U K Taxation Of Stock Options

Di oggi Borsa Notizie amp analisi in tempo reale After Hours Pre-Market News Flash Citazione Sommario Citazione Interactive Grafici predefiniti Impostazione Si prega di notare che una volta effettuata la selezione, che si applicherà a tutte le visite future a NASDAQ. Se, in qualsiasi momento, si è interessato a ritornare alle nostre impostazioni predefinite, selezionare Impostazioni predefinite sopra. Se avete domande o incontrano problemi nel cambiare le impostazioni predefinite, inviare un'e-mail isfeedbacknasdaq. Si prega di confermare la selezione: Hai scelto di modificare l'impostazione predefinita per il preventivo Cerca. Questo sarà ora la tua pagina di destinazione predefinita a meno che non si cambia di nuovo la configurazione, o si eliminano i cookie. Sei sicuro di voler modificare le impostazioni Abbiamo un favore da chiederti Si prega di disattivare il blocco annuncio (o aggiornare le impostazioni per garantire che JavaScript ei cookie sono abilitati), in modo da poter continuare a fornire la notizia mercato di prim'ordine ei dati youve si aspettano da us. US Fiscalità aziendale: il primo per la riforma Principali risultati Gli Stati Uniti ha il secondo più alto tasso d'imposta effettiva marginale sugli investimenti delle imprese nel mondo sviluppato a 35,3 percentmdashbehind solo la Francia. Mentre l'aliquota marginale effettiva U. S.rsquos è rimasta stagnante, circa il 35 per cento negli ultimi 10 anni, l'aliquota media effettiva marginale sugli investimenti delle imprese è diminuito del 2,9 per cento nel dell'OCSE e del 6,8 per cento nel G7. Dal 2005, 63 paesi hanno ridotto il loro tasso di imposta sulle società di legge, abbassando l'aliquota media legale al 24,4 per cento tra i 95 paesi esaminati. Nel frattempo, l'aliquota dell'imposta sulle società statunitense è rimasto stagnante al di sopra del 39 per cento. La mancanza di competitività degli Stati Uniti sulle società riduce gli investimenti e la crescita economica, mina la produttività, e incoraggia le aziende a muoversi attività ad altri paesi. Opzioni di riforma del codice fiscale aziendale Stati Uniti comprendono: ridurre il tasso superiore al 25 per cento, limitando le preferenze fiscali, di passare a un sistema fiscale territoriale e migliorando l'integrazione dei codici fiscali individuali e aziendali. Introduzione Se c'è un punto di comune accordo tra i partiti democratico e repubblicano, è la necessità di riformare il codice fiscale sul reddito delle società. Repubblicani del Congresso hanno raccomandato di ridurre l'aliquota dell'imposta sulle società federale 35-25 per cento, mentre il presidente Obama ha raccomandato un tasso di 28 per cento. Entrambi avrebbero guardare la rimozione di un numero di preferenze fiscali. La mancanza di competitività degli Stati Uniti sulle società, che è documentato qui di seguito, impone tre gravi danni per l'economia degli Stati Uniti. In primo luogo, l'elevato onere fiscale delle imprese si riduce l'incentivo a investire nel capitale negli Stati Uniti, compromettendo in tal modo la crescita. Mentre senza dubbio le imprese statunitensi investiranno in casa in ottemperanza ad altre importanti factorsmdashsuch come investimento demandmdashprivate domestica sarebbe più grande negli Stati Uniti, se il carico fiscale sugli investimenti sono stati ridotti. Canada, per esempio, ha drasticamente ridotto il proprio carico fiscale attività dal 2000, passando dal carico fiscale più alta al centro del gruppo tra i paesi dell'Organizzazione 34 membri per la cooperazione e lo sviluppo economico (OCSE). Il risultato è stato un miglioramento investimenti del settore privato negli ultimi dieci anni e la crescita dei redditi per i canadesi. 1 In secondo luogo, l'ampia variazione delle aliquote fiscali effettive tra le diverse attività di business negli Stati Uniti mina la produttività. Con un regime fiscale delle imprese non neutrale, il capitale è allocato alle attività fiscali favorita con le altre attività di aliquote fiscali soggette a significativamente elevata efficaci. Una riforma della base imponibile in modo che il reddito imponibile d'impresa corrisponde reddito economica più stretta porterebbe ad un cambiamento di allocazione del capitale dal più basso al ritorni economici più elevati. 2 La produttività può essere migliorata rendendo la struttura tassa professionale più neutro con oneri fiscali simili su attività di business in particolare per quanto riguarda attività, l'industria, e le scelte organizzative aziendali. 3 Questi guadagni sono circa 50 centesimi a 85 centesimi per ogni dollaro di entrate fiscali sul reddito delle società, che sono in aggiunta al costo economico derivante dalla scoraggiamento di investimenti aggregati. 4 In terzo luogo, un alto tasso di imposta sul reddito delle società di legge riduce l'incentivo a mantenere i profitti negli Stati Uniti. Le aziende si sposterà reddito a giurisdizioni con aliquote dell'imposta sul reddito aziendale inferiori, rispetto al tasso di imposta federale e statale sul reddito di impresa del 39,1 per cento. 5 Come pianificazione fiscale può essere rapidamente messo in placemdashsuch come lo spostamento deduzioni debito negli Stati Uniti da altri countriesmdashthe statunitensi tesorerie statali e federali sono feriti con le entrate fiscali aziendali inferiori. L'incentivo a tenere denaro contante all'estero è ulteriormente aggravata dalla pratica degli Stati Uniti, ora unica tra le principali economie industrializzate, di tassare i dividendi esteri rimessi a casa. Una politica di riduzione dei tassi di imposta sul reddito delle società di legge per i tassi tipici si trovano in altri paesi con base-allargamento consentirebbe agli Stati Uniti di incoraggiare gli investimenti, senza compromettere i ricavi. Come vedremo di seguito, l'esperienza canadese con tariffa aziendale reductionsmdashalmost 16 punti dal 2000mdashwith qualche riduzione degli incentivi fiscali ha mantenuto entrate fiscali aziendali in percentuale del PIL e ad un livello superiore a quello che si trova negli Stati Uniti. Questo documento fornisce nuove stime del 2014 il carico fiscale sugli investimenti negli Stati Uniti rispetto al G7, G20 emergenti, OCSE, e 95 industrializzati e le economie in via di sviluppo. La pressione fiscale tiene conto imposte sul reddito (tariffe, gli ammortamenti, l'inventario, e altre detrazioni fiscali e crediti), le imposte di vendita su acquisti di beni capitali (tra cui Stati Uniti dichiari imposte di vendita al dettaglio sui beni strumentali) ed altre tasse relative al capitale, tra cui tasse di concessione , tasse asset-based, e le tasse sulle transazioni finanziarie. 6 Escludiamo le tasse di proprietà in quanto i dati non sono disponibili per stimare le aliquote fiscali effettive proprietà specifiche di settore e specifici di attività, al netto degli oneri per i servizi comunali, nella maggior parte dei paesi, tra cui Canada. Escludiamo incentivi temporanei come fx di ammortamento negli Stati Uniti dal momento che questi incentivi temporanei tendono a spostare gli investimenti da un anno all'altro, piuttosto che fornire una riduzione sostenuta del costo del capitale su base permanente. Imposta marginali effettive, tariffe che compaiono sul Capitale (METR) Quest'anno ricorre il decimo anniversario di un confronto globale delle aliquote marginali effettive stimate per le industrie manifatturiere e di servizi nei paesi sviluppati e in via di sviluppo. 7 Usiamo la metodologia METR di stimare oneri fiscali sulla base di lavoro sviluppato nel corso degli anni per tenere conto di diverse complessità del sistema fiscale. 8 L'aliquota marginale effettiva è calcolata per i nuovi investimenti, come valore annualizzato di imposta pagata in percentuale del tasso ante imposte di restituzione del capitale in base al presupposto che il rendimento al netto delle imposte è appena sufficiente per attirare finanziamenti da internazionali (G7) investitori. Ad esempio, se il tasso netto ante imposte-di-rischio di rendimento di un progetto marginale è il 10 per cento e il ritorno al netto delle imposte globale è del 5 per cento, l'aliquota effettiva sul capitale è del 50 per cento. Per aggiornare il nostro confronto fiscale transfrontaliera ogni anno, non solo incorporare le modifiche fiscali legiferato in base annua, ma anche aggiornare i parametri non fiscali chiave per paese, tra cui le strutture di capitale, tassi di interesse, tassi di inflazione specifici per paese e azioni PIL entro sectormdashbased sulle ultime statistiche disponibili. Applicando questi parametri non fiscali aggiornati per tutti gli anni contenuti nel nostro ultimo modello (2005-2014) aiuta a mantenere intatta la nostra tracking delle modifiche fiscali annuali in base al paese. In questo modo, tuttavia, può comportare variazioni nella metrs specifici per paese per gli anni precedenti, tra le nostre pubblicazioni attuali e precedenti. Stati Uniti Tasse aziendali sono altamente non competitive posizione di competitività fiscale degli Stati Uniti si è aggravata nel corso degli anni. Sebbene ci sia stata una certa riduzione del tax rate di legge per i crediti produzione e altri settori di qualificazione così come i cambiamenti in varie indennità e fiscali, i governi federali e statali degli Stati Uniti hanno più o meno mantenuto la stessa pressione fiscale aggregata su investimenti aziendali dal 2005 (vedi tabella 1). Nello stesso periodo di tempo, altri paesi si sono mossi per ridurre il carico fiscale delle imprese, tra cui la maggior parte dei paesi del G7, ad eccezione della Francia. In media, i paesi del G7 hanno ridotto il tasso di imposta sul reddito delle società di 4,4 punti percentuali dal 2005 al 2014. I paesi del G20 emergenti hanno, in media, ridotte aliquote dell'imposta sulle società di 3,1 punti percentuali, passando dal 29,3 per cento del 2005 al 26,2 per cento nel 2014 . I paesi dell'OCSE hanno ridotto aliquote dell'imposta sulle società di 2,8 punti percentuali. Nel frattempo, la legge aliquota dell'imposta sulle società degli Stati Uniti è sceso del 0,2 per cento, a causa di modifiche fiscali aziendali a livello statale. In alcuni paesi, una parte del sollievo sulle società è stata compensata dalla rimozione di determinate preferenze fiscali. Tabella 1. marginale Velocità effettiva di imposta sul capitale per gli investimenti, vario Paese Gruppi, 2005-2014 Le 10 economie emergenti withn del G-20 includono due OCSE e otto paesi non OCSE sono (in ordine alfabetico): Argentina, Brasile, Cina, India, Indonesia, Messico, Russia, Arabia Saudita, Sud Africa e Turchia. I numeri non possono aggiungere fino a causa degli arrotondamenti. L'americano è al secondo posto marginale effettiva aliquota fiscale in dell'OCSE Nel 2014, gli Stati Uniti ha perso la sua distinzione di avere il più alto tasso d'imposta effettiva marginale sul capitale fra economie industrializzate (vedi tabella 2). Questa distinzione appartiene ora alla Francia, che ha raddoppiato la sua sovrattassa sui redditi societari il 1 ° gennaio 2014 (10,7 per cento per le grandi aziende). Anche se Francersquos tasso di imposta sul reddito delle società tra cui l'addizionale è 38 per cento, e al di sotto del tasso di Länder Stati Uniti del 39,1 per cento, la Francia riscuote diverse altre imposte sugli investimenti di capitale che si traduce in un piuttosto elevato aliquota marginale effettiva. La Francia ha indicato che prevede di ridurre la sua aliquota dell'imposta sulle società da 2.020-28,92 per cento dal 34,43 per cento così come eliminare la sua addizionale ldquotemporaryrdquo che è in vigore dal 2011. A differenza degli Stati Uniti e la Francia, altri paesi del G7 sono stati riducendo la loro fiscale onere per investimenti delle imprese (Tabella 2). Le azioni più aggressive sono state adottate in Canada e nel Regno Unito. Il Canada ha abbassato il suo METR per oltre la metà da 38,8 per cento a 18,8 per cento a 2005 nel 2014. Lo ha fatto per la riduzione dei tassi sul reddito delle società quasi 8 punti percentuali, la rimozione di imposte in conto capitale, e l'eliminazione delle tasse maggior parte delle vendite su fattori di produzione attraverso l'imposta sulle vendite provinciale armonizzazione con la Merce federali e servizi fiscali (una forma di imposta sul valore aggiunto) in sei province. Per attenuare l'effetto della recessione globale nel 2008 e 2009, il Regno Unito ha spinto ulteriormente la riforma fiscale delle imprese abbassando i tassi e l'ampliamento della base imponibile. Entro il 2015, il tasso di imposta sul reddito delle società nel Regno Unito è pari al 20 per cento, nettamente inferiore al 30 