International Tax Reform by Means of Corporate Integration

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Bret Wells


This Article focuses on a single organizing question, namely: how should a dividend paid deduction regime be designed so that it achieves acceptable international tax outcomes? By focusing on the international tax implications attendant with a dividend paid deduction regime, the author is not attempting to minimize the broader benefits of achieving shareholder-corporate integration, but in today’s era, the overwhelming tax policy problem that must be solved rests on finding a solution to the systemic international tax challenges that face the country. The article sets forth three major systemic international tax policy challenges that plague the extant U.S. international tax regime and then provides analysis for how a properly designed dividend paid deduction regime can solve each of the international tax challenges. But, even though a properly designed dividend paid deduction regime provides a means to address systemic international tax challenges, such a regime still must address the inbound Homeless Income problem. Furthermore, the methodology for calculating the foreign tax credit limitation will need to be adjusted under a dividend paid deduction regime so that foreign earnings that are distributed as a dividend are not able to create a double tax benefit. And, Congress must be concerned with inappropriate shareholder efforts to cross-credit the shareholder withholding tax against the shareholders residual U.S. tax liability on other non-dividend income. Thus, significant design issues must be addressed in order for a dividend paid deduction regime to appropriately handle the systemic international tax problems that plague the United States.

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