International Business Taxation

The Issue

Countries generally follow one of two approaches to taxing international business income: "worldwide" or "territorial." The U.S. is one of the few developed countries that takes a worldwide approach, in which all income of U.S.-headquartered firms is subject to tax, including income earned abroad. When income earned abroad is repatriated to the U.S., it is subject to tax. In contrast, all of the other G7 countries and most member countries of the Organization for Economic Cooperation and Development (OECD) take a territorial approach, in which a country collects tax only on the income earned within its borders.

The continued use of the worldwide system means that U.S.-based companies effectively face double taxation on their international operations. The U.S. tax code also adds convoluted international expense allocation rules to its double taxation system, which can increase the tax burden on domestic operations. With these added obligations, U.S. companies are challenged with a higher barrier to succeed than their foreign competitors

Our View

Cargill believes that economies of the world benefit when companies compete on a level playing field, and that a modern territorial system is the best way to achieve this. By adopting a territorial system, the U.S. would empower its companies to better succeed in the international marketplace, and encourage them to redistribute profits earned abroad to their domestic operations.