Taxing multinational companies in the 21st century

Aerial view of cargo ship in transit.
Editor's note:

The report below is a chapter from the book, “Tackling the tax code: Efficient and equitable ways to raise revenue.” Read the full book here.

The Problem

The core challenge in taxing multinational companies is one of competing priorities: maintaining U.S. competitiveness while protecting the corporate tax base. It can be difficult for tax authorities to determine where profits are earned, a fact that multinational companies exploit to reduce their tax burden. Raising the domestic corporate tax rate relative to rates abroad encourages international profit shifting or moving production overseas, thereby eroding the corporate tax base.

The Proposal

A proposal by Kimberly Clausing of Reed College offers several reforms to improve the taxation of multinational companies. Specifically, Clausing’s proposal would immediately increase the corporate tax rate, strengthen the global intangible low-taxed income (GILTI) minimum tax, and repeal the foreign-derived intangible income (FDII) deduction. In the longer run, the author proposes a formulary approach to the taxation of international corporate income that would transcend the tradeoff between competitiveness and tax base protection.

The authors did not receive financial support from any firm or person for this article or from any firm or person with a financial or political interest in this article. Neither is currently an officer, director, or board member of any organization with a financial or political interest in this article.