Title: INTERNATIONAL TAX SEMINAR for Congressional Staff
1INTERNATIONAL TAX SEMINARfor Congressional Staff
- International Tax Policy Forum
- Finance Committee Hearing Room
- U.S. Senate
- February 15, 2002
2International Tax Seminar
- Contents
- Introduction
- Economic background
- US International tax system Overview
- Current International tax policy issues
- Extra-territorial income (ETI) regime
- Dividend exemption (territorial) tax systems
- US International tax system Primer
- Anti-deferral regime (subpart F)
- The foreign tax credit
3Introduction
- International Tax Policy Forum (www.itpf.org)
- Founded in 1992, the International Tax Policy
Forum is an independent group of over 30 US MNCs
with a diverse industry representation. The
primary purpose of the Forum is to promote
research and education on taxation of income from
cross-border investment. To this end, the Forum
sponsors research and conferences on
international tax issues and meets periodically
with academic and government experts. As a
matter of policy, the Forum does not take
positions on legislative or regulatory proposals. - Mr. John Samuels (General Electric Co.) serves
as Chairman of the Forum and Prof. James Hines,
Jr. (University of Michigan) is the Forum's
research director. PricewaterhouseCoopers is a
consultant to the Forum.
For more information contact Margery Sweat
(202-414-1620).
4Introduction
- Presenters
- Alan Fischl, PwC International Tax Services
- alan.fischl_at_us.pwcglobal.com (202.414.1030)
- Carl Dubert, PwC International Tax Services
- carl.dubert_at_us.pwcglobal.com (202.414.1718)
- Peter Merrill, PwC National Economic Consulting
- peter.merrill_at_us.pwcglobal.com (202.414.1666)
5Introduction
- Some current international tax policy issues
- Response to WTO decision on FSC/ETI
- Dividend exemption (territorial) tax systems
- Other changes in structure of US international
tax rules - Active financing extension
- Simplification
- JCT study
- Treasury study announced in budget short- and
long-term parts - Other simplification initiatives
6Economic background
- Global economic trends
- Foreign direct investment
- Foreign portfolio investment
- Cross-border mergers and acquisitions
7Global economic trends
- The U.S. share of the world economy has declined
due to faster economic growth abroad since World
War II - A domestic company that limited itself to the
U.S. market in 1945 would have foreclosed half
the world market, today it would lose 80 percent
Source Mathew J. Slaughter, Global Investments
American Returns, 1998, p. 6.
8Global economic trendsInternational trade
- US economy has become more open trade is now
over 24 of GDP - US now runs a large trade deficit in goods (3.7
of GDP) - US now runs a trade surplus in services (1.0 of
GDP)
9Global economic trendsUS FDI in the world economy
- Cross-border Foreign Direct Investment (FDI) has
expanded - U.S. MNCs share of world FDI has fallen
- In 1960, 18 of the worlds 20 largest companies
(ranked by sales) were US headquartered. In
1996, 8 were.
10Global economic trendsMarket integration
- GATT WTO rounds have substantially reduced
global tariff levels - Regional trade agreements have proliferated
- Euro Econ Area, NAFTA, ASEAN, Mercosur, etc.
- Half of the 153 FTAs created since 1990
- MNCs view their business regionally
11U.S. foreign direct investment
Foreign receipts as a percent of corporate
profits in GNP
- U.S. MNCs and U.S. economy are far more dependent
on FDI abroad
12U.S. foreign direct investmentLocation
- U.S. FDI primarily is located in developed
countries - In 1998, 73 of foreign affiliate assets and
sales were in developed countries, and 58 of
foreign affiliate employment - U.S. FDI overwhelmingly supplies foreign, not US
markets - In 1998, less than 11 of sales of
U.S.-controlled foreign corporations were back to
US (less than 7 if Canada excluded) - Foreign affiliates of U.S. companies are
primarily in the services sector - 56 of U.S. MNC affiliate abroad are classified
in the services sector, including
wholesale/retail trade (compared to 27 of U.S.
parents) - According to the UN accessing markets will
remain the principal motive for investing abroad
Developed countries defined as Canada, Europe
and Japan.
