Andrew Fischer
83 Geo. Wash. L. Rev. 1028
Multinational corporations are drastically reducing their tax burdens
through aggressive tax structuring. These tax savings are largely realized
through the creation of stateless income, which is income that is taxed in a
jurisdiction other than where a corporation is domiciled or where it conducts
its business operations. Stateless income can be created through a series of
opaque paper transactions among wholly owned subsidiaries that take advantage
of incongruences in the international corporate tax framework and peculiarities
in U.S. tax rules. The United States currently has a worldwide-based
corporate income tax regime, which taxes all income earned by corporations
domiciled in the United States. However, the United States defers taxation of
income earned by foreign subsidiaries of U.S. parent corporations until that
income is made available to the U.S. parent corporation.
U.S.-domiciled multinational corporations create stateless income by
shifting income from the United States to wholly owned subsidiaries in low- or
no-tax jurisdictions. Once the earnings are shifted abroad, they are in effect
locked outside the United States, as corporations are weary of subjecting earnings
to relatively high American tax rates. As a result, enormous sums of corporate
earnings are locked outside of the United States, totaling an estimated
$1.7 trillion. These locked out funds are then not reinvested in the United
States, taking away valuable capital and jobs from the U.S. economy. Further,
stateless income significantly erodes the U.S. tax base, with the U.S. Treasury
losing an estimated $82 billion of tax revenue per year due to stateless income
structuring.
This Note argues that Congress should move the United States from a
worldwide tax regime to a territorial regime that taxes corporate income when
it more closely aligns with the United States than with any other nation. Moving
to a territorial system better aligns the American corporate income tax
system with the current global corporate tax framework, creating greater coherency
in international corporate taxation and reducing the instances of
double and non-taxation. This Note also argues that to counter the most aggressive
tax structuring techniques, Congress should subject wholly owned
foreign subsidiaries of U.S.-domiciled corporations to a minimum effective
income tax rate of 25%.
