handbook-tb

Tax incentives: protecting the tax basecommentators have estimated the amount to be more than US$ 2 trillion.42 With such a large amount of money looking for productiveinvestments, very little investment in other developed or developingcountries will be made directly from the United States.Figure 1:Continuum of types of international tax regimesFull exclusion of active and passiveforeign source incomeFull exclusion of only active incomeTaxation of income that is nottaxed at a sufficient rateTerritorialtax systemsWorldwidetax systemsProvisions that facilitate baseerosion and profit shiftingDeferral of active business income(but not passive income)Full inclusion (no deferral onaggregate basis)But even without the availability of deferral of unrepatriatedincome, foreign investors could structure their investments in developingcountries through other countries (including tax havens) so asto minimize the potential tax liability associated with foreign investments.So, for example, a large percentage of foreign investments inAfrica from developed countries is routed through Mauritius, theNetherlands Antilles or Switzerland. To make matters worse, thesecountries have been successful in negotiating treaties with severalAfrican countries that have zero withholding rates on dividends andother types of distributions. As a result, many developing countrieswith extensive tax incentive regimes are not collecting revenue on the42Martin A. Sullivan, “Economic Analysis: Designing Anti-Base-ErosionRules,” (2013) Vol. 70, Tax Notes International, 375.487