US Taxation of International Income, by Gary Clyde Hufbauer and Ariel Assa, Peterson Institute for International Economics, October 2007. PDF format, free download.

Since 1992, new issues have arisen in international taxation—for example, taxation of electronic commerce, novel means of shielding passive income, the World Trade Organization (WTO) debate over the foreign sales corporation and subsequent passage of the American Jobs Creation Act of 2004, the problem of corporate inversions, and alleged "earnings stripping" by foreign-based multinational enterprises (MNEs) operating in the United States.

In the meantime, US-based MNEs operating abroad have used a variety of methods to cut the effective US tax on repatriated foreign source income to around 2 percent. This revised study analyzes the impact of taxes on industry location and profit shifting using new panel econometric studies. It also discusses and evaluates new paradigms that have been suggested for the international tax system.

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Chapters can be downloaded in pdf format, FREE.

Introduction (From the book):

In its essentials, the case for reforming the US system of taxing international business income is a case for meeting the economic challenges of the 21st century. Three major trends capture the evolving position of the United States in the world economy. Together, they promise heightened competition between the United States and other industrial countries, especially emerging powers such as Brazil, Russia, India, and China.

First, the past two decades saw a reversal of fortune between the United States and its industrial peers. During the 1990s and the first half of the 2000s, the United States outperformed every advanced industrial economy in growth, productivity, capital investment, entrepreneurial activity, and fiscal discipline. The challenge ahead, however, is not a resurgent Europe or Japan, but the very rapid ascent of China, India, and other emerging powers.

Second, the United States has now become a prime destination for foreign asset holders—a sharp reversal from its post–World War II status as creditor to the world. At the end of 2005, US ownership of assets abroad amounted to about $10 trillion, compared with foreign ownership of US assets of about $12.7 trillion. The stock of inward investment is now approximately equal to annual GDP, and the stock of outward investment is only slightly smaller.

Third, apart from cross-ownership of assets, the US economy has become decidedly more international in other ways. Many more US firms are now exposed to international commerce, and world capital and technology markets are far more closely linked than they were in past decades. Whereas US imports plus exports of goods and services were about 9 percent of GDP in 1960, in 2005 the trade-to-GDP ratio was about 33 percent....

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