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.
- Cargill supports the territorial taxation model. We advocate for a global harmonization leading to a territorial taxation system in all countries. This would put nations on more even footing and restore American companies’ competitiveness.
- The current U.S. worldwide taxation system places an undue burden on American companies. 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 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 face higher barriers to success than their foreign competitors.