13U.S. foreign direct investmentExports
- In 1998, U.S. MNCs accounted for 64 of all U.S.
exports - According to the OECD
- Each dollar of outward FDI is associated with
2 of additional exports and with a bilateral
trade surplus of 1.701 - 1OECD, Open Markets Matter The Benefits of
Trade and Investment Liberalization, 1998, p. 5p
14U.S. foreign direct investmentUS wages
- US plants of companies without foreign operations
pay lower wages than domestic plants of US MNCs,
controlling for industry, firm size, age of firm,
and state location
Source Mark Doms and Brad Jensen, 1996
15Foreign direct investmentUS employment
- Foreign and domestic employment of US MCS are
complements not substitutes.1 - According to the Council of Economic Advisers
- On a net basis, it is highly doubtful that US
direct investment abroad reduces US exports or
displaces US jobs. Indeed, US direct investment
abroad stimulates US companies to be more
competitive internationally and to allocate
their resources more efficiently, thus creating
healthier domestic operations, which, in turn,
tend to create jobs.2 - 1D. A. Riker and S. L. Brainard, U.S.
Multinationals and Competition from Low Wage
Countries, NBER, WP no. 5959, March 1997 - 2US Council of Economic Advisers, Economic
Report of the President, 1991, p. 259
16U.S. foreign direct investmentForeign share of
US MNC operations
Foreign share of gross output
6.9
5.8
5.0
5.0
Foreign share of employment
Employment in US CFCs remained at 5.0 of US
civilian employment over the 1982-1998 period.
Gross output of US-controlled foreign
corporations has declined from 6.9 percent of US
GDP in 1982 to 5.8 percent in 1998. (Source
PricewaterhouseCoopers calculations based on US
Department of Commerce data.)
17U.S. foreign direct investmentFinancing
- IRS data shows that foreign subs of US parents
distributed 69 billion or 63 of net foreign
earnings and profits (1996 tax returns) - 76 of U.S.-controlled foreign corporation
financing is from foreign sources (1995 data)
18US foreign direct investmentFinancing of CFCs
14
24
62
76 of the financing of US-controlled foreign
corporations comes from foreign sources -- not US
parents. Debt and equity from US parents
financed less than 24 of total assets in 1995.
19Foreign direct investmentComparative tax burdens
- Over the 1992-97 period, US MNCs paid 7.4 more
of net income in taxes than US domestics
(controlling for industry and other factors), up
from a 4.4 multinational tax penalty during
the 1982-91 period.1 - 1J. Collins and D. Shackelford, Taxes and
Cross-Border Investments The Empirical
Evidence, American Enterprise Institute, Seminar
Series in Tax Policy (February 19, 1999).
20Foreign direct investmentComparative tax burdens
- The effective tax rate on cross-border
investment is higher for US MNCs than EU MNCs
according to European Commission
21U.S. foreign portfolio investment
- I n 1999, two-thirds of U.S. investment abroad
was portfolio investment, compared to less
one-seventh in 1980
22Cross-border mergers and acquisitions
23Does location of headquarters matter?
- US MNCs ...
- locate over 70 of assets jobs in US
- Invest and pay more per job at home than abroad
(including in developed countries) - perform 88 of RD in US (vs. 67 of sales)
- overwhelmingly have US leadership
- supply foreign subs much more heavily from US
sources
1 Source L. DAndrea Tyson, They are not us
why American ownership still matters, The
American Prospect, Winter 1991, pp. 37-49
24The US International Tax System Overview
24
25Overview
- Income from cross-border investment may be
subject to income tax in both source and
residence countries - Residence countries use various mechanisms to
avoid double tax - Worldwide system
- Residents are taxed on their worldwide income
with a credit (or, in some cases, a deduction)
for foreign taxes - Dividend exemption (territorial) system
- In a pure territorial tax system, residents are
taxed only on domestic source income with all
foreign source income exempt - Most territorial systems are hybrids, with
exemption for non-portfolio dividends and
worldwide taxation for most other income - Since 2000, the US technically has had a
territorial income tax system with an exception
(i.e., worldwide taxation) for all income other
than income qualifying for the ETI regime
26OverviewInternational Income Taxation, OECD
Countries, 1990
1 For non-treaty countries, worldwide tax with
credit. 2 For non-treaty countries, worldwide
tax with deduction. 3 Exemption of 90 of gross
dividend. 4 Treaty countries with tax system
similar to Australia's. 5 25 ownership
requirement and tax system similar to
Denmark's. 6 Credit for Swiss tax on foreign
dividends effectively exempts these dividends
from Swiss tax. Source OECD, Taxing Profits
in a Global Economy Domestic and International
Issues, 1991, pp. 63-64.
