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OCR for page 151
Index
A
Accelerated Cost Recovery System, 55
Allocation rules, 2
application, 12
current U.S. law, 66
effects of corporate behavior, 5-6
interest rules, 16, 116-117, 124, 126
rationale, 65
R&D spending, 42-43, 117-118, 124-
125, 126
worldwide fungibility approach, 125-
126
Alternative incremental tax credit, 95
Alternative minimum tax, 7, 90, 115-116
incentive effects, 123-124
objective, 102
Anti-deferral rules, 2, 101-102
international comparison, 90
B
Basket limitations, 16-17, 41
10-50 rule, 82
joint ventures, 82
Branch profits tax, 17, 115
151
C
Canada, 83-84
Capital-export neutrality, 113, 121, 134
Capital-import neutrality, 113, 121
Capital-labor substitutability, 18, 19
Carryback/carryforward rules, 116
Competitiveness
cost of capital and, 121-12
effects of 10-50 basket rule, 82
goals of TRA86, 81
international comparison, 6
production efficiency and, 111-112
for R&D investments, 82-84
as tax regime objective, 88-89, 111,
112
Complexity of tax code, 7, 136
business decision making and, 73
negative effects of, 112
reason for, 19-20, 113
source of, 72-73
Compliance costs
current estimates, 123
as disincentives to investment, 112
international comparison, 90
R&D credit rules, 61-62
tax code, 7
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152
territorial vs. worldwide tax systems, 34
Constancy of policy, 6, 71, 83
Consumption tax
cost of capital and, 24
economic efficiency, 110, 111
legality, 94
location of investment and, 94
R&D investment under, 144-145
reform proposals, 127
response of trading partners, 92, 103-
104
trade effects, 93-94
Corporate welfare, 81-82
Cost of capital
in broad-based income tax regime, 110-
111
competitiveness and, 121-122
in consumption tax regime, 24
effectiveness of tax incentives, 118-121
global optimization of production
efficiency, 25
income- shifting-adjusted, 20
interest allocation rules, 16
in pure income tax regime, 24
Countervailing duties, rationale for, 23, 29
Cross-crediting, 122
D
Debt financing, 16
Deferral of tax
current U.S. policy, 41, 81, 114-115
as incentive to delay dividends, 115
rules governing, 2
typesof,ll4-115
Depreciation, 6
calculation of tax base for foreign
income, 14
of R&D expenditures, 59
TRA86 provisions, 13
Destination-based taxes, 93, 140, 141
Dividends, 6-7, 35
deferral of tax as incentive to delay,
115
as foreign income, 41
repatriation of income as, 12-13, 115
Domestic production for export, 15-16, 67
INDEX
E
Eclectic theory of corporate behavior, 18
19
Economic Recovery Tax Act, 44, 55
Effective tax burden, 6-7
Excess credit, 1, 13
domestic production for export and, 15-
16
effects on business location decisions,
18
R&D allocation, 43
TRA86 and, 14-15
U.S. tax policy, 114
Excess limitation
considerations under TRA86, 14-15
definition, 13
U.S. tax policy, 114
Exchange rates, 140
Export source rule, 15-16
F
Financial services income, 16
Flat tax, 84, 127
Flat Tax proposal
effects on R&D, 97-100
major features, 91, 92, 93, 94-95, 96-
97
Follow-on facilities, 5
Foreign direct investment
capital movement and, 19
determinants, 118
effects of TRA86, 14, 15-16
elasticity, 18
exports and, 138
home country tax system as decision-
making factor, 17-18
interest expense allocation rules and, 16
tax rule effects on, 5, 17-20, 118-121
in U.S. by foreign firms, 5, 18, 94
vs. domestic production for export, 15-
16
Foreign investment in U.S., 5
branch profits tax, 17
response to tax reform proposals, 94
sensitivity to state tax system, 18
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INDEX
tax policy disincentives, 73
technology transfer, 50
TRA86 provisions, 17
. ~ . .