per cento nel 2007. La Germania ha anche ridotto il carico fiscale sugli investimenti dal 2005. Si è ridotto il METR di quasi 10 punti percentuali e abbassato la sua imposta sul reddito delle società prezzi da 38,9 a 30,2 per cento. L'Italia ha seguito un corso simile con riforme molto importanti nel corso degli anni. Inoltre, il Giappone, che ha riscosso in genere uno dei più alti carichi fiscali in tutto il mondo, ha ridotto la sua METR sugli investimenti aziendali di oltre due punti percentuali a partire dal 2005. Si prevede una ulteriore riduzione delle aliquote dell'imposta sul reddito federali aziendali dal livello del 2014 il 37 per cento al 33,8 per cento nei prossimi due anni. Altri paesi dell'OCSE ridotto gli oneri fiscali per gli investimenti delle imprese nel 2014 o hanno intenzione di farlo, tra cui Danimarca, Finlandia, Norvegia, Australia, Spagna e Svizzera. Alcuni hanno aumentato o prevede di aumentare il carico fiscale sul capitale, tra cui Cile, Grecia, Israele, Corea e Portogallo. Nel complesso, il PIL ponderata media OCSE METR è scesa dal 31,4 per cento nel 2005-28,2 per cento nel 2014. Tabella 2. marginale Velocità effettiva di imposta sul capitale per gli investimenti, paesi OCSE, 2005 ndash 2014 Paesi di tutto il mondo continuano a abbassare le tasse sugli investimenti delle imprese tenendo conto di tutti i 95 paesi che esaminiamo, un simile evolve story (Appendice Tabella 1). In generale, il carico fiscale PIL ponderata sugli investimenti aziendali è scesa dal 28,7 per cento nel 2005-22,1 per cento nel 2014. Il tax rate del PIL media ponderata di legge sul reddito delle società tra i 95 paesi è scesa dal 42,2 per cento al 33,0 per cento nello stesso periodo. L'aliquota d'imposta sul reddito delle società media semplice è scesa dal 28,8 per cento nel 2005-24,4 per cento nel 2014. Gli Stati Uniti e la Francia godere di uno standard del Terzo Mondo Paese con forte pressione fiscale sul capitale simili in Argentina, il Ciad, l'Uzbekistan, e Colombia. Anche la produzione, un settore privilegiato per sgravi fiscali negli Stati Uniti, è più pesantemente tassato rispetto alla media internazionale (33,5 per cento negli Stati Uniti rispetto alla media ponderata del 22,4 tra i 95 Paesi). Se si guarda al tasso di imposta sul reddito delle società da solo o l'onere fiscale complessivo per le imprese, gli Stati Uniti è stata eccezionalmente al passo con il resto del mondo. Mentre gli Stati Uniti si è fermato Pat, la maggior parte dei paesi hanno ridotto i tassi di imposta sul reddito aziendale per essere competitivi a livello internazionale e rimosso alcune preferenze fiscali per investimenti di capitale per ottenere un sistema fiscale più neutra. L'imposta sulle società degli Stati Uniti è un povero Entrate Collector Uno sguardo da vicino aliquote medie effettive dimostra lo scarso rendimento e la riscossione delle entrate instabile dal sulle società degli Stati Uniti per il periodo dal 2000 al 2011. Come mostra la figura 1, 9 il ratesmdashcorporate fiscale media effettiva imposte diviso per profitsmdashare aziendale ben al di sotto del tasso d'imposta per legge, che riflettono numerose agevolazioni fiscali. Nell'ultimo anno disponibile (2011), l'aliquota fiscale effettiva del 22,1 per cento è inferiore a tre quinti della aliquota fiscale teorica. La fonte di queste differenze è correlata alle preferenze fiscali come ad esempio vari crediti d'imposta investimenti, nonché l'utilizzo di perdite pregresse create dalla recessione nel 2008 e 2009. Inoltre, le collezioni di reddito sono altamente variabili come aliquote effettive si muovono ciclicamente con l'economia. L'aliquota fiscale effettiva più alta è stata nel 2007, quando l'economia ha raggiunto il picco più basso con aliquota fiscale effettiva nel 2009-11, che riflette, in parte, minori profitti delle imprese e il reddito imponibile in quegli anni. L'imposta sul reddito delle società Stati Uniti, in percentuale del PIL, in media 2,2 per cento del PIL per il periodo dal 2000 al 2011. Questo è in netto contrasto con il suo vicino settentrionale, il Canada, che ha raccolto molte più entrate fiscali sul reddito delle società rispetto agli Stati Uniti a circa 3,4 per cento del PIL nello stesso periodo (grafico 2). Ciò è vero anche se gli Stati Uniti ha un tasso di imposta sul reddito nettamente superiore generale aziendale di Canada. L'andamento dei ricavi canadese sulle società è particolarmente impressionante dato che i tassi di imposta sul reddito aziendale di legge è sceso di circa 15 punti percentuali durante questo periodo. A differenza del caso degli Stati Uniti, il Canada ha goduto di aumento del reddito imponibile in percentuale del PIL, anche durante la recessione, quando i profitti delle imprese è sceso precipitosamente. Prime Time per la Riforma della Stati Uniti Corporate Income Tax La strategia di high-rate, l'imposta sulle società stretta di base impiegato dagli Stati Uniti ha failedmdashthe imposta sulle società è altamente distorsivo ed è stato un povero raccoglitore reddito. Il perseguimento di un diverso aliquote dell'imposta sulle società strategymdashinternationally competitivi e neutralitymdashis una prospettiva di gran lunga migliore per la riforma. Alcuni hanno sostenuto che gli Stati Uniti dovrebbero prendere in considerazione di abbandonare la sua imposta sul reddito delle società del tutto. 10 Questo punto di vista è spesso sostenuto sulla base del fatto che l'imposta sul reddito delle società impone il più grande costo economico per l'economia. 11 Tuttavia, la tassazione sul reddito delle società, nonostante le sue numerose verruche, possono essere giustificati per diversi motivi: l'integrità della imposta sul reddito: Senza l'imposta sul reddito delle società, gli individui evitare la tassazione personale lasciando reddito nella società. 12 Il ruolo della imposta sulle società è quello di servire da arresto per l'imposta sul reddito in quanto non tutte le forme di reddito personale, guadagni di capitale in particolare, 13 sono completamente soggette a tassazione. imposte sul reddito personale su dividendi e guadagni in conto capitale dovrebbero essere ridotti per evitare la doppia imposizione degli utili distribuiti o reinvestiti (quest'ultimo porta ad un aumento del valore per gli azionisti che è tassato come redditi di capitale, quando le attività sono smaltiti). L'ascesa di entità pass-through negli Stati Uniti che non sono soggetti all'imposta sul reddito delle società, esemplifica le azioni intraprese da parte degli investitori per annullare la doppia imposizione nel sistema di imposta sul reddito. reddito 14 Ritenuta da parte degli investitori esteri. L'imposta sulle società funge da ritenuta alla fonte sui redditi maturati agli stranieri da parte delle imprese americane. Senza l'imposta sul reddito delle società, il governo degli Stati Uniti perde un'importante fonte di reddito ottenuto dalle multinazionali straniere guadagnare reddito negli Stati Uniti. User Fee surrogata. In assenza di canoni di utenza a carico recuperare l'intero costo dei servizi pubblici, l'imposta sul reddito delle società opera come un surrogato per catturare i guadagni di profitto per le imprese di servizi pubblici come il trasporto pubblico e la formazione dei lavoratori. le aziende degli Stati Uniti (e certe entità pass-through) beneficiano anche la responsabilità limitata che consente alle aziende di raccogliere fondi dai soci ad un costo più favorevole. Altri obiettivi economici potrebbero essere perseguiti dai governi nella definizione della politica fiscale delle imprese come la fornitura di sgravi fiscali mirati ad alcune attività commerciali. Tuttavia, se l'intervento pubblico nell'economia è desiderato, non è affatto chiaro che gli incentivi fiscali, che sono larga nel loro impatto, sono un approccio adeguato per condurre una politica economica, invece di programmi di regolazione e la spesa pubblica. Dopo tutto, sgravi fiscali preferenziali non sarà efficace se gli investitori sono stati già pianificando di intraprendere l'attività. Tipi di riforma fiscale: flusso di cassa o sul reddito Imposte due approcci potrebbero essere considerati per la riforma fiscale delle imprese: la tassazione dei flussi di cassa o di imposte sul reddito. Il primo è quello di muoversi verso una tassa ldquocash flowrdquo in cui il costo economico pieno di un investimento è dedotto dalla base imponibile. A margine, il rendimento annualizzato sul capitale è pari al costo del capitale in modo da questo implica che il pagamento dell'imposta sulle società su progetti marginali sarà pari a zero e, quindi, non inciderebbe sulla decisione di investire. Sotto un semplice fiscale flusso di cassa, i costi di investimento di capitale sarebbero stati spesati e, nel trattamento standard, il costo del finanziamento degli investimenti mediante un prestito non sarà deducibile dal mutuatario meno che non sia un reddito imponibile per il creditore (che non sarà necessariamente la caso con gli investitori esentasse e gli investitori stranieri). 15 Se l'interesse è interamente deducibili, il flusso di cassa riforma fiscale delle imprese richiederebbe una riforma fiscale personale per garantire che il margine di interesse è interamente imponibile a livello personale. In questo lavoro, ci concentriamo sulla riforma fiscale delle imprese sotto tassazione del reddito come la più valida riforma Stati Uniti in questo momento. Il design della riforma fiscale Corporate L'approccio alternativo è quello di riformare l'imposta sul reddito delle società esistente per renderla più neutra con oneri fiscali simili su attività di business. Ciò ridurrebbe la variazione delle aliquote fiscali marginali effettive sui beni e le industrie. 16 Al momento, anche senza l'ammortamento fx temporaneo, le aliquote marginali effettive sugli investimenti di capitale sono più alta sulle industrie commercio e dei servizi e il più basso sugli investimenti di utilità e di trasporto pubblico. Le strutture sono quasi il doppio più pesantemente tassati dalle macchine ed apparecchi nel settore manifatturiero. Gli investimenti in terreni sono meno tassati tra tutti i settori industriali. Le rimanenze sono un po 'meno tassati, in media, di macchinari e attrezzature nella maggior parte delle industrie, anche se nella misura in cui le imprese utilizzano il prezzo storico di inventario datato più antico di valutare il costo, le scorte sarebbero uno dei beni più fortemente tassati. Con queste premesse, la tassazione delle imprese Stati Uniti richiede una riforma sostanziale per abbassare i tassi e ampliare le basi imponibili. riforma fiscale aziendale negli Stati Uniti è una sfida dal momento che così tante aziende funzionano come pass-through entità, con conseguente reddito d'impresa di essere soggetti soltanto alla tassazione personale. Le politiche per ampliare la base imponibile, come la riduzione delle quote di ammortamento e crediti d'imposta investimenti non riguardano solo le imprese ma anche il pass-through entitiesmdashyet solo l'aliquota dell'imposta sulle società viene ridotta se la riforma si concentra solo sul reddito delle società. Pertanto, un aspetto importante della riforma fiscale aziendale è quello di ridurre le differenze nel trattamento fiscale delle entità costituite e pass-through, che comprende la rimozione l'incentivo per le imprese a spostare fuori dal settore delle imprese del tutto. Qui di seguito, una serie di riforme fiscali aziendale sono descritti brevemente sulla base del fatto che le altre imposte, in particolare il reddito personale, rimangono invariati. Ridurre la Federal Tariffa aziendale al 25 per cento Questa è la priorità assoluta per la riforma fiscale negli Stati Uniti. Il tasso federale degli Stati Uniti al 35 per cento riduce l'incentivo ad investire, così come rende difficile attirare i profitti negli Stati Uniti. Un tasso di imposta sul reddito delle società più basso incoraggerà gli investimenti, ridurre il valore fiscale delle preferenze previste per businessmdashwhich migliorerà neutralitymdashand mantenere i profitti negli Stati Uniti. Tra cui le imposte sulle società a livello statale, il tasso di Länder complessivo sarebbe pari a circa il 30 per cento, prossimo al tasso di imposta sulle società medio ponderato globale. La riduzione delle preferenze fiscali per le preferenze Capital Investments fiscali, comprese le riduzioni preferenziali aliquota fiscale per le imprese di qualificazione, l'ammortamento di fx, e vari crediti d'imposta, deve essere ridimensionato per realizzare una struttura di tassa professionale più neutro con oneri fiscali simili su attività di business. La neutralità