27OverviewRole of tax treaties
- Bilateral income tax treaties are used, inter
alia, to - Coordinate income tax systems to prevent double
taxation - Reduce or eliminate source based taxes (e.g.,
withholding taxes on interest, dividends, rents
royalties) - Provide non-discrimination in the application of
domestic taxes to foreign residents - Establish procedures to resolve double taxation
disputes - Provide mutual assistance in tax administration,
such as sharing of taxpayer information - Model income tax treaties
- OECD Model (including transfer pricing
guidelines) - US Model
- UN Model
28OverviewTiming of tax on foreign income
- Most countries respect foreign subsidiaries as
separate legal entities and tax income from such
subsidiaries only when received by a resident
shareholder - The United States and about half of the OECD
countries have controlled-foreign corporation
(CFC) rules that accelerate tax on certain types
of CFC income (deemed dividend) - CFC regimes typically apply to passive income and
certain low-taxed mobile income - US CFC regime (subpart F) applies to other
categories of active income as well as
investments in US property made with untaxed
foreign income
29OverviewDomestic double taxation
- Double taxation also may occur when US corporate
income is distributed to US shareholders - Most countries provide some form of relief from
domestic double taxation of corporate dividends - Shareholder imputation credit for all or a part
of the corporate tax - Partial shareholder exclusion
- Reduced individual tax rate for corporate
dividends - Corporate deduction for dividends paid
30OverviewCorporate Taxation in OECD Member
Countries, 1990
/ Hybrid tax system (relief from double
taxation at both corporate and shareholder
levels). / Deduction for dividends paid may
offset fully the corporate and personal income
tax for dividends up to 15 of capital value.
Dividends in excess of this limit are fully taxed
at both levels. Sources Sijbren Cnossen, Reform
and Harmonization of Company Tax Systems in the
European Union, Research Memorandum 9604.
Erasmus University, Rotterdam. OECD, Taxing
Profits in a Global Economy Domestic and
International Issues, 1991, p. 57.
31Current International Tax Policy Issues
- Extraterritorial Income (ETI) regime
- Dividend exemption (territorial) tax systems
31
32Extraterritorial Income (ETI) Regime
32
33History of Export Incentives
- China Trade Corporations (1922)
- Exemption method
- Western Hemisphere Trade Corporations (1942)
- Exemption Method
- Export Trade Corporations (1962)
- Deferral Method (as a limitation on Subpart F)
34History of Export Incentives (cont.)
- Domestic International Sales Corporations (1971)
- Deferral Method
- Foreign Sales Corporations (1984)
- Exemption Method (partial)
- Extraterritorial Income (2000)
- Exemption Method (partial)
35Justification for Export Incentives
- Tax incentives used by competitor countries that
are allowed under WTO rules - WTO permits both FTC and exemption to mitigate
double taxation as part of normal tax system - Most territorial tax system exempt base company
sales income - WTO permits border tax adjustments for indirect
but not direct taxes - All OECD countries except US have VAT system
- Economic effects are uncertain
36Origins of ETI Regime
- 1998 EU filed a complaint with the WTO regarding
the FSC regime. - 1999 WTO dispute panel found the FSC regime to
be a prohibited export subsidy. - Benefits contingent upon exports
- Revenue foregone is otherwise due
- Exception from base company rules
- Exception from effectively connected income rule
- Dividend-received deduction for FSC dividends
- 2000 The Administration and Congress worked
together to develop bi-partisan legislation to
repeal the FSC regime and replace it with a new
regime designed to satisfy WTO rules - 2002 US loses appeal of WTO dispute panel
decision on ETI
37Mechanics of ETI Regime
- Gross income does not include extraterritorial
income that constitutes Qualifying Foreign Trade
Income - QFTI is a percentage of Foreign Trading Gross
Receipts - FTGR generated from sale or lease of Qualifying
Foreign Trade Property - QFTP consists of property
- Manufactured within or outside the United States,
- Sold or leased for use outside the United States,
and - Not more than 50 of the value of which is
attributable to foreign components and foreign
labor (Foreign Content Test)
38WTO decision on ETI Regime
- EU filed a complaint with the WTO regarding the
ETI regime. - Despite U.S. efforts to design a regime to
satisfy WTO rules, WTO dispute panel found the
ETI regime nonetheless to be a prohibited export
subsidy. - Benefits still found to be contingent upon
exports - Revenue foregone is still found to be otherwise
due - In January 2002, WTO appellate panel upheld
dispute panels findings
39Future of ETI regime
- WTO arbitrator has 90 days to decide amount of
retaliatory tariffs the EU may impose on U.S.
exports - Commission must decide whether and how to
distribute tariff increases among categories of
US exports - US Options
- Repeal ETI regime immediately
- Replacement?
