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In brief

For many years, tax scholars have proposed a worldwide no deferral system for the United States — that is, all income of a US multinational, both US and foreign source income and whether earned directly or through a foreign subsidiary, would be taxed annually (no deferral) at a uniform rate (the US corporate tax rate). And for many years, US multinationals have opposed such a system. But circumstances have changed so dramatically in the last several years, that maybe such a system could achieve muster with Corporate America.

In 1961, during the first year of the John F. Kennedy Administration, Stanley Surrey, a Harvard law professor serving as the first Assistant Secretary of the Treasury for Tax Policy, proposed a worldwide no deferral system for the United States. Corporate America opposed such a system on the grounds of competitiveness — it would make US multinationals less competitive when compared to their foreign counterparts. In June 1961, Surrey drafted a memo to Treasury Secretary C. Douglas Dillon, providing recommendations in retreating from the worldwide no deferral position. Surrey proposed to: (1) limit the proposal’s scope as applied to non-tax-haven corporations; (2) limit the proposal’s application to tax haven corporations; and (3) limit the proposal’s scope for tax haven corporations so that it reaches only income diverted from the United States to the tax haven. The result, in 1962, was a compromise — the subpart F regime — in which foreign mobile or foreign passive income would be taxed at the full US corporate tax rate with no deferral. See Reuven S.

Avi-Yonah, Territoriality and the Original Intent of Subpart F, 155 Tax Notes 1581 (12 June 2017) (providing background on the Surrey memo as well as reproducing it).

In more recent times, Senator Ron Wyden (D-OR), who is the current chair of the Senate Finance Committee, proposed a worldwide no deferral system in 2010 and again in 2011 as part of bipartisan tax reform bills with Senators Judd Gregg (R-NH) and Dan Coates (R-IN). In each bill, Senator Wyden coupled the worldwide no deferral system with a US corporate tax rate of 24%. The 24% rate was significant as it was an 11% age point reduction from the then top corporate tax rate of 35%. In addition, it was slightly below the 25% average of the non-US OECD countries. See Scott A. Hodge, Countdown to #1: 2011 Marks 20th Year That US Corporate Tax Rate in Higher than OECD Average, Tax Foundation Fiscal Fact No. 261 (9 March 2011).

As part of the Tax Cuts and Jobs Act (TCJA), Congress enacted a new US international tax system — one that was a hybrid territorial / worldwide system. In fact, the new system, specifically Global Intangible Low-Taxed Income or GILTI, could be viewed as moving the United States closer to a worldwide no deferral system coupled with a new low corporate tax rate of 21%. Recently, Martin Sullivan, an economist who writes regularly for Tax Notes, published an article critical of many of President Biden’s business tax proposals, such as a 28% corporate tax rate, a doubling of the effective tax rate on GILTI and a 15% minimum tax on book income. Sullivan noted that the Biden business tax proposals could be replaced on a tax neutral basis with a worldwide no deferral system coupled with a 24% corporate tax. Martin A. Sullivan, Biden’s Incoherent Corporate Tax Policy, 170 Tax Notes 9 (4 January 2021).

Interestingly, Sullivan made no mention of Senator Wyden’s proposals from 2010 and 2011 — worldwide no deferral at a 24% corporate tax. And importantly, Senator Wyden is in a leadership position as chair of the Senate Finance Committee to advance any proposals that he and his staff develop.

Corporate America may be ready for a worldwide no deferral system but with one caveat. The corporate tax rate has to be low — probably somewhere in the teens. In late 2017, as Republican tax staffers were putting the final touches on a new US international tax system, representatives from one of the largest US multinationals met with the staffers on the second floor of the Senate Dirksen Office Building in a small room adjacent to the front office of the Senate Finance Committee. The room only held about 12 people and was notable for the framed document on one of its walls of Alger Hiss’s testimony to the Senate Finance Committee. The representatives of the US multinational sat on one side of the table with the Hiss framed document behind them and the Vice-President of Tax sitting in the middle and the Republican tax staffers sitting on the other side.

The Vice-President of Tax led much of the discussion with the staffers and then made a surprising comment. “We could go for a worldwide no deferral system if the corporate tax rate were 15%. Just tax it all, with no deferral of foreign income, at a flat 15 % rate. As you know, President Trump wanted a 15% corporate tax rate.”

One of the staffers responded, “That’s interesting that you say that. The Treasury Secretary [Mnuchin] is actually a supporter of a worldwide no deferral system. And, of course, many tax scholars believe that such a system would be more efficient and equitable than either the current system or a territorial system. Would Corporate America be on board with such a system?”

“I think so. We certainly would,” replied the Vice-President of Tax.

“What if the rate were higher than 15%?” asked the staffer. “Would you still support such a system at say 20%? As you may recall, Senator Wyden had a worldwide no deferral system in his tax plan but the rate was 24%.”

“I don’t know if we would support such a system at 20%. But at 15% we certainly would. If it were a little higher, I think so. I don’t know where our break point would be.”

“I’m thinking – maybe the rate has to be somewhere in the teens — high teens?” inquired the staffer.

“That might be right.”


Christopher H. Hanna joined Baker McKenzie as Counsel in January 2019. He is the Alan D. Feld Endowed Professor of Law and the Altshuler Distinguished Teaching Professor at Southern Methodist University. Professor Hanna has been a visiting professor at the University of Texas School of Law, the University of Florida College of Law, the University of Tokyo School of Law and a visiting scholar at the Harvard Law School and the Japanese Ministry of Finance. In 1998, Professor Hanna served as a consultant in residence to the Organisation for Economic Co-operation and Development (OECD) in Paris. From June 2000 until April 2001, he assisted the US Joint Committee on Taxation in its complexity study of the US tax system and, from May 2002 until February 2003, he assisted the Joint Committee in its study of Enron, and upon completion of the study, continued to serve as a consultant to the Joint Committee on tax legislation. From May 2011 until December 31, 2018, he served as Senior Policy Advisor for Tax Reform (Republican staff) to the United States Senate Committee on Finance, working extensively on the Tax Cuts and Jobs Act of 2017.