sarebbe migliorare i redditi economici, come le imprese decideranno su investimenti in base al valore economico piuttosto che essere influenzato da sgravi fiscali. ampliamento Base avrebbe anche semplificare il sistema fiscale, dal momento che le regole che la legge fiscale disordine sono necessari per determinare qualifiche per sgravi fiscali. Muovendo verso un Dividendo esteri esenzione sistema 17 Gli Stati Uniti sono l'unico paese grande capitale esportazione che impone imposta sui dividendi Stati Uniti rimessi emananti da soggetti collegati statunitensi multinazionali operanti in altre giurisdizioni (un sistema fiscale in tutto il mondo). Anche se alcune proposte sono state fatte per completamente imposta sugli utili conseguiti da consociate estere, questo sarebbe molto dannoso per le società statunitensi i cui azionisti stranieri preferiscono investire direttamente in società operanti in altre giurisdizioni, invece di ricevere tale reddito attraverso una società statunitense. L'effetto della già esistente fiscale statunitense sul reddito estero è quello di scoraggiare i contanti da essere rimesso negli Stati Uniti per finanziare gli investimenti e incoraggiare acquisizioni straniere di aziende statunitensi (tra cui inversioni aziendali in cui la società statunitense si trasferisce all'estero per evitare la tassa sul reddito estero) . Sotto un sistema di esenzione dei dividendi esteri, le regole sarebbero tenuti a ridurre la portata della pianificazione fiscale per spostare i profitti fuori degli Stati Uniti. Questo è becaus l'imposta sul reddito delle società-federali sarebbe ancora superiore alla maggior parte dei paesi OCSE, anche sotto le proposte con un tasso di imposta sul reddito d'impresa del 25 per cento. Migliorare l'integrazione delle imposte sulle società e personali nella tassazione aziendale negli Stati Uniti è una tassa supplementare dividendi e guadagni in conto capitale. Mentre gli Stati Uniti ha fornito alcuni sgravi fiscali per i dividendi e guadagni in conto capitale a livello personale, negli ultimi anni, i risultati effettivi aliquota fiscale in una maggiore imposta su tale reddito rispetto all'imposta sul reddito ordinario. 18 La doppia imposizione dei dividendi e plusvalenze incoraggia troppo finanziamento del debito da parte delle imprese degli Stati Uniti, nonché l'adozione di altre strutture aziendali al fine di evitare l'imposta sulle società degli Stati Uniti. Se il tasso di imposta sul reddito delle società a livello federale sono stati ridotti a 25 per cento, l'imposta sulle società e combinato sugli utili distribuiti per gli investitori ad alto reddito sarebbe di circa il 40 per cento, pari a circa l'aliquota massima federale sul reddito personale. Questo potrebbe incoraggiare le imprese a spostare di nuovo alla struttura aziendale ai fini fiscali. Conclusione Gli Stati Uniti sta cadendo dietro altri paesi per quanto riguarda la competitività del suo sistema sul reddito delle società. Mentre i governi federali e statali degli Stati Uniti hanno più o meno mantenuto la stessa pressione fiscale aggregata su investimenti aziendali dal 2005, altri paesi si sono mossi per ridurre il carico fiscale aziendale come la maggior parte dei paesi del G7, ad eccezione della Francia. Gli Stati Uniti METR sul capitale è del 35,3 per cento, secondo più alto tra i G7, OCSE, e paesi del G20 emergenti. Tra i nostri paesi 95-presi in esame, il carico fiscale degli Stati Uniti per affari è sesto highestmdashonly sotto la Francia e molti Terzo Mondo economiesmdashand il doppio di quello della pressione fiscale media in tutto il mondo. Gli Stati Uniti hanno anche omesso di ridurre la sua ratemdashone sul reddito delle società del più alto nella worldmdashresulting in società spostando i loro profitti fuori degli Stati Uniti. In media, i paesi del G7 hanno ridotto il tasso di imposta sul reddito delle società di 4,4 punti percentuali tra il 2005 e il 2014. Questo è un po 'più dei paesi del G20 emergenti che hanno, in media, ha ridotto i tassi aziendali di 3,1 punti percentuali. Allo stesso modo, i paesi OCSE hanno ridotto i tassi di 2,8 punti percentuali. Alcuni di rilievo sulle società è stata compensata dalla rimozione di alcune preferenze fiscali in alcuni paesi. Gli Stati Uniti sono il primo per la riforma fiscale delle imprese. Invece di seguire una strategia fallita di alti tassi e delle basi strette, i governi federali e statali degli Stati Uniti dovrebbero cercare di riformare le politiche fiscali di business abbassando i tassi a livello internazionale e ampliare le basi per rendere la struttura fiscale business più neutre nella loro applicazione. Si tratta di una strategia vincente per aumentare gli investimenti e la crescita economica, nonché garantire che l'imposta sul reddito delle società è un collezionista reddito stabile e più efficiente. Tabella 1. appendice marginale Velocità effettiva di imposta sul patrimonio investimenti in 95 paesi 2014 rispetto al 2005 1 Uno studio specifico esaminando l'impatto della riduzione sette punti del tasso di imposta sul reddito delle società in generale in Canada dal 2001 al 2004 ha rilevato che gli investimenti è aumentato, prendendo conto di altri fattori che influenzano gli investimenti: una riduzione del 10 per cento del costo d'uso del capitale ha portato ad un aumento del 7 per cento del capitale sociale. Vedere Mark Parsons, l'effetto delle imposte sulle società sugli investimenti canadese: An Empirical Investigation, Finanza Canada, Working Paper 2008-01 (maggio 2008). La nostra serie aliquota marginale effettiva è stata utilizzata in uno studio che ha dimostrato che gli investimenti diretti esteri è stata significativamente dissuaso da imposte sulle società. (Vedere Matt Krzepkowski, marginale rispetto ai media effettiva aliquote fiscali e investimenti diretti esteri, in Saggi sugli investimenti e tassazione, Università di Calgary (2013).) Un recente sondaggio meta-analisi ha dimostrato che la tassazione delle imprese ha un impatto sostanziale sugli investimenti diretti esteri , che è importante per le catene globali del valore tra le imprese. Nel complesso, una riduzione di un punto dei risultati sul reddito delle società in un aumento degli investimenti diretti esteri dal 2,49 per cento. (Vedere LP Feld e JH Heckemeyer, IDE e Tassazione: Una meta-studio, Journal of Economic Surveys, Vol 25, Iss 2, 233-272 (aprile 2011)...) 2 In alternativa, una riprogettazione dell'imposta sulle società di essere applicato al flusso di cassa (spesatura dei costi di investimento senza deduzione per interessi passivi) eliminerebbe l'imposta sugli investimenti e raggiungere la neutralità. Questo approccio richiederebbe riforme fiscali personali dal momento che gli investitori non sarebbero tassati sul loro rendimento degli investimenti tra cui il margine di interesse. In questo lavoro, si assume che solo la riforma dell'imposta sulle società è in gioco. 3 Le imposte sulle società hanno elevati costi economici legati alla allocazione del capitale tra le attività e le industrie. Vedere Bob Hamilton, Jack Mintz, e John Whalley, scomponendo i costi sociali della Capitale fiscali Distorsioni: L'importanza di ipotesi di rischio. National Bureau of Economic Research Working Paper No. 3628 (febbraio 2011). Questo documento rileva che la distorsione inter-temporale causato da tassare investimento aggregato è il costo economico più significativo in questa analisi. Tuttavia, ldquostaticrdquo costi economici sono importanti, soprattutto per quanto riguarda le distorsioni inter-attività. 4 Jack Mintz, la neutralità e l'effetto del capitale tassazione sull'efficienza economica e crescita. manoscritto preparato per la Nuova Zelanda Tesoro (2010). 5 Negli ultimi anni, diversi studi di profitto-shifting hanno dimostrato che la base imponibile è molto sensibile alle variazioni dei tassi di imposta di legge. Weichenrieder scopre che un aumento di un punto 10- percentuale del tasso genitore fiscale del paese di origine provoca la redditività controllata tedesca ad aumentare di 0,5 punti percentuali (Vedi Alfons Weichenrieder, profitto Shifting nell'UE:. Prove da Germania, fiscale internazionale e la Finanza Pubblica Vol 16 , Iss. 3, 281-297 (2009).) Bartelsman e Beetsma scoprono che i due terzi del previsto aumento dei ricavi vengono persi dopo la contabilizzazione di profitto-shifting. (Vedere EJ Bartlesman e Roel Beetsma, perché pagare di più Prevenzione Corporate Tax attraverso prezzi di trasferimento nei paesi OCSE, Journal of Public Economics, Vol. 87, Iss. 9-10, 2225-2252 (settembre 2003).) Huizinga e Laeven trovare che un aumento di un punto percentuale del tasso di imposta sul reddito delle società riduce la base imponibile del 1,3 per cento per le multinazionali europee. (Harry Huizinga e Luc Laeven, internazionale Profit-Shifting di gruppi multinazionali:.. Una prospettiva multi-Paese, Journal of Public Economics, Vol 92, 1164-1182 (giugno 2008)) 6 L'unica imposta che non includiamo è prelievo proprietà dal dati sui tassi di imposta fondiaria efficaci non sono disponibili in base al paese. Il tasso effettivo avrebbe bisogno per tenere conto di esenzioni, i differenziali di tasso comunali e valore stimato per la proprietà che varia da valore di mercato. Inoltre, alcuni pagamenti fiscali di proprietà sono legati alle spese comunali sulle infrastrutture in modo che il carico efficace dovrebbe essere ridotto il valore dei servizi comunali forniti alle imprese. La Casa Bianca e Stati Uniti Tesoro ha stimato che l'aliquota marginale effettiva Stati Uniti è inferiore a quella del Canada. (Vedi Tabella 1 alla Casa Bianca amp il Dipartimento del Tesoro, il quadro Presidentrsquos for Business Tax Reform (Feb. 2012), treasury. govresource-centertax-policyDocumentsThe-presidenti-quadro-per-Business-Tax-Reform-02- 22-2012.pdf.) come abbiamo sottolineato lo scorso anno, questa analisi si differenzia nettamente dal nostro lavoro, escludendo l'impatto delle imposte sulle vendite su input di capitale, nonché un uso arbitrario delle aliquote fiscali di proprietà per il Canada e gli Stati Uniti. (Vedere Jack Mintz e Duanjie Chen, Gli Stati Uniti Corporate effettiva Imposte:. Mito e fatti imposte Fondazione relazione speciale n 214, (Feb 6, 2014), taxfoundation. orgarticleus-aziendale-efficacia-aliquota di imposta-mito-e . infatti) 7 Il decimo rapporto dettagliato che fornisce calcoli simili si trova in Duanjie Chen e Jack Mintz, il 2014 sulla competitività fiscale globale report: a business Tax Agenda riforma proposta. SPP Research Papers, School of Public Policy, Università di Calgary (2014). 8 La metodologia utilizza i dati canadesi e statunitensi per gli investimenti di capitale. L'analisi si basa sul lavoro originale di Robin Boadway, Neil Bruce, amplificatore Jack Mintz, tassazione, inflazione, e l'effettiva Aliquota fiscale marginale in Canada. Canadian Journal of Economics. Vol. 17, 62-79 (febbraio 1984) e sintetizzati in Jack Mintz, sulle società: un sondaggio. Fiscal Studies, vol. 16, Iss. 4, 23-68 (1995). 9 figure 1 e 2 vengono aggiornate versioni di figure che appaiono nelle Jack Mintz e Duanjie Chen, Il Stati Uniti Corporate effettiva Imposte: Mito e fatti. Tax Foundation Relazione speciale n 214 (6 Febbraio 2014), taxfoundation. orgarticleus-aziendale-efficacia-aliquota di imposta-mito-e-fatto. 11 Per una rassegna completa degli studi, vedere Bev Dahlby, il costo marginale dei fondi pubblici. MIT Press, (2008), mitpress. mit. edubooksmarginal costo-pubblici-fondi. 12 Even if the personal tax is substantially reformed to exempt investment income from taxation (thereby making corporate income unnecessarily taxed), an alternative form of corporate tax is needed on business rents to ensure that earnings are fully taxed at the individual level. For further discussion, see Institute of Fiscal Studies, Tax by Design, The Mirrlees Review, Oxford University Press (2011), ifs. org. ukpublications5353. 13 According to the Haig Simons definition of income, capital gains should, in principle, be taxed on an accrual basis. In most cases, capital gains are only taxed when assets are disposed. 14 Pass-through, or flow-through entities, of which income is subject to personal income tax only and not the corporate income tax, account for over half of business income in the United States. See Robert Carroll and Gerald Prante, The Flow-Through Business and Tax Reform . Ernst amp Young (2011). Many countries provide tax relief for dividends and capital gains at the personal level in recognition of tax paid on corporate profits to improve both efficiency and fairness of the tax system. The reliance on financing from foreign investors raises different issues at the international level since other governments decide upon personal tax relief measures. 