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Wed Apr 7, 2021, 01:34 PM

A bold fix for US international taxation of corporations

Both the Biden administration, through its just announced "The Made in America Tax Plan," and several senators, including Senate Finance Committee Chair Ron Wyden (D-OR), Sherrod Brown (D-OH) and Mark Warner (D-VA), are trying to revamp the complicated, and to some extent, flawed changes made to the U.S. international tax system in 2017 by the so-called Tax Cuts and Jobs Act.

The target of this effort should be to encourage corporations to keep and create new good paying jobs in the United States, to avoid tax barriers to repatriation of offshore profits and to prevent U.S. taxation from making U.S. companies noncompetitive with their foreign rivals.

While the international tax changes made by the act may have addressed the latter two goals, it has failed at the first and presumably the most important objective, which Senator Wyden stated during a March Senate Finance Committee Hearing "is a need to make sure the best research and manufacturing is done in America."

To that end, I propose the U.S. should repeal the global intangible low taxed income provision altogether coupled with the removal of the participation exemption, both enacted as part of the Tax Cuts and Jobs Act. Under the participation exemption, most dividends made from foreign subsidiaries to the U.S. parent company are entitled to a 100 percent dividends received deduction, thus permanently avoiding U.S. taxation.



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