GUIDELINES FOR TAXING INTERNATIONAL CAPITAL FLOWS: AN ECONOMIC PERSPECTIVE

The United States provides a foreign tax credit to relieve double taxation, but the credit is limited to the US tax liability on the foreign-source income. Income is generally characterized as foreign source if it arises from foreign activities and is, therefore, likely to be subject to foreign tax....

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Bibliographic Details
Published in:National tax journal 1993-09, Vol.46 (3), p.309-314
Main Author: ROLLINSON, BARBARA L.
Format: Article
Language:English
Subjects:
Analysis
Baskets
Capital income
Capital movements
Corporate income tax
Corporate income taxes
Corporations
Deferred income
Double taxation
Foreign investment
Foreign subsidiaries
Foreign tax credit
Foreign tax credits
Income taxes
International
International finance
International law
Investment tax credits
Investments
Neutrality
Policy making
Sales
State income tax
Tax credits
Tax rates
Taxable income
Taxation
Taxes
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Summary:The United States provides a foreign tax credit to relieve double taxation, but the credit is limited to the US tax liability on the foreign-source income. Income is generally characterized as foreign source if it arises from foreign activities and is, therefore, likely to be subject to foreign tax. Expense is generally matched to the income it generates. The limitations the US places on the foreign tax credit may affect investment decisions. A credit is only provided for taxes up to the level of US taxes, but averaging within baskets of income is allowed. Therefore, if a company has an investment in a country with a tax rate that is higher than the US rate, the tax cost of opening operations in a low-tax country will be lower than the cost of additional investments in the US even when the income is taxed currently. Under the current US system, all the decisions about what to tax, how to source, and how to relieve double taxation get translated into one policy tool, the foreign tax credit.
ISSN:0028-0283
1944-7477
DOI:10.1086/NTJ41789023