15 A deduction of debt service in the presence of expensing results in a double deduction for the capital by the borrower, because the present value of the returns on the capital are assumed to equal the investment cost, including depreciation and financing. This double deduction can result in a tax loss for the firm but can be offset by the taxation of a similar amount of income to the lender. There is no negative tax on the return to the investment if the borrower and the lender are fully taxable. 16 See Table 3 in Jack Mintz and Duanjie Chen, The U. S. Corporate Effective Tax Rate: Myth and Facts . Tax Foundation Special Report No. 214 (Feb. 6, 2014), taxfoundation. orgarticleus-corporate-effective-tax-rate-myth-and-fact . 17 The U. S. debate focuses on ldquoterritoriality, rdquo which implies foreign income earned by U. S. companies would be exempt from U. S. taxation. However, most countries do not fully exempt foreign source income in the form of interest, rents, capital gains and royalties that are deductible charges in other countries. Instead, countries typically provide an exemption focused on foreign dividends. See Jack Mintz and Alfons Weichenrieder, The Indirect Side of Direct Taxation . MIT Press (2010), mitpress. mit. edubooksindirect-side-direct-investment . 18 For example, the top federal rate, ignoring the investment income tax, is 39.6 percent. At the federal level, dividends paid from corporate profits are subject to a corporate tax rate of 35 percent plus the personal tax rate of 20 percent (high income households) for a total tax rate of 48.5 percent. Thus, a company that pays out profits in the form of salaries and fxes, interest, royalties or rents, which are only subject to personal taxation, have a tax advantage over companies that distribute profits as dividends. A Global Perspective on Territorial Taxation Introduction Catherine the Great is supposed to have said, ldquoA great wind is blowing, and that gives you either imagination or a headache. rdquo In Washington, winds are stirring for corporate tax reform. But while there is broad bipartisan agreement that tax rates should be reduced,1 there is less consensus regarding what the tax rate should be, how to pay for a tax cut, or generally how to treat international business income. These considerations are inextricably intertwined because the U. S. assesses its corporations on worldwide income. Beyond imposing the highest top marginal tax rate in the developed world,2 the U. S. tax systemrsquos treatment of international business income is exceptionally burdensome. It inflicts tremendous compliance costs, creates enormous distortions of economic activity, deters companies from headquartering in the U. S. awards tax preferences to politically connected industries, and traps huge amounts of U. S. corporate profits overseas. To add insult to injury, despite these punitive features, the system captures a meager stream of tax revenue. To address these structural flaws, recent years have witnessed a steady march of tax reform proposals from both sides of the aisle and from several independent advisory boards and agencies. Though reform plans vary widely in their specific provisions, they follow one of two general approaches to taxing international business income: ldquoworldwiderdquo basis versus ldquoterritorialrdquo basis. Under the worldwide approach, all income of domestically-headquartered companies is subject to tax, including income earned abroad. To avoid double taxation of the same income base, worldwide systems provide credits for taxes paid to foreign governments. The overarching purpose of the worldwide design is to ldquocreate equality among resident taxpayers, rdquo so as not to distort the investment decisions of domestically headquartered companies toward low-tax countries.3 Figure 1. Territorial and Worldwide Systems in the OECD Under the territorial approach, a country collects tax only on income earned within its borders. This is typically accomplished by exempting from the domestic tax base the dividends received from foreign subsidiaries. The territorial design thus equalizes the tax costs between international competitors operating in the same jurisdiction, so that all firms may compete on a level playing field, and capital may flow to where it can achieve the best after-tax return on investment.6 The U. S. system is considered a worldwide system though like other worldwide systems it allows its companies to defer tax liability on foreign ldquoactiverdquo7 income until it is repatriated (i. e. returned) to the United States. Deferral has been noted as critical to the stability of the U. S. international business tax system because it enables U. S. companies to compete on a near-level playing field with companies domiciled within more favorable tax climates, as long as those companies can afford to keep the resulting earnings abroad.8 Overwhelmingly, developed economies are turning to the territorial approach. While as recently as 2000, worldwide systems represented 66 percent of total OECD GDP, this figure has dropped to 45 percent heavily weighted by the U. S. Now, 27 of the 34 OECD member countries employ some form of territoriality, which is up from 17 just a decade ago (Figure 1, above).9 Additionally, every independent U. S. advisory board, working group, and federal agency tasked with exploring tax reform has recommended that the U. S. pivot toward a territorial system.10 These include President Obamarsquos Economic Recovery Advisory Board, Council on Jobs and Competitiveness, and Commission on Fiscal Responsibility and Reform. The House Committee on Ways and Means last year issued a draft bill for comprehensive tax reform which includes territorial taxation.11 It is not by coincidence that the territorial system has gained so many adherents it provides very real economic advantages over its worldwide counterpart. In the case of the U. S. a transition to territorial taxation would free the 1.7 trillion dollars currently locked out of the U. S,12 place U. S.-based companies on equal footing with competitors in every market,13 reduce complexity and compliance costs,14 reduce the incentive to reincorporate abroad,15 and could be accompanied by improvements to anti-abuse protections.16 Yet President Obama and like-minded lawmakers want to purify the worldwide elements of the U. S. system. They see foreign investment by U. S. companies as displacing investment in the U. S. and seek to increase the U. S. tax penalty for investing abroad by repealing or further limiting deferral. Accordingly, advocates of the worldwide system consider territorial taxation an egregious concession to multinational corporations and claim it would result in a transfer of jobs, investment, and tax revenue to foreign countries. A Case Study Approach Efforts have been made to model the effects of a transition to territorial taxation,17 but these studies rely on complex macroeconomic models, often involving unrealistic assumptions.18 This is not to say that they are worthless to the policy debate, but ten different economists will produce ten very different models. In addition, the merits of territorial and worldwide taxation have been presented on theoretical bases,19 but the political establishment in Washington has not been convinced to act on comprehensive tax reform. Another way to analyze the claims about a transition to territorial taxation is to look at the performance of major economies that use territorial systems. By examining real-world cases and looking at recent transitions, we can gauge whether the theoretical concerns about territorial taxation may be warranted. This approach, which is largely missing in the policy debate, is intended to clarify the implications of a U. S. policy change. First we will look at the aggregate performance of the two systems, comparing the territorial and worldwide country averages among OECD members for outbound foreign direct investment, unemployment, and corporate tax revenue since 2000. This will come with some discussion of economic theory to put the numbers in context. Second, we will look at two countries that recently went through transitions from worldwide to territorial systems: Japan and the UK. Though a third case would be desirable, other countries have transitioned gradually, with exemptions first built into treaties. These two countries have the unique ability to inform a U. S. transition because their previous worldwide systems were similar to the current U. S. system. Finally, we will consider three countries that have operated territorial systems throughout the post-WWII era: Canada, Germany, and the Netherlands. These countries represent among the largest economies with relatively pure territorial systems. It is critical to point out from the onset that correlation is not causation. A great many factors influence international investment flows, unemployment rates, and tax revenue. In addition, the selection of countries into the two tax system groups is not random territorial systems first gained popularity in Europe, worldwide systems are now generally limited to close allies of the U. S. and countries self-select their tax system based on their own unique economic position or treaty requirements. It is therefore beyond the scope of this analysis to provide any evidence of a causal link between the tax system type and the metrics of interest. On the contrary, this analysis should demonstrate that any claims of the systemrsquos causal influence on unemployment and tax receipts should be greeted with caution. As we shall see, the trends of recent history demonstrate no clear correlations between the system type and unemployment rates or corporate tax revenue. Aggregate Statistics Foreign Direct Investment (FDI) The most common objection to territoriality is the notion that it would result in increased investment abroad and reduced domestic investment by U. S. multinational companies. As Jane Gravelle noted before the House Committee on Ways and Means, ldquoit is pretty obvioushellip if you lower the tax abroad, capital is going to go abroad. rdquo20 The concern with greater outflows of FDI is that when corporations invest abroad, it seems logical that some investment, and jobs, might be displaced at home. Depending on the balance of U. S. investment abroad, foreign direct investment into the U. S. and domestic savings rates, great outflows of capital could lower the potential U. S. capital stock, and lower capital stock means lower worker productivity and lower wages. In other words, the idea is that after a policy change, more U. S. dollars would fuel foreign investment, which would increase foreign worker productivity and wages, and there would be no offsetting effects to promote employment and wages in the U. S. But this is not the dominant view of foreign investment among economists. A robust literature confirms that foreign and domestic investment are complements rather than substitutes. In a survey of developed nations, Ghosh and Wang find that both outbound and inbound FDI are associated with economic growth.21 Desai, Foley, and Hines find that ldquoyears in which American multinational firms have greater foreign capital expenditures coincide with greater domestic capital spending by the same firms. rdquo They report that 10 percent greater foreign investment is associated with 2.6 percent greater domestic investment,22 and one dollar of new foreign investment is associated with 3.5 dollars of new domestic investment.23 Desai, Foley, and Hines conclude that ldquoneither firms nor economies operate on such a zero-sum basis, and the average experience of US manufacturing firms over the last two decades is inconsistent with the simple story that foreign expansions come at the cost of reduced domestic activity. rdquo24 Growth abroad stimulates greater demand for productive factors in the United States, particularly in management, RampD, and other high-skill capacities. Many countries have embraced this philosophy. Japan, Canada, and the Netherlands, for example, promote outbound FDI as part of their economic growth strategies. In Japan, the recent transition to territorial taxation was motivated by the idea that repatriated foreign earnings would fuel investment at home.25 In Canada, ldquofederal trade commissioners now have an explicit mandate to facilitate investment by Canadians abroad. rdquo26 The Netherlands recognizes that its small domestic consumer base cannot