Extraterritorial Taxation: Is It All Our Fault?

Adam N. Michel

In a recent Tax Notes International article, I describe the evolution of controlled foreign corporation rules and international taxpayer information exchange as examples of the United States being a first mover in weakening international tax norms.

You can access the article here, although it is paywalled for the next month.

I’ve written a lot recently on the problems with the Organisation for Economic Co‐​operation and Development’s (OECD) Two Pillar proposal to increase corporate tax rates on multinational businesses.

My Tax Notes piece argues that U.S. policymakers are not without blame for the OECD‐​led international departure from historical tax norms. Beyond U.S. funding for the OECD’s misguided initiatives, its proposals often build on the United States’ worst tax ideas. First, I describe the expansion of controlled foreign corporation rules in the 1960s and, more recently, through Global Intangible Low Tax Income (GILTI). My second example is the U.S. Foreign Accounts Tax Compliance Act (FATCA) which spawned the OECD’s automatic financial accounts information exchange initiative, which has been called the “treaty to end financial privacy.”

Historically, unilateral U.S. expansions of its tax base have spawned even more aggressive changes from other countries and the OECD. As Congress considers how to respond to the OECD’s proposals and reform our own domestic laws, Congress should lead by example. Moving to a full territorial tax system and increasing financial privacy protections will both make the U.S. a more attractive investment hub and disengage from the escalatory fight for other countries’ tax bases.