GILTI that would increase the taxes U.S. companies pay on their foreign earnings. Rather than tacking on changes to a system that is currently neither fully territorial nor worldwide, policymakers should evaluate the structure of the current system with a goal of it becoming more, not less, coherent.

The European Commission and the Taxation of the Digital Economy

February 4, 2021

The consultation on the EU’s digital levy provides an opportunity for policymakers and taxpayers to reflect on the underlying issues of digital taxation and potential consequences from a digital levy. Unless the EU digital levy is designed with an OECD agreement in mind, it is likely to cause more uncertainty in cross-border tax policy.

Day 2 of OECD Consultation on International Tax Reform Blueprints

January 15, 2021

The OECD consultation is in the context of the Inclusive Framework on Base Erosion and Profit Shifting which is made up of delegates from more than 135 countries and is focused on policies that reduce opportunities for tax avoidance by multinational companies. The current proposals being considered would change both where and how much companies pay in corporate taxes.

Day 1 of OECD Consultation on International Tax Reform Blueprints

January 14, 2021

The first session was focused on Pillar 1 of the OECD proposal. The pieces in Pillar 1 would change tax rules so that companies would be paying more taxes in countries based on the location of customers. This approach would move more tax revenues into so-called “market countries.”

Tax Foundation Response to OECD Public Consultation Document: Reports on the Pillar One and Pillar Two Blueprints

December 14, 2020

The Tax Foundation response to the OECD public consultation document on the reports on the OECD Pillar 1 and OECD Pillar 2 blueprints.

The UN Approach on Digital Taxation

October 22, 2020

The UN tax committee will be considering a change to the UN’s model tax treaty that, if adopted and implemented, could result in digital companies paying more taxes in countries where their customers are located even if those companies do not have physical locations there.

Two Roads Diverge in the OECD’s Impact Assessment

October 20, 2020

The difference that the OECD presents between the potential impact in the context of agreement compared to a harmful tax and trade war should show policymakers the value of continuing multilateral discussions.

Pillars, Blueprints, an Impact Assessment, and Construction Delays

October 13, 2020

The OECD released blueprints for proposals on changing international tax rules alongside an impact assessment based on the overall design of the proposals. While the blueprints cover proposals both for changing where large multinationals owe corporate tax and designing a global minimum tax, there are still many unanswered questions. In the meantime, other digital tax proposals are moving forward and have the potential to result in a harmful tax and trade war.

Designing a Global Minimum Tax with Full Expensing

September 23, 2020

The design and implementation of a global minimum tax is not simple and straightforward. There are dozens of challenging issues that policymakers will need to consider. So, when it comes to the way the minimum tax treats new investment, it seems clear that incorporating full expensing into the design would have significant benefits.

CFC Rules in Europe

August 20, 2020

To prevent businesses from minimizing their tax liability by taking advantage of cross-country differences in taxation, countries have implemented various anti-tax avoidance measures, one known as Controlled Foreign Corporation (CFC) rules.

Where Should the Money Come From?

August 12, 2020

The fiscal response to the COVID-19 pandemic will require policymakers to consider what revenue resources should be used to fill budget gaps. Tax policy experts have proposed wealth taxes, (global) corporate minimum taxes, excess profits taxes, and digital taxes as opportunities for governments to raise new revenues.

Tax Foundation Comments on the Initiation of Section 301 Investigations of Digital Services Taxes

July 9, 2020

Digital services taxes effectively ring-fence the digital economy by limiting the tax to certain revenue streams of digital businesses, discriminating in favor of more traditional sectors of the economy.

Decades in Corporate Taxation

July 8, 2020

Corporate taxation has evolved significantly, with rates coming down significantly over the last several decades. Countries have redesigned their tax bases by changing the treatment of losses, interest, and capital costs. A recent OECD report highlights the general stabilization of corporate tax revenues and statutory rates alongside major changes to address profit-shifting opportunities.

Digital Tax Deadlock: Where Do We Go from Here?

July 1, 2020

We recently hosted an exclusive webinar discussion to get up to speed on recent digital tax developments and gain insight from leading international tax experts on the OECD's BEPS project.

Watch: Taxing the Digital Economy

June 3, 2020

What changed in the global economy that disrupted traditional means of taxation? Is it worth finding a way to include tax digital goods and services in the tax base? Why are digital services taxes so problematic? Are there better options—ways to adapt our current system without introducing complex and economically harmful policies?

Digital Taxation Around the World

May 27, 2020

The digitalization of the economy has been a key focus of tax debates in recent years. Our new report reviews digital tax policies around the world with a focus on OECD countries, explores the various flaws and benefits associated with the wide set of proposals, and provides recommendations for lawmakers to consider.

Digital Services Taxes: Do They Comply with International Tax, Trade, and EU Law?

May 26, 2020

A digital services tax like the one implemented by France likely violates both the General Agreement on Trade in Services and a model U.S. free trade agreement. However, it is uncertain whether meaningful relief could be obtained under either regime.

Chaos to the Left of Me. Chaos to the Right of me.