self-sustain growth or support economies of scale international expansion that ldquois good for the companyhellipis good for the country, rdquo and delivers a ldquopositive impact on profits and employmentrdquo to the Dutch homeland.27 As evidenced by Figure 2, above, territorial systems are associated with greater outflows of foreign investment.28 This comports with theory, because territorial systems do not impose additional home country tax costs on foreign earnings and those additional taxes discriminate against international investment opportunities for companies domiciled in worldwide systems. Those who subscribe to populist notions of a zero-sum world, in which a dollar invested abroad means one less at home, will see this as evidence to stay away from a territorial system. But, as has been outlined, the global economy is not a zero-sum operation. Foreign investment boosts firm-wide productivity, provides access to new factors of production, and opens new markets for selling. This promotes the health of companies and the economies in which they operate. Further, U. S. companies have historically underinvested abroad compared to their counterparts in other advanced economies. Figure 3 demonstrates that while the U. S. has caught up with the OECD weighted average since 2009, companies based in other countries have tended to be more effective at seizing growth opportunities abroad. Unemployment For opponents of territorial taxation, the primary implication of increased investment abroad is that U. S. capital would go to employ foreign rather than domestic workers. However, there is no evidence of this in terms of OECD unemployment rates. Figure 4 demonstrates that the cross-country simple average unemployment rates have trended closely together since 2000. Through much of this period, the average territorial country has had a lower unemployment rate than the average worldwide country. The chart for average unemployment weighted by GDP (Figure 5) tells a slightly different story: territorial systems were associated with higher average unemployment until the onset of the global recession in 2008. Unemployment in worldwide countries spiked in 2009, led primarily by meltdown in the United States. Territorial systems, however, appear to have experienced relative insulation of domestic labor forces in recent years. They experienced only marginal increases in unemployment in 2008, and their figures have held relatively constant. Since 2008, the weighted average unemployment rate has favored territorial systems. As mentioned earlier, these trends are largely due to the selection of countries that happen to subscribe to each system and other macroeconomic factors. As European sovereign debt crises push the EU closer to the brink of Euro collapse, it is possible that the average unemployment rates in territorial systems, largely represented by European nations, will rise above unemployment rates for worldwide systems. The economic literature can better put this in context. Contrary to popular opinion, economists are ldquoskeptical about the ability of international investment flows to affect the total level of employment in an economy. rdquo Fiscal and monetary policy may alleviate some shocks to the labor market, but ldquoa permanent policy of discouraging the movement of U. S. firms abroad would not appreciably alter the economyrsquos overall level of employment. rdquo29 In the short run, some workers are dislocated when a factory is moved to an alternate foreign location,30 but in the long run the economy absorbs those workers in higher-productivity capacities.31 The trend in the U. S. and other developed countries has been that low value-added work has been moved to developing countries, but domestic labor has developed expertise in high value-added work. Harrison and McMillan find that at the firm level, corporate employment growth abroad is correlated with employment growth at home, especially when the production process is diversified across international boundaries.32 Surveys by both McKinsey33 and the Brookings Institution34 generally conclude the same: Any employment effects of foreign investment are negligible relative to the U. S. economy and its annual turnover, and the gains more than offset the costs of temporary worker dislocation. Economy-wide, overseas production does not change the aggregate level of employment, but results in ldquoa change in compositionhelliptoward more managerial and technical employment. rdquo35 It is also critical to note that foreign investment usually does not represent a factory ldquomovingrdquo out of the United States. When Starbucks opens a new store in the Philippines, this is not at a cost to U. S. workers. Starbucks builds where local demand is unsatisfied and this tends to be the case for larger capital-intensive investments as well. It is well documented that employment by U. S. companies abroad is closely related to the locations of sales and is therefore focused among major U. S. trading partners.36 This is demonstrated by the latest Bureau of Economic Analysis data, presented in Figure 6. Sixty-four percent of the variation in employment across nations can be explained by sales.37 This means that location of sales is a very strong predictor of where U. S. companies will employ foreign workers. Granted, this does not control for other factors that might affect employment abroad, such as GDP, GDP per capita, or distance from the U. S. but the simple correlation suggests that the most important factor is the location of sales.38 As a final illustration, consider the case of Otis Elevator. In 2011, 15,000 elevators were sold in the U. S. but 380,000 were sold in China. To compete for new installations, control transport costs, and win maintenance contracts in the growing Chinese market, Otis must be physically present in China. Sales resulting from foreign investment fuel high-value employment at home, not only in management positions, but also in research and development capacities. In addition, the companyrsquos intellectual property, including patents, resides in the U. S. and according to Otis management, ldquokeeping that high-value work in the U. S. is highly dependent on Otis39 success around the world. rdquo39 Because foreign sales comprise roughly 46 percent of sales for the SampP 500,40 companies must actively invest in these growing markets to grow payrolls back in the U. S. Tax Revenue Skeptics of territorial taxation are concerned that lowering the effective tax rate on foreign earnings would induce greater levels of profit shifting into low tax countries, thus avoiding U. S. tax. Profit shifting occurs when taxable income is ldquoreported in a jurisdiction different from that in which it would be reported absent an action taken by management where a motive for the action taken is to reduce the overall tax burden. rdquo41 The most common avenues for profit shifting involve intra-firm trades (known as transfer pricing), location of debt, and the location of patents and other intangible property, which enable firms to overstate taxable income in low tax jurisdictions and understate income in high tax jurisdictions. Such activity erodes the base of income subject to domestic tax, thereby reducing domestic tax revenues.42 It is argued that removing the repatriation tax burden would increase the incentive to shift profits. Like unemployment, however, there is no evidence of this relationship when comparing the actual experiences of territorial and worldwide countries. The simple averages of corporate tax revenue as a share of GDP for the two systems have trended closely together in recent history, but from 2000 to 2009, territorial systems raised more revenue in nine out of ten years (Figure 7, above). Figure 8 compares the GDP-weighted average revenue (right vertical axis) to GDP-weighted average tax rates (left vertical axis) for each system. GDP-weighted average revenue for worldwide systems tends to register lower than the simple average in Figure 7 because the weighted measure gives relative importance to U. S. performance and the U. S. system has collected very little revenue in recent years. While average tax rates for territorial systems have dropped at a much quicker rate than worldwide systems (again due to the U. S. maintaining its 35 percent tax rate), according to GDP-weighted averages, territorial systems have raised more revenue in eight of the ten years.43 Again, economic theory sheds some light on this seemingly counterintuitive result. First, territorial systems generally do not have foreign tax credit systems like the U. S. system. Under current law, U. S. companies ldquoshieldrdquo passive income from taxes with credits for taxes paid to foreign governments. Without such a shield in territorial systems, full taxation of global passive earnings can lead to substantial tax revenue.44 Territorial systems differ on the extent to which passive income is brought into the tax base, but no system exempts it entirely. Second, the current U. S. deferral regime provides very similar incentives to shift profits as experienced within dividend-exemption territorial systems.45 Kevin Markle has observed no statistical difference in the scope of profit shifting activity between territorial and deferral-based worldwide systems.46 Some economists estimate that profit shifting already costs the Treasury over 30 billion annually,47 so it is not clear that removal of the repatriation tax would induce a substantially greater outflow of the income base. Third, revenue from foreign sources is meager, at least in the U. S. experience. In 2008, the latest year available, U. S. revenue from foreign business activity amounted to 22.1 billion (Figure 9).48 This represented just 7.26 percent of corporate tax receipts, 0.88 percent of total tax receipts, and 0.15 percent of GDP. Because the 22 billion figure included passive income, the total tax take from repatriated active income was even smaller.49 In other words, the most complex and burdensome elements of the U. S. corporate tax code squeeze out just a sliver of its revenues. 50 Figure 9. U. S. Foreign-Source Tax Revenue, 2008 Fourth, and perhaps most importantly, territorial systems protect the base of business activity and capital ownerships within a country. One academic has declared that territorial systems will necessarily collect more revenue in the long-run because companies will avoid organizing business activity within worldwide systems.51 Despite Congressional efforts to thwart corporate inversions, there are still several simple strategies for U. S. companies to reincorporate in tax-friendly jurisdictions.52 In recent years, numerous large U. S. corporations such as Aon, Eaton, and Ensco have moved their headquarters abroad, taking their capital ownership out of the U. S. tax base.53 This results not only in fewer high-skill U. S. jobs, but reduces global and national welfare as productive resources are allocated inefficiently.54 The experience of other developed economies demonstrates that when countries attempt to poach revenue from income earned in other countries, they tend to receive no more than their territorial counterparts. Though the net revenue effect of a U. S. transition would depend greatly on specific anti-abuse rules and the extent to which passive income is brought into the tax base, there is no evidence in the experience of other countries to indicate that a U. S. transition would necessarily lead to loss of revenue. Country Case Studies Because the particulars matter, it makes sense to look at the experiences of individual countries and their approaches to international taxation. In terms of transition to territoriality, the two most relevant cases are Japan and the UK, which both adopted territorial designs in 2009. These cases are unique because both systems were very similar to the current U. S. system prior to the policy change, and the transitions were motivated by economic ills similar to what the U. S. is currently experiencing. While a third case would be helpful, other countries have tended to adopt territorial systems in phases over time. Particularly for EU members, countries tended to build foreign dividend exemptions into bilateral tax treaties and subsequently adopted broad exemptions either for affiliates within the EU or all foreign affiliates. The final three case study countries are Canada, Germany, and the Netherlands. These cases serve to demonstrate the long-run performance of territorial tax systems and to highlight that these countries have overcome the theoretical pitfalls suggested by