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Rethinking Foreign Tax Creditability

Shaviro, Daniel N.


International tax policy experts often mistakenly conflate two distinct margins: (1) the overall tax burden on outbound investment, and (2) the marginal reimbursement rate (MRR) for foreign taxes paid, which is 100 percent under a foreign tax credit system, but equals the marginal tax rate for foreign source income under an explicit or implicit deductibility system (such as exemption). From a unilateral national welfare standpoint, whatever the right answer at margin (1), deductibility is clearly optimal, and creditability dangerously over-generous, at margin (2).


Shaviro, Daniel N. (2010), Rethinking Foreign Tax Creditability, National Tax Journal, 63:4, pp. 709-21

DOI: dx.doi.org/10.17310/ntj.2010.4.06