This document, prepared by the staff of the Joint Committee on Taxation, provides a description and analysis of the revenue provisions related to the taxation of cross-border income and investment that are included in the President’s fiscal year 2010 budget proposal, as submitted to the Congress on May 7, 2009. For each provision there is a description of present law and the proposal (including effective date), a reference to relevant prior budget proposals or recent legislative action, and an analysis of policy issues related to the proposal.
The U.S. rules governing the taxation of cross-border income reflect a series of choices regarding the appropriate tax base (i.e., the income upon which U.S. taxes should be imposed). In broad terms, through bilateral tax treaties and the domestic tax laws of many developed and lesser-developed countries, the principal right to tax cross-border business income has generally been assigned through reduction in, or elimination of, source-country withholding taxes to the source country (the country in which the income is derived). The principal right to tax cross-border passive or portfolio investment income has generally been assigned to the residence country of the recipient of the income. Part One of this pamphlet discusses the manner in which the U.S. rules reflect and implement this allocation with respect to business income, and the manner in which the Administration’s proposals would change those rules. Part Two of this pamphlet discusses the existing U.S. rules for the enforcement of residence-based taxation of portfolio investment income earned offshore and the Administration’s proposals to change those rules.
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Taxpayers, policymakers, economists, and political scientists would be interested in this Budget Proposal.
