Question

2. The tax reform act of 2017 shifted the U.S. towards a territorial system of taxation. What does this imply for the U.S. government’s ability to tax the profits U.S. corporations make in foreign countries?

Answer 1

Tax reform act in US was a major phase change in tax sytem which introduced a territorial system of taxation. In 2017 US government introduced territorial tax under which if a company in US is earning from the country as well as earning overseas, only the profits earned in the country is taxed and the overseas earnings will not be taxed pertaining to certain conditions.

This is to prevent multiple layers of taxation a company can incur from international trades. This system can affect a company's investment activities in US since due to this system, the company can invest in countries where the tax slab is lower than US and cheap labour is available which can reduce the investment in the country. This law takes care of clearly defining sources of incomes and taxing the income/profit through sales of physical assets as well as intagibles or services like Information technology.