May 5, 2020

The OECD recently announced that the negotiation timeline for new digital tax proposals has now been pushed back to October due to the COVID-19 pandemic, although the end-of-year deadline for the overall project is still in place.

Comparison of Cross-Border Effective Average Tax Rates in Europe and G7 Countries

March 12, 2020

As policymakers consider ways to facilitate investment, effective average tax rates provide a valuable perspective on where burdens on those activities are high and where they are low.

Summary of the OECD’s Impact Assessment on Pillar 1 and Pillar 2

March 17, 2020

The OECD presented its preliminary impact assessment on the Pillar 1 and Pillar 2 proposals. The impact assessment includes estimated revenue and investment effects presented at a country group level (low-, middle- and high-income countries and investment hubs). The OECD estimates global corporate income tax revenues to increase by 4 percent if both pillars get implemented, equaling $100 billion annually.

Bracing for Impact

February 11, 2020

Though they are limited by both data and assumptions, the OECD will face similar limitations. As policymakers work to fine-tune the proposals under both Pillar 1 and 2 the impact assessment should be a critical part of that discussion.

Profit Shifting: Evaluating the Evidence and Policies to Address It

January 31, 2020

The OECD has been working to assess the impact of their program of work, and it will be critical for this assessment to take into account impacts not only on revenues, but also on growth and investment.

FAQ on Digital Services Taxes and the OECD’s BEPS Project

January 30, 2020

What is a digital services tax (DST)? What countries have announced, proposed, or implemented a DST? What are some of the criticisms of a DST? What are alternatives to a DST? What is the OECD BEPS project and what is its main objective? What is the main objective of OECD Pillar 1? What is the main objective of OECD Pillar 2?

What European OECD Countries Are Doing about Digital Services Taxes

March 25, 2021

Despite ongoing multilateral negotiations in the OECD, about half of all European OECD countries have either announced, proposed, or implemented their own unilateral digital services tax.

How Controlled Foreign Corporation Rules Look Around the World: Colombia and a Perspective of Latin America

February 25, 2020

For Colombia, as well as for other countries in the world that are not capital exporters, one important question is whether CFC rules are necessary or are indirectly a requirement to be part of world organizations like the OECD (which Colombia is not a member) in order to be on the radar of larger economies.

How Controlled Foreign Corporation Rules Look Around the World: Germany

February 18, 2020

Germany has had a Controlled Foreign Corporation (CFC) regime since 1972, when the German Foreign Transactions Tax Act was enacted. Under the German regime, a CFC is a foreign company where its capital or voting rights are either directly or indirectly majority-owned by German residents at the end of its fiscal year.

How Controlled Foreign Corporation Rules Look Around the World: Spain

February 4, 2020

The CFC legislation in Spain is not as complicated as it is in some other countries, and it is aligned with the standards recommended by the OECD. The Spanish rules have evolved in a way that the rules are designed to comply with the EU principles not to interrupt the functioning of the Union and its single market.

How Controlled Foreign Corporation Rules Look Around the World: France

January 21, 2020

In France, Controlled Foreign Corporation (CFC) rules were first enacted in 1980. The French tax regime operates on a strict territorial basis, where only profits generated in the country are subject to tax in France.

How Controlled Foreign Corporation Rules Look Around the World: China

January 14, 2020

The Chinese approach to base erosion and profit shifting is more focused on the application of transfer pricing rules and not on the application of CFC rules. Even with the rules in place, the Chinese tax authorities have not enforced the rules as much as other countries have.

Tax Foundation Response to OECD Public Consultation Document: Global Anti-Base Erosion Proposal (“GloBE”) (Pillar Two)

December 2, 2019

The tax base for the income-inclusion rule will be just as important as determining the rate, and both the base and the rate will likely impact business decisions. Additionally, policymakers need to determine how the choice for blending fits with the overarching goal of the policy. And as the example of GILTI shows, it is essential to assess how current international tax regulations would interact with a global minimum tax.

The OECD’s Pillar 2 Proposal Raises Serious Questions

November 8, 2019

Addressing tax avoidance is a key political issue for many countries, but these policies should not be discussed without accounting for the size of the current problem, how recent policy changes have addressed it, and what potential impacts might come from this new approach.

Response to OECD Public Consultation Document: Secretariat Proposal for a “Unified Approach” under Pillar One

November 11, 2019

Unifying the proposal under sound principles in the context of clear economic analysis should allow the Inclusive Framework to minimize both the administrative and economic burdens that the Secretariat’s proposal could create.

The ABCs of the OECD Secretariat’s Unified Approach on Pillar 1

October 24, 2019

If there is double taxation due to digital services taxes or because a country is unwilling to conform to the structure of the Secretariat’s proposal, the impact would be a net negative for many businesses.

Next Steps from the OECD on BEPS 2.0

October 9, 2019

The continuation of this work is important, but the OECD and policymakers around the world should carefully consider whether these proposals will lead to more certainty, or if they will undermine that goal by simply be a step toward more unilateralism. The impact on cross-border investment will also be a critical issue to consider, and the ongoing impact assessment by the OECD is an important part of the work.