skeptics. Territorial systems vary greatly in design. Differences include the levels of dividend exemption, threshold ownership requirements, expense allocation rules, and other stipulations that income must meet to qualify as exempt.55 Each system also has unique base-erosion measures to guard against income shifting. All territorial countries, however, exempt from tax all (or 95 percent) of the dividend earnings associated with active engagement of its companies abroad. For each system described below, these provisions will be briefly outlined, in order to better inform the debate and highlight some of territorial taxationrsquos ldquobest practices. rdquo56 ldquoThrough the introduction of this system, the profits repatriated into this country are anticipated to be put to use for vitalization of the Japanese economy in the wide-ranging and various fields, such as capital investment, research and development, employment, etc. rdquo mdashJapan Tax System Council, 200857 Prior to 2009, ldquoJapanrsquos international tax system bore a remarkable resemblance to that of the United States. rdquo58 It taxed on a worldwide basis, provided foreign tax credits, allowed deferral of tax on active income until repatriation, and claimed the highest corporate tax rate in the developed world. In introducing the 2009 budget, however, the Japanese Minister of Economy, Trade, and Industry (METI) announced that his country would pivot to a policy of territorial taxation as part of a ldquonew growth strategyrdquo designed to stimulate innovation in Japan through strengthening the competitiveness of Japanese firms in foreign markets and encouraging repatriation of overseas earnings.59 In the run-up to 2009, Japanrsquos leaders became very concerned with the accumulation of foreign earnings held overseas, which increased from yen138 billion (1.1 billion) in 2001 to yen3.2 trillion (28 billion) by 2006. Officials believed that this pool of earnings represented foregone investment in Japan, and that the barrier to repatriation increased the risk that RampD operations would be moved abroad.60 Before the policy change, a survey by METI found that 21 of 46 companies intended that they would spend repatriated earnings on upgrading domestic production and RampD facilities.61 A second concern was the competitiveness of Japanese firms in the world marketplace. With an aging and shrinking population, officials recognized that sustained economic health would originate in growth of Japanese firms abroad. A simpler, territorial system, it was thought, would allow firms to grow abroad and ldquoultimately lead to additional investments and job creation within Japan. rdquo62 To further promote the competitiveness of its companies and attract investment, Japan also announced plans to lower its corporate tax rate by five percentage points, bringing its combined rate just below the U. S. combined rate. According to one Japanese tax professional, ldquothe government concluded that the adoption of a foreign dividend exemption system itself would not unduly influence corporate decisions as to whether to establish or move operations overseas. rdquo63 Japan produced an international tax system with a 95-percent exemption for foreign-source dividends, which also permits deductions of all ldquonecessary and reasonable expensesrdquo associated with foreign income on home country taxes.64 To guard against erosion of the corporate tax base through income shifting, Japan enacted a series of strict transfer pricing and reporting regulations.65 It now imposes rules based on effective tax rates of controlled foreign corporations if any subsidiary pays an effective tax rate to foreign tax authorities of less than 20 percent and cannot prove that it is actively engaged in business, the dividend exemption does not apply.66 The system also imposes ldquothin capitalization rulesrdquo to limit the ability of corporations to take on excessive debt on behalf of foreign affiliates, because the interest would otherwise be deductible for tax-exempt foreign earnings.67 The government reported that dividend remittances increased 20 percent from 2009 to 2010, indicating that the policy may have induced the intended effect.68 Japanese repatriation again made the news in 2011, as Japanese firms announced they would repatriate foreign earnings to help finance the post-tsunami recovery.69 It is also worth mentioning that the Wall Street Journal reports that ldquoJapanese companies are in the midst of the biggest boom in overseas investment the country has ever seen. rdquo70 They have been aggressively acquiring foreign companies and engaging the global markets just as the policy intended. The consequences for U. S. policy are perhaps best captured in the recent musings of Mieko Nakabayashi, a member of the Japanese House of Representatives. He observes: With most of the worldmdashJapan includedmdashcutting corporate tax rates and employing territorial tax systems to remain competitive, the U. S. must surely know that its hesitancy to do these things is handing the advantage to its international competitors. They will suffer from that hesitancy while we and others outside the U. S. will benefit.71 Since the policy change in 2009, Japanrsquos unemployment rate has trended downward, similar to the OECD average (Figure 10, above). Relative to ten years ago, Japanrsquos unemployment rate has been reduced, contrary to the U. S. or OECD averages. In addition, economy-wide wages have picked back up after a sustained drop off from 2006 to 2009 (Figure 11).72 These phenomena are not entirely attributable to the territorial system, particularly because of Japanrsquos concurrent struggle with the strength of the yen, the global recession, the beginning of recovery, and the 2011 tsunami, but the tax policy transition itself has certainly not dealt an obvious blow to the Japanese labor force. Regarding corporate tax receipts, the Japanese government reports that it increased collections in 2010 and projects that receipts will remain stable for fiscal years 2011-2012 (Figure 12).73 The OECD also reports that receipts ticked up as a share of GDP in 2010, and Japanrsquos score remains higher than the OECD GDP-weighted average (Figure 13).74 Though corporate tax receipts are sensitive to a host of factors, particularly growth in the economy, it appears that the territorial system has not caused immediate erosion of the tax base. What do these data tell us In the first three years of the new territorial taxation policy in Japan, not one of the popular fears has become a reality. While outbound FDI is up from 2009,75 this is by the design of Japanese policymakers foreign investment represents new growth opportunities for the domestic Japanese economy as its companies engage the world marketplace. The unemployment rate is down, wages are up, and corporate tax revenues have remained stable. This is antithetical to what opponents of the territorial system might expect. United Kingdom ldquoLet it be heard clearly around the worldmdashfrom Shanghai to Seattle, and from Stuttgart to Sao Paolo: Britain is open for business. rdquo mdash Chancellor George Osborne, 201176 Like Japan, the United Kingdomrsquos international tax system looked very similar to the U. S. model until very recently. Whereas Japan was primarily concerned with the trapped foreign earnings problem, the UK was more concerned with issues directly related to its firmsrsquo competitiveness. In 2006, Her Majestyrsquos Treasury opened talks with business leaders with the express purpose of developing a more competitive international tax system. Though competitiveness remained the chief aim of tax reform throughout the process, other motivations included steep compliance costs and ineffective anti-avoidance measures of the older system.77 In 2008, a string of business emigrations prompted ldquointense discussions among lawmakers and businesses about the competitiveness of Britainrsquos tax system. rdquo The New York Times described three particular outgoing firms as just part of the ldquoexodus of British companies fleeing the tax system. rdquo78 This publicity breathed life into tax reform efforts, which came to fruition in 2009. In the wake of the new legislation, the Financial Times reported that more than half of companies had considered leaving the UK but that the ldquoexodus has slowed down, partly because of Treasury reforms. rdquo79 The UK system now features a full exemption for various classes of foreign-source dividends80 and allows domestic tax deductions for foreign-source expenses, similar to most other territorial systems. Among key anti-avoidance measures are limits on the deductibility of interest payments (ldquothin capitalization rules, rdquo as described for Japan), rules that enforce tax on controlled foreign affiliates based in low-tax jurisdictions (where effective tax rates are less than three-quarters of corresponding UK liability), and regulations which qualify diverted intellectual property income as taxable. To provide favorable treatment to intangible property income and guard against the outflow of intangible property, the UK operates a ldquopatent boxrdquo regime that lowers the tax to just 10 percent on profits attributed to qualifying patents.81 While the system is already comparatively generous to foreign income, UK officials have announced intentions to narrow their controlled foreign company rules to target only profits artificially diverted from the UK.82 For the 2011 budget, Chancellor George Osborne proclaimed that the highest ambitions for the British economy were to ldquohave the most competitive tax system in the G20,rdquo and ldquobe the best place in Europe to start, finance and grow a business. rdquo83 Along with tax rate reductions, the transition to a territorial system has served British ambitions. Within days of the announcement, two of the twenty-two recently inverted companies announced that they would consider a move back to the UK.84 According to the OECD, the unemployment rate ticked up slightly in 2010 and 2011, rising to meet the OECD average (Figure 14, right). However, if we look closer at the latest data from the British government, we see that unemployment has generally leveled off since the July 2009 policy change (Figure 15, right).85 The worsening Euro crisis has stalled economic growth for the UK and its trading partners, but labor outcomes in the UK have not appreciably deteriorated since the inception of territorial treatment of foreign income. Since the policy change in 2009, corporate tax receipts have increased despite a tax rate cut in 2011 (Figure 16). Again, this is not to suggest that the territorial system caused the revenue increasemdashparticularly because the policy change was concurrent with GDP growth recovery. Nonetheless, revenue has only increased since the transition to territorial taxation. OECD statistics on revenue as a share of GDP also confirm that it increased in 2010, the first year after the policy changed, in line with the OECD trend (Figure 17).86 While outbound FDI as a share of GDP picked up slightly in 2011, just surpassing the total OECD figure87 (not shown), it does not appear that the infant territorial system in the UK has created problems for British workers or government coffers. Again, the popular fears about territorial taxation have not come to fruition in the case of the UK. ldquoIt is important to ensure that Canadarsquos system of international taxation continues to promote the competitiveness of Canadian businesses internationally and to attract new foreign investment to Canada. rdquo mdashAdvisory Panel on Canadarsquos System of International Taxation, 2008 Canada generally exempted all foreign source income from tax until 1976,88 when it adopted foreign affiliate rules that exist, though modified, to this day. These rules fully exempt from tax all dividends derived from active income earned by an affiliate if the affiliate resides in a country with which Canada maintains a tax treaty.89 Because the treaty network now encompasses 91 countries and all major trading partners, the Canadian system is, in practice, a territorial system. It is often referred to as a ldquohybrid system, rdquo however, because income earned in non-treaty countries is taxed on a current basis.90 All passive income is treated as Foreign Accrued Property Income (FAPI), which is a classification modeled after U. S. Subpart F. As the primary base-erosion measure, FAPI rules classify interest, royalties, rent, other passive investment income, and income of unincorporated foreign branches91 as