It is broadly acceptable that the current taxation system of the United States on the foreign profits of the multinational cooperation is diminishing. The current law in the US focuses on the taxation of the global income of residents’ multinational corporations. It implies that any corporation in the US is considered a resident and all the earnings will face taxation of at least 35% regardless of the location of the incomes. However, there is no taxation of foreign unless they return to the United States. This system has disadvantages (“Penalties,” n.d). The U.S global tax system does not allow companies to repatriate foreign earnings. It causes the look-out effect. Companies, therefore, do not make adequate arrangement on finances and investments to escape repatriation and additional tax from the U.S.
In some occasions, the system provides the companies with incentives to avoid domestic taxation on their foreign gains through moving the corporate headquarters away from the United States. From this act, the US global taxation system is one of the major drivers existing corporative inversions in the past few decades. From an economic perspective, the U.S system of taxation discourages foreign investment. Finally, in the level of normative this notion is objectionable in philosophical view point. It is difficult for the U.S government to tax income outside its boundary (Lessambo, 2016). There have been various tax proposals that opt to deal with the matter in the international taxation system. The latest proposal was on the replacement of the corporate income tax with a destination -based cash-flow tax. There are proposals that different lawmakers have come up with to replace the global tax system with the territorial tax system. The system will tax companies by the location of their profits but not a corporate residence. It implies that foreign US companies will not face additional taxation on the profits after they return to the United States.
Disadvantages of the paper
The paper does not give information about the consequences that the multinational institutions will when they do not register their institutions in the U.S.
There is no explanation on the ways through which the foreign companies will pay tax to the U.S.
Lessambo, F. I. (2016). Taxation of Derivatives. International Aspects of the US Taxation System, 245-263. doi:10.1057/978-1-349-94935-9_15
Penalties. (n.d.). US Withholding Tax. doi:10.1057/9781137317308.0015