- Postpone repeal of ETI regime within a negotiated
framework - This would likely require some trade concessions
by the US and/or limited retaliation - Do nothing
- European Commission has said it will impose
retaliatory tariffs - Note other WTO member countries may exercise
right to file a complaint against US ETI regime
40Dividend exemption (territorial) tax systems
40
41Territorial tax systems
- Worldwide tax systems tax all foreign source
income - most when repatriated and some
currently through anti-deferral regimes - Territorial systems differ from worldwide systems
by treating some or all of the income that is not
taxed currently as exempt
Taxed on repatriation (with FTC)
World-wide
Taxable currently (with FTC)
Taxed on repatriation (with FTC)
Taxable currently (with FTC)
Terri-torial
Exempt
42Territorial tax systems
- Taxation of exempt bucket
- Taxes directly and indirectly attributable to
exempt dividends are not creditable or deductible - Expenses allocated or apportioned to exempt
income are not deductible - Income typically assigned to the exempt bucket
- Non-portfolio dividends
- Active branch income (net of imputed royalty)
- Income typically assigned to the currently
taxable bucket - Portfolio and passive income
- Royalty income
- Export income not attributable to foreign
economic activities - Income typically assigned to the deferred bucket
- Low or no-tax active income
- Active income earned in non-treaty countries
43Territorial tax systems
- If a territorial tax system has three buckets of
income (e.g., Canada), little or no
simplification is achieved - Income, expense, and foreign taxes must be
allocated among three rather than two buckets - Ordering rules are necessary to determine whether
dividends are paid out of exempt, previously
taxed, or deferred income. - A two bucket territorial tax system is possible,
however many countries are not willing to allow
all types of low-taxed active income to be
exempt, but do not wish to impose current
taxation for competitive or diplomatic reasons - Income from ocean and space activities
- Income earned in low or no tax jurisdictions
- Income earned in non-treaty countries
44Territorial tax systemsRevenue effect
- Adopting a territorial system in US could raise
revenue, depending on design - Putting dividends in the exempt bucket limits the
ability to average foreign tax credits - Under present law, excess foreign tax credits
attributable to high-tax dividends can be used to
reduce US tax on currently includible low-tax
income such as royalties and foreign income
attributable to exports - Expenses allocated to exempt income are
non-deductible. - Under present law, taxpayers without excess FTCs
receive full benefit of deduction - Territorial tax system might raise revenue even
if worldwide rather than waters-edge fungibility
approach to interest allocation were adopted - Transition rules for accumulated deferred foreign
income?
45Territorial tax systemEconomic impacts
- Increased pressure on transfer pricing rules?
- No evidence found in Treasury study
- Increased incentive to invest in low tax
jurisdictions? - Data are inconclusive
- Increased incentive to shift debt to high-tax
jurisdictions - Beneficial to US revenues
- Incentive to increase dividend repatriations
provided that exempt income is stacked first - Incentive to suppress royalties in countries with
tax rates less than US - Adverse to US revenues
46Simplification possible under either system
- Reduce number of anti-deferral regimes, limit
scope of rules, and provide meaningful de minimis
rule - Use GAAP for EP calculations
- Reduce number of foreign tax credit baskets
- Eliminate high-tax kick-out from passive foreign
tax credit basket - Eliminate AMT foreign tax credit limitation
47Complexity inherent under either system
- Application of foreign tax credit rules for
non-exempt income, including sourcing of income
and allocation and apportionment of expenses - Operation of anti-deferral regime
- Application of transfer pricing rules
- Definition of active business income (e.g.,
active financial services) - Taxation of outbound transfers of property
48The US International Tax System Primer
- Anti-deferral regime
- Foreign Tax Credit
48
49The US International Tax System Anti-Deferral
Regime
49
50Deferral as general rule
- US generally defers its tax on foreign earnings
of foreign subs until they are remitted. - US tax is imposed on foreign earnings when they
are earned (or deemed earned) by a US person
(i.e., US corporation, citizen or resident
individual). - Fundamental TIMING principle of US tax law
- Issue is not WHETHER but WHEN US shareholder is
taxed on income earned by foreign corporations
51Exceptions to deferral
- General rule always has been to defer US tax on
foreign earnings of foreign subs until dividends
are paid to a US person. - However, various exceptions have been enacted
over the years. - Where an exception applies, a US shareholder may
be subject to current US tax (or an interest
charge).
