US Tax System Subjects Local Multinationals To Unfair Competition

by Leroy Baker, Tax-News.com, Washington

02 August 2001

A report released this week by Financial Executives International (FEI), the leading advocate for the views of corporate financial management, has concluded that the United States has a highly complex tax structure for US-based multinational corporations which often places these companies at a disadvantage to their foreign competitors.

Entitled "Taxation of U.S. Corporations Doing Business Abroad: U.S. Rules and Competitiveness Issues," the aim of the report is to serve as a general guide to US international taxation and the effects of tax rules on the competitiveness of US-based multinational corporations. The report's authors, PriceWaterhouseCoopers tax experts Peter R. Merrill, Ph. D., and Carl A. Dubert, have acknowledged that although many positive changes to the US tax code have taken place since 1996, when the first edition of the study was published, there are distinct areas of continuing concern to financial executives who operate internationally and analyse the status of the US in relation to other tax jurisdictions.

They point to, for example, the rules requiring the allocation of US interest expense to foreign source income, which can lead to double taxation because other countries do not recognize US interest expense as a deduction.

Dr Merrill explained: 'Our country's rules governing the taxation of international operations of US corporations have been subject to numerous revisions over the past 40 years, often with little consideration to their effect on global competitiveness. In recent years, global markets have become more competitive and U.S. tax rules more complex. As a result, concerns regarding the burden of U.S. international tax rules have become more pronounced.'

'The good news is,' added Mr Duber, 'that Congress has fixed a number of the tax problems identified in our earlier study. Our hope is that the study's second edition will drive revisions to the US international tax code that will offer a more competitive environment for US multinational corporations.'

More information about the FEI's latest report can be found at: http://www.fei.org.

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