. ~orelgn-source earmngs
allocation rules, 2
anti-deferral, 2
calculation of tax base, 14
domestic production for export as, 15-
16, 67
incentives to shift location, 15
income location issues, 12
incremental tax reform, 100-101
interest expense allocation, 16
net income measurement, 65
principles of taxation, 11-13
R&D expenses and, 42-43
residual U.S. tax rate, 67
tax reform proposals, 7
types of, 41
U.S. tax system, 12-13, 28, 29, 40, 81,
114-115
Foreign tax credit limitation, 1
current U.S. policy, 40, 114
rationale, 65
France, 12
Free trade
appropriate unilateral tax policy for,
27-29
compatible tax structures, 25-27
current tax regimes, 35-36
evaluation of tax policies for
consistency with, 29-35
strategies for implementation, 23, 36
tax regimes and, 23-24
theoretical basis, 21-23
G
Germany, 66, 78
Global economy
corporate trends, 1
globalization of corporations, 75-76
implications for tax reform, 109
joint venture alliances, 77
pressures for corporations, 143
tax structure for, 77-78
trends, 75, 135-136
153
Incentives
alternative minimum tax as, 116, 123
124
effects on cost of capital, 118-121
R&D, 4-5, 83-84
in U.S. tax rules, 113-114
Income shifting, 15, 20
incentives, 32
mechanisms, 32
tax haven countries, 32-34
Income-shifting-adjusted cost of capital,
20
Incremental research and experimentation
tax credit, 5
effectiveness in stimulating R&D, 59
effects on R&D cost structure, 55-59
legislation, 55
long-term implementation, 6
Interest allocation rules, 6-7, 124, 125
in business decision making, 5
country of origin, 116-117
R&D spending and, 116-117
reform, 125, 126
tax reform proposals, 100-101
under TRA86, 16
International comparison
anti-deferral rules, 102
competitiveness, 6, 125
compliance burden, 90
effective tax burden, 7
principles of taxation for international
firms, 11-12
R&D tax credits, 83-84
tax rate, 78
tax rules, 89-90
Investment
business decision making, 3-5, 7, 13
disincentives in international tax
provisions, 2, 3
effects of tax reform, 5-6
effects of TRA86, 13-14
facility placement decisions, 4
impact of R&D tax rules, 47-49, 54
international joint venture alliances, 77
social rate of return, 53
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154
tax systems compatible with free trade
in capital, 25-27
trends, 87
unilateral free trade taxation of capital
income, 27-29
See also R&D
J
Japan, 11
Joint venture alliances, 77
10-50 basket rule, 82
L
Labor supply
capital-labor substitutability, 18, 19
elasticities, 18
R&D substitutability, 58
of technological future, 77
Loans, 90
Local content rules, 33
Location of business/facilities
follow-on facilities, 5
mobility of operations, 68, 72
for R&D activities, 5, 71-72
residence-based taxation, 31-32
tax system influences on decision
making, 4, 5, 18, 67-68, 71, 138-139
Location of income, 12
incentives to shift, 15
taxation for global efficiency, 30-31
theoretical modeling of incentives to
shift, 20
treaty objectives, 134
Look-through rules, 95-96
M
Manufacturing sector
economic modeling, 54
impact of R&D tax policy on cost
structure, 55-59
impact of R&D tax policy on
investment, 54
technological future, 76
INDEX
effect of R&D tax rules on cost
structure, 55-59
effectiveness of R&D tax policy, 59-
60, 62
effects of R&D allocation rules, 48-49
effects of tax reform proposals, 97-100
empirical research needs, 20
incremental research and
experimentation tax credit, 55-59
manufacturing sector price-demand, 54
public finance economics, 144
tax rule effects on foreign direct
investment, 118-121
tax system effects on firm behavior,
18-19
Monopoly, 22
Monopsony, 22
Multinational corporations
decision-making environment, 3-5
decision-making models, 18-20
earnings repatriation patterns, U.S., 35
eclectic theory of behavior, 18-19
foreign investment in U.S., 5
foreign tax credit basket limitations,
16-17
interest expense allocation rules, 16
location of income, 12
obstacles to modeling behavior of, 18
R&D allocation patterns, 3, 47-49, 66-
67
residence-based taxation, 31-32
response elasticities, 18
trends, 1, 87
U.S. tax system, 1-2, 40-42
N
National Retail Sales Tax, 91, 92, 93, 94
95
Netherlands, 12
o
Oligopolistic markets, 22
Omnibus Budget Reconciliation Act of
1989, 45
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INDEX
Omnibus Budget Reconciliation Act of
1993, 46
One-taxpayer rule, 16
Optional gross income, 66
Origin-principle taxation, 141
p
Passive income
residual tax rate on foreign income, 67
TRA86 rules, 16
worldwide taxation, 34
Policy formulation
conversion to territorial taxation, 103,
126-127
free trade taxation, 23-24
international trade theory and, 21
mechanisms for stimulating R&D
spending, 53-54, 55, 63
objectives, 21
rationale for free trade, 21-22
rationale for trade intervention, 22-23
R&D taxation, 50
strategies for encouraging free trade,
23, 29
theoretical modeling for, 20
unilateral free trade taxation, 27-29
Production efficiency
compatible tax regimes, 110-111
competitiveness and, 111-112
global optimality, 24-25
tax regime for, 24
as tax regime objective, 88, 110, 112,
121
tax structures for global optimality, 25-
27, 111
Public finance, 144
Puerto Rico, 71
R&D
155
depreciation of expenditures vs.