taxable. Regardless of whether the profits are repatriated, FAPI income is taxed on a current basis, in order to mitigate the tax advantage of shifting domestic income to low-tax jurisdictions.92 The other major anti-erosion measures are the typical limits on the deductibility of interest paid by a Canadian corporation to foreign affiliates and transfer pricing rules.93 Despite its very competitive system, Canada has not slowed its efforts to continually improve its tax competitiveness. Since 1998, its combined corporate tax rate has been lowered from 42.9 percent to 27.6 percent.94 In 2007, it adopted rules to apply the dividend exemption to affiliates in countries with a bilateral Tax Information Exchange Agreement (TIEA),95 and the governmentrsquos 2008 ldquoAdvisory Panel on Canadarsquos System of International Taxationrdquo recommended that the existing exemption system be expanded further to cover all active foreign business income.96 Further, recognizing that foreign investment yields benefits to the home economy, Canadian officials actively facilitate foreign investment by Canadian companies.97 In spite of fears that foreign investment displaces domestic investment to the detriment of the home economy, the case of Canada demonstrates that foreign engagement, territorial taxation, and competitive tax rates can promote better economic performance. Canadarsquos economy has grown at an average real rate of 2.61 percent since 1995, which is 0.2 points stronger than the U. S. average and 0.4 point stronger than the OECD average.98 This has translated into more jobs in the Canadian economy. Unemployment has trended downward since the 1980s, and the Canadian labor force was not as affected by the global recession as was the U. S. labor force. As of 2011, the unemployment rate in Canada sat 1.5 points below the U. S. rate (Figure 18, above). The most remarkable lesson from Canada is that territorial systems are capable of yielding substantial and consistent tax revenues, even through periods of recurring tax cuts (Figure 19). Canada has lowered its tax rate from 42 percent to 27.6 percent since 2000, yet tax revenues have tended to grow faster than GDP. The Canadian territorial system has consistently out-collected the U. S. worldwide system despite higher tax rates in the U. S. Germany has successfully implemented a system of taxation of foreign earnings, which is driven by two principles: competitive neutrality and simplicity. mdashJorg Menger, German tax professional, 201199 Since 1920, the German corporate tax system has exempted foreign dividend income to some degree. In 1954, Germany initiated a tax treaty system whereby dividends originating within treaty-partner countries became fully exempt. To simplify this regime and to comport with rulings of the EU Court of Justice, in 2001 Germany reformed its system to terminate international expense allocation requirements and to allow deductions for all expenses related to exempt foreign income. To compensate the government for allowing deductions for costs related to tax-exempt foreign income, Germany reduced the exemption for foreign income to 95 percent, allowing tax on the residual five percent.100 Active income generated by controlled foreign corporations and passive income that is subject to tax rates greater than 25 percent in the original jurisdiction are eligible for exemption.101 Also, income generated by foreign branches of German companies is exempt from German tax as long as the branch resides in a treaty country.102 Anti-erosion measures limit the deductibility of interest surplus, ensure that losses on the sale of subsidiary corporate stock are not deductible, and levy tax on all passive income in low-tax jurisdictions.103 To make the tax system more competitive for its companies in the international marketplace, Germany has recently engaged in a series of tax rate reductions. Since 1998, Germany has reduced its combined tax rate on corporate income from 56 percent to 30.2 percent.104 While operating a territorial system throughout the modern era, Germany has emerged as one of the most robust economies in the world and is considered the European continentrsquos ldquoeconomic giant. rdquo105 Its GDP per capita is 40,116, ranking in the top decile of all countries, and it is the third-leading exporter in the world. 106 Regarding unemployment, there has been much volatility since the reunification of West and East Germany in 1990. While unemployment trended upward for several periods and reached a high exceeding 11 percent in 2005, the rate has been cut in half since that time, due in part to labor market reforms.107 By 2011, it registered at 5.9 percent (Figure 20, above) and Eurostat reports that it is now down to 5.4 percent.108 While much of the developed world experienced spikes in unemployment as a result of the global recession, Germany experienced only a hiccup before its rate continued downward. Germany traditionally has not relied heavily on corporate tax revenue (Figure 21). German policymakers have recognized the tradeoffs inherent to international taxation and as one of the worldrsquos leading exporters, have chosen to promote the competitiveness of their companies. While the German government may be leaving a lot of potential revenue on the table, it recognizes that foreign earnings are a fugitive base from which to extract revenues. The Netherlands Companies that are healthy and grow internationally will be able to capitalize on opportunities that solely domestically operating companies will not be able to seize on. This will have a positive impact on profits and employment in the residence state. In that sense one can say that if international expansion is good for the company, it is good for the country. ndashPaul Vlaanderen, Director of International Tax Policy and Legislation, Netherlands Ministry of Finance, 2002109 The origins of the Dutch dividend exemption go back to 1893, when it became ldquoone of the pillarsrdquo of the tax system.110 According to Paul Vlaanderen, former director of Dutch international tax policy, there are two reasons that the Netherlands has always exempted foreign profits. First, the country respects the fiscal sovereignty of other nations to tax the business profits realized within their own jurisdictions (the ldquobenefit principlerdquo). Second, the Netherlands recognizes that its domestic market of 16 million people is too small to sustain growth for its innovative companies. To penetrate foreign markets and gain global market share, companies must be able to compete with other multinationals on ldquoa level playing fieldrdquo and from ldquoan equal tax position. rdquo111 The exemption for active income applies to a broad swath of investment types, including some portfolio investment and financing activity. While investment institutions specifically are not eligible for the exemption, passive investment income may be exempt if it passes a ldquosubordination requirement, rdquo meaning that it was taxed at an effective rate of at least 10 percent in its source jurisdiction.112 This provision denotes that ldquoonly so-called lsquolow taxed investment companiesrsquo are disqualified from the participation exemption. rdquo113 Likewise, profits derived from permanent establishments of foreign branches are exempted as long as the income has met the same 10 percent test.114 For foreign dividends that are not exempt, double-taxation is mitigated with a foreign tax credit and a deferral regime. However, if a Dutch company holds 25 percent or greater of the stock in a foreign passive or low-tax asset, ldquothe annual change in the value of the holding forms part of the Dutch taxable income. rdquo This reevaluation approach differs from most other territorial jurisdictions.115 The Netherlands permits deductions for costs associated with exempt foreign earnings against domestic taxable income, but there are limits on deductibility of interest payments. For a firm to deduct the costs associated with external financing, it must prove that the debt issue is relevant to the gain of taxable domestic income. The same scrutiny is applied to loan costs associated with foreign acquisitions.116 If ever debts are deemed ldquoexcessiverdquo by tax authorities, the interest costs are not deductible.117 To stimulate job creation and innovation in the Netherlands, the ldquoinnovation boxrdquo regime subjects qualifying income from intangible assets to a tax rate of just five percent. This regime, similar to the UK ldquopatent box, rdquo is aimed to eliminate the incentive to shift intangible property and income into tax havens. In addition, the Dutch system is noted by tax professionals to offer ldquoample possibilities for deducting expenses from gross income and a favourable treatment of losses. rdquo118 Due to its taxpayer-friendly approach and low tax burdens, the Netherlands is the registered home to many holding companies, and KPMG has ranked the Dutch corporate tax system as the most attractive in Europe.119 The unemployment rate in the Netherlands has trended downward since the early 1980s. Particularly since 1998, Dutch employment figures have consistently scored better marks than the U. S. and in 2011, unemployment in the Netherlands was half of the U. S. figure (Figure 22, above). This occurred while the Dutch pursued a policy of foreign engagement and outbound investment. This is not to suggest that the territorial tax system is the primary driver of positive labor market outcomes in the Netherlands, but the territorial system has clearly not prevented these outcomes. Perhaps just as shocking is the Dutch systemrsquos tax revenue performance. It has consistently out-yielded the U. S. system, as well as the OECD average, until very recently (Figure 23). In only one of the last thirty years did the U. S. worldwide system collect more tax revenue as a share of GDP than its Dutch counterpart. And like Canada, this has occurred in the context of ever-decreasing tax rates the top marginal rate has been lowered five times since 2001, moving from 35 percent to 25 percent. In sum, the Netherlands has operated a competitive territorial system with substantially lower corporate tax rates than in the U. S. and it has experienced better labor outcomes and greater levels of corporate tax revenue. The Dutch case specifically rebuts each of the fears associated with territorial taxation and may be held up as an international tax exemplar. Lessons for the U. S. The U. S. finds itself in similar circumstances to each of the transitional case studies. Like Japan before 2009, American companiesrsquo foreign profits are stockpiling abroad, locked out by a secondary tax penalty. Like the UK before 2009, many U. S. companies have explored or gone forward with moving legal residence into business-friendly tax systems. Like both countries before reform, the U. S. system is complex, out of sync with its major trading partners, and imposes heavy, uncompetitive burdens. As demonstrated, territorial systems in Japan and the UK were implemented to address these problems preliminary evidence indicates that efforts have been successful. Canada, Germany, and the Netherlands demonstrate that territorial tax systems can yield sufficient revenues while minimizing the distortions of corporate behavior. In addition, their experiences reveal that home labor markets are not harmed by territorial taxation all real-world evidence points to the contrary. Importantly, these cases are not the few successful ldquocherry-pickedrdquo outliers of the territorial experience, as evidenced by the aggregate statistics reported previously. The dramatic upsides of territorial taxation come with minimal or potentially nonexistent downsides. Best Practices This case study analysis also highlights the variable approaches countries have taken to territorial taxation. Some countries, like Japan, have emphasized protection of the corporate tax base, to minimize incentives for profit-shifting and to promote robust tax yields. Other countries, like the Netherlands and Canada, have emphasized the competitiveness of their companies and defined narrowly what income is not eligible for exemption. Nonetheless, common themes emerge, and the following ldquobest practicesrdquo typify competitive territorial tax systems: Transitions to territorial taxation have been accompanied by reductions in tax rates. Though rate reductions have been a global trend in their own right, lowering the tax rate is arguably instrumental in attenuating the risks for increased profit shifting. They narrowly define passive income, which