The compliance cost of taxing foreign-source income: Its magnitude, determinants, and policy implications

Abstract

This paper uses survey evidence to estimate the compliance cost of the U.S. system of taxing foreign-source income. The evidence suggests that this cost is about 40 percent of the total tax-compliance cost of large U.S. corporations, which is disproportionately higher than the aggregate share of assets, sales, and employment that is abroad. It is also very high compared to the revenue raised by the United States from taxing foreign-source income, although this comparison must be qualified because arguably a principal purpose of this system is to protect U.S. revenues collected on domestic-source income. The disproportionate compliance cost of foreign-source income is not apparent in a survey of European-based multinational corporations.