American Bar Association Tax Section

Foreign Lawyers Forum

“Planning in the Territorial Exemption Systems in the G8”

- Theoretical pros and cons of territorial system—prior session

- Relevance of planning opportunities to evaluation of system

- Background issues:

• Absent other changes, is a territorial system inherently exposed to offshore tax base erosion (and what does this say about where to locate)
• “Arm’s length” transfer pricing system (pricing based on values of (mobile) functions, often measured by tested affiliate’s margins) is the foundation for locational tax planning that tends to remove tax base from modest and high taxed jurisdictions.
• Will the system be further primed by CTB possibilities and/or by look-through rules covering payments deductible under local laws, with no subject to tax threshold (so no CFC pickup)?
• Will the onshore regime also be primed for base erosion by generous rules on deductibility, as seems common in territorial regimes?