immediate deductibility, 59
effect of tax rules on cost structure, 55
59
effect of tax rules on investment, 47
49, 54
effectiveness of tax policy, 59-60, 62, 63
employment and, 84
externalities, 53
facility location decisions, 5, 72
foreign investment in U.S., 50
foreign spending by U.S. firms, 49, 50
global collaboration, 76-77
global competition for investments, 82
84
historical development in U.S., 43-47
interest allocation rules and, 116-117
international distribution of benefits,
39-40
international technology transfer, 49-50
legally mandated, 66
opportunities for improving tax policy,
61-62
policy mechanisms for encouraging,
53-54, 55, 63
price demand elasticity, 47-48, 57-58
rationale for favored tax treatment, 39
royalty withholding policy and, 50
social rate of return, 53
stability of tax policy, 83
substitutability, 58
tax incentives, 4-5
tax reform, effects of, 5-6, 94-95, 96
100
tax reform proposals, 96-97
technological future, 76
U.S. tax policy, 39, 66, 95-96
Reform proposals
R
allocation patterns among
multinationals, 3, 66-67
allocation rules, 2, 42-43, 117-118,
124-125, 126
business decision making, 3, 4-5, 7, 50
allocation rules, 126
anti-deferral rules, 101-102
common features, 91
conceptual basis, 137-139
destination principle taxation, 141
duration, 6, 71
effects on R&D, 94-95, 97-100
effects on withholding, 97
evaluation of, 90-91, 103
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56
flat-rate consumption tax, 127
flat tax, 84
foreign-source earnings, 7
foreign tax credit, 100-101
impact on business decision making, 5-
6
implications for capital markets, 127
incremental, 100, 104
interest allocation rules, 125, 126
international context, 87, 139-141
move to territorial system, 103, 126-
127
need for, 78
objectives, 139
opportunities for improving R&D credit
rules, 61-62
proposed legislation, 91
prospects, 6, 145
R&D provisions, 48-49, 84, 96-97
response of trading partners, 91-94
royalties, 97
statutory corporate tax rate, 6
for technological future, 78
trade effects, 93-94, 140-141
Repatriation of earnings, 2, 11-12, 115
after TRA86, 122
cross-crediting practices, 122
forms of, 115
practice among U.S. multinationals, 35,
41
Residence-based taxation, 1
definition, 40
for optimal global production
efficiency, 25-27
U.S. policy, 40
Residual tax rate, 67
Royalty income, 5-6, 35
as foreign income, 41, 42
foreign-source income of U.S. firms, 49
R&D expense allocations, 42, 45-46, 66
tax reform proposals, 97
U.S. tax rules, 95-96
S
Sales tax, 91
Saving-Exempt Income tax, 127
INDEX
Section 1.861-8, 43-45, 72
Section 1.861-17, 72
Section 904(g), 72-75
Section 956A, 72
Sections 951-964, 78
Social rate of return, 53
Source-based taxation, 27, 111
State tax systems, 18
Subsidiaries, foreign, 2
T
Tariffs
free trade theory, 21-22
rationale, 22-23, 31-32
Tax havens, 19-20
global costs, 33
policy mechanisms, 32-33
rationale, 32
rationale for intervention, 33-34, 36
Tax policy
capital-export/-import neutrality, 113,
121
competitiveness goals, 88-89, 111-112
conceptual evolution, 134-137
conflicts among objectives of, 113
constancy and consistency, 6, 71, 83
depreciation of R&D expenditures vs.