remains subject to tax. This means that legitimate active business activity is not drawn into the passive income tax base (as happens in the U. S.120 ), and passive income tax provisions are narrowly tailored to capture income artificially shifted overseas. They provide preferential treatment for intellectual property, with so-called ldquopatent boxrdquo or ldquoinnovation boxrdquo regimes, to minimize the incentive to shift intangible property into low-tax jurisdictions. They permit deductibility of expenses associated with foreign income, to ensure no disincentive for locating RampD or management activity at home. Though U. S. policymakers have considered a territorial system with expense allocation rules,121 no other territorial system is designed in such a manner. They limit the deductibility of foreign interest costs with ldquothin capitalization rulesrdquo in order to guard against abusive income stripping, but not to the extent that deductibility of legitimate borrowing costs is disallowed. They limit profit shifting with transfer pricing rules based on the ldquoarmrsquos lengthrdquo standard, like the U. S. system.122 The key point is that the U. S. could adopt a system with some mix of these basic features. Such a change would represent an improvement in terms of neutrality, efficiency, and simplicity as compared to the current worldwide system. The Real Effects of A U. S. Transition to Territorial Taxation If territorial taxation seems to have little influence on labor market outcomes or corporate tax revenue, what real effects could we expect from a U. S. policy change As mentioned earlier, eliminating the tax on repatriation would invite vast sums of foreign-held earnings back into the U. S. Though it is unrealistic to expect all 1.7 trillion to return, there is evidence that a very sizable portion would flow back into the U. S. In the 2004 repatriation holiday, U. S. companies brought home 360 billion of the roughly 800 billion held abroad.123 Following the same ratio, 765 billion could be poised for return under similar conditions. Larry Summers, the former chief economic advisor to President Obama, appreciates the benefits of letting trapped foreign earnings return to the U. S.: Right now the U. S. tax system, itrsquos like a library, wersquore running a library. The single dumbest thing you can do is announce that yoursquore going to have everybody think that therersquos going to be an amnesty on overdue books, but then not actually ever have the amnesty, because then you assure that no books are ever going to come back, and theyrsquore always not bringing back the book waiting for the amnesty which never comes, and so you never get the money. And thatrsquos what the U. S. debate is right now. Nobody in their right mind would bring in money right now with people thinking that who knows whatrsquos going to happen after the election and who knows whatrsquos going to happen next, there will be some kind or repatriation. Even if you thought you ultimately had to bring the money home, you surely would be waiting right now.124 In addition, territorial tax reform could substantially reduce the compliance costs for both firms and the government. Such costs now tally over 40 billion annually,125 with a disproportionate share associated with the international requirements of the tax code.126 If the code was simplified, particularly regarding the foreign tax credit and expense allocation regimes, tax planning expenditures would be diverted to productive uses, rather than sunk into the deadweight loss of regulatory compliance. Finally, pursuing a policy of capital ownership neutrality, by ensuring equal tax costs between U. S. firms and their competitors on foreign investment, would minimize distortions of investment and asset ownership127 and reduce the incentive for companies to leave the U. S.128 The Tax Rate Though this analysis has focused on the international tax system design, the more pressing policy concern is the U. S. top marginal corporate tax rate of 35 percent. While there are tradeoffs in moving toward either territorial or worldwide taxation, ldquothe theme that emerges is that the harmshyful economic effects of either approach can be addressed by lowering the U. S. corporate tax rate. rdquo129 Thirty of thirty-four OECD members have reduced tax rates since 2000, and the U. S. rate now exceeds the simple average of other OECD nations by 14.1 points and the GDP-weighted average by 10 points.130 The U. S. cannot afford to be this far out of step in the face of a changing world and expect to attract investment or foster economic growth. Conclusion It is not by accident that 27 of 34 OECD members have territorial systems, and that every independent government tax advisory group has encouraged Congress to discard the current worldwide system in favor of a sleeker territorial model. Even two of the most outspoken critics of territoriality have recently expressed that ldquothere is a lot to likerdquo about the House Republicansrsquo draft legislation for a territorial system, and that ldquoit is worthwhile to adopt. rdquo131 Territorial taxation has been called ldquoa pragmatic response to the practicalities in a world where competition is fast moving and truly global. rdquo132 The system itself is no silver bullet to heal the economy and bring balance to the budget, but its gains come at little to no cost. The distortions associated with trapped income and the systemrsquos punitive compliance costs greatly outweigh the potential revenue concerns. As evidenced by the fact that the U. S. is now home to 43 fewer companies of the Global 500 than in 2005,133 the competitiveness of U. S. companies is waning. Policy should be designed to promote the free flow of capital back into the U. S. rather than to prevent companies from investing abroad. Firms should invest where they can achieve the greatest return this is good for American investors, American consumers in terms of lower prices, and American workers in terms of greater productivity and correspondingly higher wages. Putting up barriers to growth abroad ultimately slows growth at home. While some have argued that territorial taxation would be detrimental to the U. S. workforce, economy, and public sector, the evidence here indicates otherwise. The real-world experience of territorial taxation is that it outperforms worldwide taxation on the metrics of concern, specifically unemployment and corporate tax revenue. These lessons should contribute to the sense of urgency now building behind corporate tax reform. A great wind is blowing, and a well-designed territorial system just may alleviate the proverbial headaches. 1 President Obamarsquos tax proposal would lower the top marginal tax rate from 35 to 28 percent to ldquohelp encourage greater investment in the United States, and reduce the tax-related economic distortions. rdquo See The White House amp Department of the Treasury, The Presidentrsquos Framework for Business Tax Reform . (Feb. 2012), at 9, treasury. govresource-centertax-policyDocumentsThe-Presidents-Framework-for-Business-Tax-Reform-02-22-2012.pdf . 3 William B. Barker, International Tax Reform Should Begin at Home: Replace the Corporate Income Tax with a Territorial Expenditure Tax . 30 Northwestern Journal of International Law amp Business 680 (2010). 85 UK Office for National Statistics, Labour Market Statistics, March 2012 . UK Office for National Statistics Statistical Bulletin (Mar. 14, 2012), ons. gov. ukonsdcp171778260033.pdf. Historic data pulled from previous yearsrsquo March bulletins. See UK Office for National Statistics, All releases of Regional Labour Market Statistics . ons. gov. ukonspublicationsall-releases. htmldefinitiontcm3A77-21859 . 86 OECD statistics differ slightly from official UK government statistics because of differences between the fiscal year and the calendar year (OECD reports calendar year). 88 The rules were adopted in 1972 but were not implemented until 1976. See Advisory Panel on Canadarsquos System of International Taxation, Enhancing Canadarsquos International Tax Advantage . at 13, apcsit-gcrcfi. ca07cp-dcpdffinalReporteng. pdf . 89 Under new legislation, the exemption also applies to affiliates residing in a country with which Canada shares a Tax Information Exchange Agreement (TIEA). See Advisory Panel on Canadarsquos System of International Taxation, Enhancing Canadarsquos International Tax Advantage . at 13-14, apcsit-gcrcfi. ca07cp-dcpdffinalReporteng. pdf . 91 Foreign branches are not separate legal entities from the domestic parent company and in many systems, foreign branch income is treated as domestic income. Foreign branch arrangements are less common than parent-subsidiary relationships. 93 See JCT, Background . supra note 56, at 19. 95 As of January 2012, there were 15 TIEAs in effect, bringing the number of countries subject to territorial treatment up to 106. See Kevin Fritz amp Deepti Asthana, Canadian Tax Treaty and TIEA Update . Wildeboer Dellelce LLP Tax Law Update (Jan. 2012), wildlaw. caresourcescontentfileswildeboerdellelcewebsitecontentpublicationscanadian-tax-treaty-and-tiea-updatedownloadableversionTax20Law20Update20-20201220January. pdf . 96 Advisory Panel on Canadarsquos System of International Taxation, Enhancing Canadarsquos International Tax Advantage . at 16, apcsit-gcrcfi. ca07cp-dcpdffinalReporteng. pdf . 99 How Other Countries Have Used Tax Reform to Help Their Companies Compete in the Global Market: Hearing Before the H. Comm. on Ways and Means . 112 th Cong. (May 24, 2011) (statement of Jorg Menger, International Tax Partner, Ernst amp Young LLP), gpo. govfdsyspkgCHRG-112hhrg72510pdfCHRG-112hhrg72510.pdf hereinafter Menger Statement. 100 It has become standard practice among territorial systems for deductions of expenses related to foreign income to be allowed. As of 2007, only three EU countries disallowed deductibility of costs related to tax-exempt foreign dividends. See Michael P. Devereux et al. Final Report: Project for the EU Commission (TAXUD2005DE3 10) (Sept. 2008), at A-18, ec. europa. eutaxationcustomsresourcesdocumentstaxationgeninfoeconomicanalysiseconomicstudieseffectivelevelsreport. pdf . 102 See Menger Statement, supra note 99, at 4. 103 See JCT, Background . supra note 56, at 25-27 (ldquoA companyrsquos excess of interest expense over interest income (lsquointerest surplusrsquo) is deductible only up to 30 percent of the companyrsquos taxable income before interest, taxes, and depreciation and amortization. rdquo). 120 Regarding the ldquostrange caserdquo of taxing overseas active royalty income involving related parties, see Henchman, supra note 7, at 5. 122 ldquoArmrsquos lengthrdquo refers to the price that would be paid between unaffiliated persons in the open market. Such standards are central to anti-erosion efforts across countries, but have been noted as difficult to enforce when firms are engaged in numerous related-party transactions, particularly those involving unique intellectual property. See Wells, supra note 15. 123 Joint Committee on Taxation, Present Law and Issues in U. S. Taxation of Cross-border Income (Sept. 6, 2011), at 77, jct. govpublications. htmlfuncstartdownampid4355 Douglas Holtz-Eakin, The Need for Pro-Growth Corporate Tax Reform: Repatriation and Other Steps to Enhance Short - and Long-Term Economic Growth (Aug. 2011), at 11, uschambersitesdefaultfilesreports110907corptaxreformstudy. pdf. The 2004 repatriation holiday provided an 85 percent deduction for repatriated dividends, which lowered the effective tax rate to 5.25 percent (15 percent of income taxable times 35 percent tax rate). 125 The Presidentrsquos Economic Recovery Advisory Board, The Report on Tax Reform Options: Simplification, Compliance, and Corporate Taxation (Aug. 2010), at 65, whitehouse. govsitesdefaultfilesmicrositesPERABTaxReformReport. pdf. The U. S. system ranks 69th of 183 countries analyzed by the World Bankrsquos ldquoDoing Businessrdquo report. See World Bank amp PricewaterhouseCoopers, Paying Taxes 2012: The Global Picture (Nov. 10, 2011), doingbusiness. orgreportsthematic-reportspaying-taxes. For more on compliance burdens, see William McBride, Why are Businesses Hoarding Cash and not Hiring . Tax Foundation Tax Policy Blog, Nov. 23, 2011, taxfoundation. orgblogwhy-are-businesses-hoarding-cash-and-not-hiring . 126 Marsha Blumenthal amp Joel B. Slemrod, The Compliance Cost of Taxing Foreign-Source Income: Its Magnitude, Determinants, and Policy Implications, rdquo 2 International Tax and Public Finance 37 (1995) 127 See Desai amp Hines, supra note 19.