The United States has the power to tax the income of its citizens and domestic corporations even though that income is earned in a foreign country. When it is recognized that income derived abroad generally incurs tax liabilities to foreign governments as well, it immediately becomes apparent that the American businessman doing business abroad may, absent some sort of relief provisions, easily be the victim of double taxation. Relief has taken a number of forms. Income derived by American corporations in certain geographical areas is under proper circumstances wholly or partly exempt from federal income taxation. Thus, citizens and corporations which derive the bulk of their income from sources within a possession of the United States enjoy complete exemption, except as to income earned in this country. China Trade Act corporations have long been accorded similar treatment. Since 1942, Western Hemisphere Trade corporations have been exempt from the corporate surtax, now 14%. Within recent years, multiple taxation treaties with individual foreign governments have served to reduce the burden in some areas. In general, however, relief is obtained in the form of a tax credit for income taxes paid to other countries. In the case of the individual American citizen, no tax is imposed on income earned while a bona fide resident abroad. As might be expected, such heterogeneous provisions have not resulted in complete, tax equality. In addition, amendments aimed to curb abuse have not always confined themselves to their target.
Donald D. Davis S.Ed.,
TAXATION-PROPOSED CHANGES IN THE TAX TREATMENT OF FOREIGN INCOME,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol48/iss8/10