United States Taxation on Worldwide Income Essay examples
Ten years later, following the conclusion of the war, the tax was repealed. In 1894 Congress enacted a flat rate Federal income tax. The tax was ruled unconstitutional the following year by the Supreme Court due to its nature as a direct tax not apportioned to the population of each state (Terrell)
The 16th amendment, passed by Congress on July 2, 1909, and ratified February 3, 1913, removed this issue. The amendment allows the Federal government to tax income without regard to the population of each State (Terrell).
However, the notion of citizenship-based taxation remains part of U.S. law today. In contrast, majority of early international agreements taxed either residence or source of income, but not both (McKinnon 2012).
Under a worldwide approach to taxation, the home country considers all of the income of its multinational corporations as taxable, regardless of where that income is earned. To avoid double taxation, the home country allows multinational corporations to claim a foreign tax credit against domestic tax liability for taxes paid elsewhere (CBO).
Thus, based on the worldwide system of taxation, a corporation headquartered in the United States