immediate deductibility, 59
economic efficiency goals, 88, 110
111, 121
effectiveness of R&D rules, 59-60, 62,
63
evaluation of free trade compatibility,
29-36
for global production efficiency, 25-27,
111
impact on foreign direct investment,
17-20
impact on R&D cost structure, 55-59
impact on R&D investment, 54
investment location decisions affected
by, 67-68, 71
motivation for reform, 137-139
objectives, 39, 88, 110
opportunities for improving R&D rules,
61-62
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INDEX
as ownership protectionism, 29-32
protection against tax haven countries,
33-35
rationale for free trade, 21-23
R&D location decisions, 71-72
simplicity as goal of, 112
of tax haven countries, 32-33
technological future and, 76, 77-78
territorial vs. worldwide taxation, 34-
35, 36
trade policy theory and, 21, 29-30, 32
unilateral free trade taxation, 27-29
Tax Reform Act of 1986, 6, 11, 109, 136
basket limitations, 16-17
cross-crediting under, 122
domestic production for export under,
15-16
effective foreign income tax rate, 14
excess credit/excess limitation
considerations, 14-15
global economy and, 78
interest allocation rules, 16, 117, 125
net effect on investment, 13-14
objectives, 81
outward investment provisions, 13
provisions for foreign firms in U.S., 17
R&D allocation rules, 44
repatriation patterns under, 122
residual rate on foreign income, 67
statutory rate provisions, 13, 14
Tax treaties
effect of domestic reforms, 92-93
goals, 133-134
nondiscrimination, 29
tax sparing provisions, 89
two-way capital flows, 28-29
Taxpayer Relief Act, 83
Technical and Miscellaneous Revenue Act
of 1988, 44-45
Technology transfer
international flows, 49-50
in technological future, 77
Telecommunications, 76, 77
Territorial taxation, 114
disadvantages, 123
dividend and royalty income, 122-123
free trade compatibility, 34-35, 36
157
prospects for global optimal efficiency,
111
rationale, 103
U.S. conversion to, 103, 104, 126-127
TRA86. See Tax Reform Act of 1986
Transfer pricing, 12
in destination-based tax system, 93
U
United Kingdom, 11
Unlimited Savings Allowance (USA) tax,
91, 92, 93, 94-95
effects on R&D, 97-100
major provisions, 96-97
U.S. international tax system
10-50 basket rule, 82
anti-deferral rules, 101-102
basic provisions, 1-2, 12-13, 40-42,
81, 114-115
complexity, 7, 72-73, 90
compliance costs, 7, 90
conceptual evolution, 134-137
concerns, 2-3
as corporate welfare, 81-82
credit for foreign tax payment, 1, 13,
16-17, 28, 29
disincentives for foreign firms, 73
distinctive features, 89-90
economic doctrine, 134-135
economic efficiency, 88, 121
effective tax burden, 6-7
effects on business decision making, 3
6,7
free trade compatibility, 28, 29, 36
historical development of R&D rules,
43-47
international comparison, 6, 7, 77
international joint venture alliances, 77
international response to reforms, 91
92
investment incentives, 113-114
near-term obsolescence, 75
policy formulation, 21
R&D rules, 39, 42-43, 66, 95-96, 117
reform proposals, 91
residual tax rate on foreign income, 67
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158
revenue sources, 137
stability, 6
statutory corporate rate, 6
See also specific legislation or statute
V
Value-added tax, 94
Virtual corporations, 1, 76-77, 78
INDEX
W
Withholding tax
foreign, in U.S. tax policy, 41-42
interest, 16-17
reform proposals, 97
rules for foreign corporations in U.S.,
17
Representative terms from entire chapter:
allocation rules
