Robert J. Peroni (Texas) presents Better Than Exemption (with J. Clifton Fleming, Jr. (BYU) & Stephen E. Shay (Ropes & Gray, Boston) at the University of Toronto today as part of the James Hausman Tax Law and Policy Workshop Series.  Here is the Conclusion:

In this article, we have discussed how various defects in the current U.S. international tax system—deferral, generous transfer pricing rules, defective income sourcing and expense allocation rules, generous cross-crediting, the export sales source rule, the effectively tax-exempt treatment of many types of foreign-source royalties, and the deduction of foreign losses against U.S. source income—can be combined to make the present U.S. system as generous as, and in some important respects more generous than, a properly designed exemption or territorial system for taxing foreign-source income of U.S. resident corporations. Because of this, the U.S. multinational corporate community largely has shifted its lobbying efforts away from support for an exemption or territorial system for foreign-source income and toward support for changes in the current incoherent international tax system that would further reduce the effective U.S. income tax rate on U.S. corporations’ foreign-source income. In our view, reform efforts in the international tax area should be directed toward comparing the strengths and weaknesses of a properly designed worldwide system with the strengths and weaknesses of a properly designed exemption system, and then proceeding to enact one of those two coherent systems for taxing the international income of U.S. persons. Based on our prior scholarly work in the international tax area, we believe that such an analysis will lead to a conclusion that a strengthened and properly designed worldwide system is superior to a properly designed territorial system and is definitely superior to our defective and incoherent current U.S. international tax system.