52Anti-deferral regimes
- Personal Holding Company (1934)
- Foreign Personal Holding Company (1937)
- Foreign Investment Company (1962)
- Controlled Foreign Corporation (Subpart F) (1962)
- Passive Foreign Investment Company (1986)
- Overlap with CFC regime eliminated in 1997
- Excess passive asset regime (1993-96)
53Anti-deferral regimes
- Application of exceptions to deferral typically
has depended on two factors - Level of US ownership
- Type of income involved
- Present law is complex because there are many
sets of potentially overlapping exceptions, each
with its own detailed set of rules and
definitions.
54Subpart F
- Foreign Personal Holding Company Income
- passive income (e.g., dividends and interest)
- active finance exception (expired)
- Foreign Base Company Sales Income
- income from related party purchases/sales
- Foreign Base Company Service Income
- income from related party services
55Subpart F (cont.)
- Subpart F insurance income
- Subpart F shipping income
- Foreign oil related income
- Illegal payments
- Section 956 (Investments in US Property)
56Rules of Canada, France, Germany, Japan, the
Netherlands and the United Kingdom1
- Half have transaction-based systems (like Subpart
F), while half have jurisdiction-based systems - Other transaction-based systems generally exempt
active business income - Foreign base company sales and service income
- Active financial income
- Other active business income
- Jurisdiction-based systems generally tax all
income of subsidiaries in low-tax countries, but
generally exempt active business income that has
some local connection
1 Based on National Foreign Trade Council, Inc.,
International Tax Policy for the 21st Century,
Volume 1, 67-92 (2001).
57Recent JCT staff recommendations1
- Eliminate FIC and FPHC anti-deferral regimes
- Exclude foreign corporations from PHC regime
- Increase Subpart F de minimis threshold for
active foreign subsidiaries with relatively small
amounts of Subpart F income (also recommended in
1987 ALI report)
1 Staff of the Joint Comm. on Taxation, Study of
the Overall State of the Federal Tax System and
Recommendations for Simplification, Pursuant to
Section 8022(3)(B) of the Internal Revenue Code
of 1986, Volume II, 398-420 (2001).
58The US International Tax SystemThe Foreign Tax
Credit
58
59The foreign tax credit Background
- The US was the first country to provide a foreign
tax credit, enacted in 1918 - A foreign tax credit has been allowed in some
form under US law ever since - FTC is a dollar-for-dollar offset of foreign tax
against US tax - Purpose of FTC is to eliminate double tax on
foreign source income. Not listed as a federal
tax expenditure. - FTC is allowed for foreign income taxes paid
directly or indirectly with respect to foreign
source income
60The foreign tax credit Computation
- FTC Limitation, enacted in 1921, is intended to
prevent FTC from reducing US tax on US source
income - A formula is used to determine the FTC Limitation
(i.e., the share of US tax (before FTC)
attributable to foreign source income) - FTC Limit Foreign source income X US
tax on worldwide income - Worldwide income
- (Note US and foreign income measured under US
rules) - FTC lesser of FTC Limit and foreign taxes
- Excess FTCs may be carried back 2 years and
carried forward 5 years
61The foreign tax credit Computation
- This FTC Limitation computation must be done
separately for each basket of foreign source
income - The purpose of the basket rules is to prevent
averaging of taxes among different types of
income - Losses
- Overall foreign losses are recaptured in
subsequent years - Domestic losses that reduce foreign source income
are not recaptured
62Some foreign tax credit baskets
- General Limitation Income
- Passive Income
- Financial Services Income
- 10-50 Dividends(until 2002)
- High Withholding Tax Income
- Shipping Income
- DISC Dividends
- FSC Distributions
- Foreign Trade Income
63Steps to compute FTC Limitation
- 1. Determine source of gross income
- Gross Receipts (minus cost of goods sold)
- Other Gross Income
- 2. Determine deductions allocable to US and
foreign income - 3. Determine net US and foreign source income
64Steps to compute FTC Limitation
- 4. Characterize gross income (for baskets)
- 5. Allocate and apportion deductions among FTC
categories of gross income - 6. Determine amount of creditable foreign taxes
