handbook-tb

Eric M. Zoltincome either when earned in their country or when it is transferredout of the country in the form of dividends or interest.Additionally, as discussed earlier, the tax consequences for foreigninvestors depend on their worldwide tax attributes, not just theirtax position in the country of investment. For those taxpayers whosecountries of residence have worldwide tax systems with credits forforeign taxes paid, tax consequences will vary greatly depending onthe availability of tax credits from taxes paid not only in the countrywhich provided the tax incentives, but also from taxes paid in otherforeign countries. For those taxpayers with substantial excess taxcredits, the lack of tax sparing provisions does not prevent the foreigninvestor from obtaining the benefits of tax incentives for investmentsin developed or developing countries.In sum, a strong argument can be made that the tax regimes ofdeveloped countries (even those with nominal worldwide tax systems)have little impact on the desirability or effectiveness of tax incentivesin developing countries. Indeed, under certain circumstances, thepotential availability of zero or low-taxed active income from foreignsources will often be very attractive to those tax directors in multinationalcorporations who seek to minimize the overall worldwidetax liability of the corporation. This results because tax directors caneffectively “blend” other types of foreign income that are subject totax rates above the tax rate of the country of residence with low-taxedincome from developing or other countries to reduce the tax liabilityin the investor’s home country. 43 While foreign investors will likelynot choose to invest in a particular company simply for the purpose ofgaining low-taxed active income, for many investors the availability ofzero or low-taxed income from countries using tax incentives will be apositive factor rather than a negative one.Interestingly, proposed changes to the tax regimes governingcross-border transactions of some developed countries may changethe conclusion that developed countries’ tax regimes have little impact43Edward D. Kleinbard, “Stateless Income,” (2011) Vol. 11, Florida TaxReview, 699; Edward D. Kleinbard, “Stateless Income’s Challenge to Tax Policy,”(2012) Vol. 68, Tax Notes International, 499.488