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U.S. Taxes are Out of Sync with World’s Leading Economies

  • The United Kingdom and Japan recently reformed their international tax systems to provide a permanent tax exemption for most foreign earnings of U.K. and Japanese companies.  Now 26 of 34 OECD (Organization for Economic Cooperation and Development) countries employ a “territorial” tax system that does not tax the worldwide earnings of their global companies.
    • For example, U.K. and Japanese companies pay taxes to Germany on their German earnings, but do not pay taxes on their German earnings to the United Kingdom or Japan.
    • A U.S. company operating in Germany, on the other hand, pays taxes on its German earnings both to Germany and the United States.

  • Only seven OECD countries, in addition to the United States, tax the worldwide earnings of their global companies: Chile, Greece, Ireland, Israel, Korea, Mexico, and Poland.
    • Each of these countries, however, has significantly lower corporate tax rates than the United States – which, in 2012, will have the highest combined corporate tax rate in the OECD at 39.2 percent.
    • Each of these countries – including the United States – currently allow their companies to defer paying tax on foreign earnings until those earnings are paid as a dividend to the parent company back in the home country.
  • When a U.S. company competes globally, it is virtually certain to be competing with a company that is not taxed on its foreign earnings – creating a competitive disadvantage for the American company.
  • The U.S. Treasury Department now proposes to fundamentally rewrite the basic rules of international taxation that have been in existence for nearly 100 years and impose more than $100 billion in new taxes on U.S. companies operating in foreign markets.
  • While most of the world is striving to make their companies more competitive, the United States is moving in the opposite direction.

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