within each category
65Source of income rules
Different Source Rules for Different Types of
Income
- Income from the Sale of Purchased Inventory
- Income from the Sale of Manufactured Inventory
- Dividends
- Interest
- Rents
- Royalties
- Sale of stock
- Sale of Intangibles
- Sale of other personal property
- Sale of real property
- Personal services
- Maintain source of US source income earned
through foreign corporation - Underwriting income
66Expense allocation rules
Different Allocation Rules for Different
Expenses
- Interest
- Research Development
- General Administrative
- State and local income tax
- Other
67Example 1
- USCO has a foreign subsidiary XCO that earns
1,000 on which it pays Country X income tax at a
rate of 35 (350) - USCO earns 1,000 taxable income in US
- If all XCO foreign earnings are distributed as a
650 dividend to USCO, USCO would be allowed a
foreign tax credit of 350. - Foreign tax credit limit 350
68Example 2
Allocating and apportioning expenses reduces the
maximum amount of foreign tax credit a US company
may receive
- Same as Example 1, except
- 200 of US expenses are allocable against foreign
income which are not deductible by XCO in
calculating Country X tax
69Example 2 (cont.)
- If all XCO earnings are distributed as a 650
dividend to USCO, USCO would be allowed a foreign
tax credit of 280, leaving 70 of foreign taxes
paid for which USCO would receive no credit. - Thus 420 of total income tax would be paid on
1000 of income earned by XCO (42 rate) even
though US and Country X have the same 35 tax
rate - Foreign tax credit limitation 280
70Other rules
- Foreign tax must be considered to be paid
- Overall Foreign Losses/Recapture
- Look-thru Rules
- AMT--90 Limitation
- No FTC allowed for taxes paid/accrued to certain
foreign countries
- FTC only for income tax or in lieu of income
tax - FTC is elective
- FTC allowed when tax is paid or accrued
- Person allowed to claim FTC
- Holding period
- Six tier limit
71Typical obstacles to FTC utilization
- Foreign tax rates higher than US tax rate
- Separate basket limitations
- Required allocation and apportionment of
deductions (not recognized as deductions by
source country) - Overall foreign loss recapture
- AMT
72Foreign Tax Credit Rules of Canada, France,
Germany, Japan, the Netherlands and UK1
- Half have partial exemption (territorial)
systems - Per country, per item (avoidable for foreign
dividends), and overall basket systems all in use - Detailed interest expense allocation rules
generally do not exist - Most have no equivalent to overall foreign loss
recapture. - The Netherlands has domestic and foreign loss
recapture and Canada offers domestic loss relief. - Credit carryforward and carryback range from none
to unlimited carryforward
1 Based on National Foreign Trade Council, Inc.,
International Tax Policy for the 21st Century,
Volume 1 274-75 (2001).
73Recent Joint Committee on Taxation Staff
recommendations on foreign tax credit1
- Accelerate repeal of 10-50 dividend baskets and
characterize these dividends instead under
look-thru rules regardless of year the
distributed earnings arose - Clarify that indirect credits are available to a
US corporation that holds a 10 voting interest
in a foreign corporation indirectly through a
foreign or US partnership
1 Staff of the Joint Comm. On Taxation, Study of
the Overall State of the Federal Tax System and
Recommendations for Simplification, Pursuant to
Section 8022(3)(B) of the Internal Revenue Code
of 1986, Volume II 421-27 (2001).
741987 Recommendations of American Law Institute on
foreign tax credit1
- Recommendations included
- General basket system with smaller number of
separate baskets than today, the most important
for passive income - Adopt domestic loss recapture
- David Tillinghast2, reporter for the ALI study
- Recommended elimination of passive basket
high-tax kick-out - Recommended elimination of separate basket for
high-withholding tax interest - Questioned need for section 907 limitation
1 American Law Institute, Federal Income Tax
Project, Proposals of the American Law Institute
on United States Taxation of Foreign Persons and
of the Foreign Income of United States Persons,
307-421 (1987). 2 David Tillinghast,
International Tax Simplification, 8 American J.
Tax Policy, 187-215 (1990).