THE TAX CUTS AND JOBS ACT PAPER
What it means to be a territorial system with a participation regime as compared to a worldwide taxing system
Territorial system taxation is a system where the government only taxes businesses and companies the income earned from within a country border. This system applies and covers all the business enterprises and firms, together with all co-operation within the country’s territory. It is projected to allow and increase more excellent corporate investment, and enable the country to meet its global demand more effectively (U.S. House of Representatives Committee, 2011). The territorial system tends to draw a visible line in a good economy allow the concerned country to compete other economies and to identify it’s economy and co-operation potential.
In comparison to worldwide taxation, majorly involves co-operations, basing their headquarter in the U.S to paying their tax on all the income regardless of whether it’s earned in the united states or not. Territorial taxation is seen to unveiling the hidden economic potential of a country better and allow the United States to compete other developed economies and improve and their economic power.
How the U.S. will avoid U.S. base erosion through the use of a base erosion anti-abuse tax (BEAT)
Through base erosion and abuse tax (BEAT), the United States can avoid monetary measures and plans that aim to reduce profits or a taxable company. This is essential for the country’s economic support and the overall growth of the economy of the United States. It’s also done to limit the constant and continuous shifting of the profits realized and collected by the companies. This, in turn, fastens the necessity of base erosion avoidance. Through laid out strategies and accurately calculated measures, the United States through the management and introduction of the Tax Cuts and Jobs Act, introduced BEAT (base erosion and anti-abuse tax) to work in the following manner to avoid the same.
Targeting the most significant businesses that can generate interest, royalties, and other services payment, it’s possible to avoid base erosion. After calculating the standard rate of tax, thorough checking and keen evaluation are done to determine the level of the tax, whether it’s lower and higher the BEAT. From then, the decision of payment of the regular tax and the addition or subtraction of relevant amount done. All these are done to avoid base erosion. The determination of the total deduction, which is greater than 3% of the deductions and the 2% for the registered dealers.
How global intangible low-taxed income (GILTI) will subject some low-taxed foreign income to current U.S. taxation.
Global intangible low-taxed income is an income that is taxed on the earnings that exceed and 10% on the company’s invested assets. For global intangible low-taxed income to subject and release some effect on the current taxation of the United States, the range of taxation must be estimated, and since global intangible low-taxed income subjects to a worldwide minimum tax of a range of 10% to 13% on an annual basis. For it’s effectively, and for its financial and economic legitimacy, every company or individual and who owns at least 10% of the foreign corporation directly or indirectly are termed as the shareholders, and the rule of global intangible low-taxed income applies to them fully. Calculation from the intangible assets communicates much about the involvement of GILTI as far as current taxation of the United States is concerned. And to manage this ensure full co-operation, the involvement of the global intangible low-taxed income ensures that there is the addition of some specific percentage to demoralize the profit-shifting. This is proposed to encourage transparency and the efficiency of the taxation process and collection of genuine revenue to ensure their economic growth and general stability.
How the U.S. will encourage U.S. production and exports by providing a deduction to foreign-derived intangible income (FDII).
Foreign derived intangible income is an income category that does not require intangible assets-; instead, assumption of fixed rates in the assets rules the day. It applies to all services rendered to a foreign person, and its main plan focuses on the corporations. To maximize and ensure production and export realization, a new system of taxation needs to be introduced, and only reliable means is territorial taxation when merged with foreign-derived intangible income (FDII). (Lokken, L. (2006). The economic potential of a country can only be realized and when the co-operation taxation is done with limits and for only companies that are within the borders. Production level will be encouraged as well as the export since the demand and level of production well determined.
In connection with the attached benefits and means by which FDII will encourage production and exports is through the sake of properties. Leasing, licensing, or disposition of property to non-US person earns a lot to the country and does some export at the same time. This will encourage transparency and economic growth in general. This service provision extends to all types of properties and materials outside the United States.
Conclusion
The current system of taxation needs to be replaced; this demand is more significant and stronger and can be felt by financial experts. It is necessary to boost the economy’s level, especially during tis tome of economic sabotage. The foreign corporation needs to tax appropriately; at the same time, the country’s potential should be the focus. Regulation and domestic investments should be checked to ensure a balance of foreign income. The concentration of investment in the country is the best if all; the current taxation is encouraging investment overseas, which is where the whole problems are.
References
1.U.S. House of Representatives, Committee on Ways and Means, “Technical Explanations of the Ways and Means Discussion Draft Provisions to Establish a Participation Exemption System for the Taxation of Foreign Income,” October 26, 2011, http://waysandmeans.house.gov/uploadedfiles/final_te_–_ways_and_means_participation_exemption_discussion_draft.pdf (accessed March 27, 2013).
2.Lokken, L. (2006). Territorial taxation: Why some U.S. multinationals may be less than enthusiastic about the idea (and some ideas they really dislike). SMUL Rev., 59, 751.