US mulling foreign profits overhaul

A sweeping reform of international tax rules could be on the cards in the US.

Senators have been hearing evidence from tax experts as they look at the
possibility of easing the tax burden on the foreign income of US taxpayers and

‘Put simply, the United States is close to unique among world nations in
taxing foreign income in the way that we do, James R. Hines, a professor at the
University of Michigan Law School in his testimony to the US Senate finance
committee. ‘Not only does the United States subject active foreign business
income to domestic taxation, but we do so in a manner that strictly limits the
ability of taxpayers to claim foreign tax credits and to avoid current U.S.
taxation of unrepatriated foreign income,’

The chances of a change to the rules governing both individual and business
taxes on income earned abroad were met with reluctance from some quarters.

‘There is no a priori reason for allowing a special position for
foreign business income, whether the income is earned directly by individuals or
indirectly through foreign activities of U.S. or foreign corporations,’ said
Stephen E Shay of Boston law firm Ropes & Gray.

‘If U.S. taxation of foreign business income is lower than on domestic
business income, U.S. persons who do not earn foreign business income will be
subject to heavier taxation solely because of where their business is located.
To justify relief from U.S. tax on foreign business income, there should be an
identifiable benefit to individual U.S. citizens and residents.’

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