James R. Hines, Jr. (Michigan) has published Reconsidering the Taxation of Foreign Income, 62 Tax L. Rev. 269 (2009).  Here is the abstract:

This paper evaluates the efficiency and distributional consequences of taxing foreign income, noting that home country taxation, as practiced by countries such as the United States, distorts the ownership of business assets, thereby reducing productivity and aggregate income, without advancing the distributional goals underlying most of the tax system. The alternative of exempting foreign income from domestic taxation would significantly influence patterns of capital ownership. In order to exempt foreign income from taxation in a way that does not distort capital ownership it is necessary to avoid making domestic expense deductions contingent on the allocation of investment and other income-producing activity between domestic and foreign locations. Thus it is not only the taxation of active foreign income, but also the expense allocation rules, that create the inefficient ownership incentives in the current U.S. tax system.

The efficiency and fairness arguments typically advanced to justify taxing foreign income also imply that countries should subject foreign sales to domestic sales taxation, foreign value added to domestic value added taxation, foreign property to domestic property taxation, and similarly subject any and all foreign activities to the corresponding domestic taxes. In practice, however, no country attempts to apply its sales, value added, property, and all other non-income taxes to the foreign activities of its resident companies, reflecting the obvious associated economic distortions and lack of any clear justification for such extraterritorial taxation. Since the efficiency and fairness considerations are the same whether taxes are imposed on income or they are imposed on sales or value added, it is difficult to understand the rationale for taxing foreign income but not taxing foreign sales or value added.

The Tax Law Review published two commentaries in response:

• Mitchell A. Kane (NYU), Considering "Reconsidering the Taxation of Foreign Income," 62 Tax L. Rev. 299 (2009):

In his article Reconsidering the Taxation of Foreign Income, James Hines further develops his position, first presented in earlier work co-authored with Mihir Desai, that the design of an efficient tax regime for the income of multinational corporations must accord paramount importance to considerations of capital ownership (as opposed to capital location, as has been the norm in much prior analysis).  For purposes of this Commentary I focus on the discrete policy implications, particularly for the United States, that Hines suggests follow from his analysis. As I read the article there are two central policy implications. First, the United States ought to abandon its decades-long attempt to tax the foreign income of its resident multinationals. Rather, it should adopt a territorial regime under which foreign source income of U.S. multinationals is exempt from U.S. taxation. Second, in implementing an exemption system, the United States should not disallow general interest expenses allocated to foreign source income. Rather, the United States should abandon interest allocation altogether and permit U.S. multinationals to deduct all general interest expense at the U.S. rate. While Hines has argued for the superiority of an exemption system in prior work, his arguments regarding interest expense allocation are new. His claim, however, is that the two policy prescriptions are not separable. Any approach other than a full deduction for interest expense at the U.S rate, Hines argues, is tantamount to a tax on foreign income, and thus inconsistent with the mandate for an exemption system. Hines' suggested treatment of interest expense would represent a radical departure from the current U.S. approach (which generally disfavors interest expense allocated to foreign source income through the operation of the foreign tax credit limitation. In this Commentary I consider Hines' arguments for exemption first and then turn to the new arguments regarding interest expense allocation.

• Stephen E. Shay (Deputy Assistant Secretary for International Tax Affairs in the U.S. Treasury Department), Ownership Neutrality and Practical Complications, 62 Tax L. Rev. 317 (2009):

Hines, and his frequent co-author Mihir Desai, have by criticizing traditional neutrality standards and introducing ownership neutrality to the debate, advanced the discussion of neutrality norms in relation to international income. Nonetheless, Hines has not surmounted continued questions regarding the explanatory power of ownership efficiency and does not directly address whether developments in the marketplace call into question looking to ownership neutrality as a policy guide. In this context, failing to allocate deductions to foreign income seems particularly risky. Moreover, the complications of transfer pricing and size of income shifting even under today's deferral regime suggest that these are considerations that cannot be ignored in prescribing exemption of foreign income.