The Government Accountability Office on Friday released Study Countries That Exempt Foreign-Source Income Face Compliance Risks and Burdens Similar to Those in the United States (GAO-09-934):

A debate is underway about how the United States should tax foreign-source, corporate income. Currently, the United States allows domestic corporations to defer tax on the earnings of their foreign subsidiaries and also gives credits for foreign taxes paid, while most other developed countries exempt the active earnings of their multinational corporations’ foreign subsidiaries from domestic tax. The debate has focused on economic issues with little attention to tax administration. GAO was asked to describe for a group of study countries with exemption systems: (1) the rules for exempting foreign-source income, and (2) the compliance risk and taxpayer compliance burden, such as recordkeeping, of the rules. The study countries, selected to provide a range of exemption systems, are Australia, Canada, France, Germany, and the Netherlands. For these countries GAO reviewed documents; interviewed government officials, academic experts, and business representatives; and compared tax policies, compliance activities and taxpayer reporting requirements.

Because changing the United States system of taxing foreign-source income is a policy decision, GAO is not making recommendations related to tax reform. GAO does recommend that the Secretary of Treasury annually report, using already available data, the revenue generated by taxing foreign-source corporate income.

Senate Finance Committee press release, Baucus, Grassley Support Recommendation For Reports on Taxable Foreign‐Source Income:

Senate Finance Committee Chairman Max Baucus (D‐Mont) and Ranking Member Chuck Grassley (R‐Iowa) commented today on a new Government Accountability Office (GAO) study that found several European countries, Canada and Australia confront similar risks and challenges to the United States with regard to their corporate international tax policies. The Finance leaders commissioned the study in anticipation of tax reform and in consideration of the worldwide and territorial approaches to taxation. Worldwide and territorial taxation are two general approaches to taxing foreign‐source corporate income that differ in how corporate income is taxed in the corporation’s home country. The study showed similar compliance risks and taxpayer burdens exist under both the worldwide and territorial approaches, including transfer pricing issues, anti‐avoidance rules, foreign tax credits and domestic expense deductions.