Incremental International Tax Reform: A Review of Selected Proposals

Business people, tax practitioners, and legal academics generally agree that the United States' international tax regime is broken. Criticisms abound that the system is overly complicated, disadvantageous to American businesses competing in a global economy, and frequently subject to manipulation and abuse. In the recent past, individuals and groups across the political spectrum have proposed numerous reforms to address these problems, some of which seek simply to modify current requirements while others jettison the current system in favor of dramatic alternatives. Two of the more ambitious proposals regarding international tax reform have centered on implementing changes that would significantly modify the current international tax regime.

The first proposal would move the current regime closer to an exemption or territorial system and provide that foreign income, whether earned directly or through a foreign subsidiary, would not be subject to United States taxation. The second proposal would move the current regime closer to a pure worldwide tax system, sometimes referred to as a "full inclusion" system, under which the foreign income of foreign subsidiaries would be attributed to the United States parent.