OECD Tackling Harmful Tax Practices

September 18, 2019

Countries around the world often design their tax policies to become attractive targets for foreign investment. These policies can be anything from a system with special preferences for certain industries to a well-designed tax system based on principles of sound tax policy. Systems that are rife with special preferences and complexities can create distortions in local jurisdictions and across the global economy.

How Controlled Foreign Corporation Rules Look Around the World: United Kingdom

July 15, 2019

The UK rules are designed to arrive at the most accurate definition of foreign income that should be taxed in the home country. These rules apply one of the most detailed approaches to solving the issue of taxing the right type and amount of foreign income. The method can be considered more effective, but the compliance implications and derived costs may be higher compared to those that are derived from the application of other methods.

The Impacts of Tightening up on Transfer Pricing

July 11, 2019

As with other anti-base erosion policies, transfer pricing regulations reveal the challenges of designing rules that address problems associated with various strategies businesses use to minimize their tax burdens. While countries may want to target specific abuses, the way the rules are designed can have real economic impacts on cross-border investment.

How Controlled Foreign Corporation Rules Look Around the World: Netherlands

July 8, 2019

The Dutch tax system is characterized by its simplicity and the attractiveness to investors. With the incorporation of CFC rules, the Dutch government protected its tax base from erosion and profit shifting. The Netherlands is facing a whole series of adjustments that would create a more complex system adapted to the international standards recommended by the OECD and adopted by the European Union Council. When revising the rules authorities must be mindful about not making the system more complex and to avoid increasing the compliance burden in the country.

How Controlled Foreign Corporation Rules Look Around the World: Japan

July 3, 2019

Japan is a country with a complex multilayer system to calculate the corporate income tax. As a consequence, the CFC income determination has evolved as a complex set of rules to complement the corporate income tax. It would be a great idea for the Japanese authorities to address a simplification of the rules to facilitate the entry of new capital investments into their economy.

How Controlled Foreign Corporation Rules Look Around the World: United States of America

June 24, 2019

The United States was the first country to enact CFC rules, and it is probably the country with the most complex set of rules that will be presented in this blog series. The rules determine control using a combined ownership test: one for the corporation and the other at the shareholder level. The assessable income under the rules is generally passive income but the amount of foreign income subject to U.S. tax has expanded with the adoption of GILTI.

How Patent Boxes Impact Business Decisions

June 20, 2019

As with every change in tax policy, there are trade-offs. The Modified Nexus Approach adds an additional layer of complexity to the already complex issue of taxing IP income. Linking tax breaks for IP income to its associated R&D activity has changed the game and will likely result in some businesses restructuring and relocating their IP assets and R&D activity. Effective tax rates on IP income will likely play an important role in determining optimal locations, giving measures such as R&D credits more importance. Whether this new approach to IP taxation will impact profit shifting and which countries will be the winners and losers is yet to be seen.

CFC Rules Around the World

June 17, 2019

Our paper undertakes a review of controlled foreign corporation (CFC) rules around the world as a contribution to the global discussion over the possible expansion of existing anti-base erosion CFC regimes or the potential adoption of a minimum tax.

Summary and Analysis of the OECD’s Work Program for BEPS 2.0

June 18, 2019

From a broad standpoint, agreement at the OECD will require countries to give up some measure of their own tax sovereignty on policies they have designed to minimize the distortionary effects of the corporate income tax. Over the years tax competition has led to some countries adopting policies that are attractive to businesses because they have a more neutral rather than distortionary approach to taxing corporate income. This project could directly undermine that progress by introducing new levels of complexity and distortion that would ultimately have a negative impact on global trade and growth.

Ripple Effects from Controlled Foreign Corporation Rules

June 13, 2019

Governments should recognize these trade-offs as they implement controlled foreign corporation (CFC) rules or change their tax policies in ways that increase taxes on foreign subsidiaries.

Putting the Pieces Together on BEPS

June 6, 2019

Taxes matter for decisions to be made by businesses, individuals, and families, and it is important for policymakers to understand that rules can be designed to be neutral rather than distortionary.

Initial Thoughts on the OECD’s Inclusive Framework “Work Plan” to Resolve the Taxation of the Digital Economy

May 31, 2019

The members of the OECD’s Inclusive Framework have set out an ambitious work plan to come to a consensus by 2020 on revising the way the digital economy is taxed. While the details of the policy changes under consideration are certainly important, equally important is the inclusion of a set of guidelines for performing comprehensive economic analysis of these policies and producing impact assessments that can inform member decision-making.

Anti-Base Erosion Provisions and Territorial Tax Systems in OECD Countries

May 2, 2019

The U.S. decision to adopt a territorial tax system is certainly an improvement over having a worldwide system. However, in moving to a territorial system some of the new features created with the TCJA increased the complexity of the system.

Tax Foundation Response to OECD Public Consultation Document: Addressing the Tax Challenges of the Digitalization of the Economy

March 4, 2019

Though the challenges to international tax policy are many, the OECD has a chance to work toward a system that creates fewer distortions and negative economic effects than the current one. However, given the policies on the table, it will certainly take quite an effort to avoid further complexity of international tax rules that creates challenges to global trade and economic prosperity.