Statistics of Income Studies of International Income and Taxes

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Statistics of Income Studies of International Income and Taxes

Transcript Of Statistics of Income Studies of International Income and Taxes

Statistics of Income Studies of International Income and Taxes
by Melissa Costa and Nuria E. McGrath

T he United States generally taxes U.S. persons on their worldwide income and foreign persons on their U.S.-source income or the portion of their income that, by definition, is considered to be connected with a U.S. source. A U.S. person is any citizen or resident of the United States, a domestic partnership or corporation, or any estate or trust that is not considered foreign. Any person who does not fit the definition of a U.S. person is considered a foreign person.1
The Statistics of Income ( SOI ) Division of the IRS conducts 15 studies of international income and taxes. These studies provide data on the foreign activity of U.S. persons, as well as the U.S. activity of foreign persons. Table 1 lists the data sources for each of the studies mentioned in this article, as well as the current frequency of each study. Data for recent study years can be found on SOI’s Web pages (www.irs.gov/taxstats).
Foreign Activities of U.S. Persons
Corporate Foreign Tax Credit In 1918, Congress designed the corporate foreign tax credit provisions Federal tax law to prevent potential double taxation on the foreign-source income of U.S. corporations, as U.S. corporations are taxed on their worldwide income. Double taxation occurs when an item of income is taxed by both the United States, as a corporation’s country of residence, as well as by the country from which the income originates. The current provisions allow U.S. businesses to credit their foreign taxes paid, accrued, or deemed paid against their U.S. income tax liability. Currently, the credit is limited to the amount of U.S. tax a corporation would have otherwise paid on foreign-source taxable income. This limitation prevents taxpayers from using taxes paid at higher tax rates than the
Melissa Costa and Nuria E. McGrath are economists with the Special Studies Returns Analysis Section. This article was prepared under the direction of Chris Carson, Chief.

U.S. rate to offset their tax liability on other U.S. income. Taxes that exceed the limitation can be carried back for 1 year or carried forward for 10 years.
Corporations are required to calculate the credit separately for different income categories to prevent taxpayers from shifting nonbusiness, lower-taxed income (for example, investment income) overseas. Typically, these investments generate additional foreign income, but incur minimal tax liability, effectively increasing the limitation on the foreign tax credit. Segregation of this low-taxed, nonbusiness income from other foreign income limits U.S. corporations from arranging foreign investments at the expense of U.S. tax revenue.2
In recent years, both foreign-source taxable income and worldwide income have increased significantly among corporations that claimed a foreign tax credit. Between Tax Years 2002 and 2004, real foreign-source taxable income rose from $180 billion to $258 billion, or 43 percent, for corporations that claimed a foreign tax credit ( Figure A ).3 Much of the 61-percent increase in real foreign-source taxable income from Tax Year 2004 to 2005 for corporations that claimed a foreign tax credit can be attributed to the one-time repatriation tax holiday. This tax holiday allowed taxpayers to deduct 85 percent of qualifying dividends received from their controlled foreign corporations (CFCs) from their U.S. taxable income. Most claimed the tax holiday for 2005. The result of the holiday was a real increase in foreign-source taxable income for corporations that claimed a foreign tax credit, from $258 billion in Tax Year 2004 to $415 billion in Tax Year 2005. The one-time repatriation tax holiday also influenced worldwide taxable income as there was a 44-percent increase from Tax Year 2004 to 2005 for corporations that claimed a foreign tax credit. Conversely, since most corporations claimed the tax holiday for 2005, there was a mere 3.5-percent increase in real worldwide taxable income from Tax Year 2005 to 2006.

1 For more complete definitions of U.S. persons and foreign persons, see Internal Revenue Code Section 7701.

2 The American Jobs Creation Act of 2004 eliminated six income categories ( high withholding tax interest, financial services income, shipping income, dividends from a DISC or former DISC, certain distributions from a FSC or former FSC, taxable income attributable to foreign trade income). This provision took full effect in Tax Year 2007. The four remaining income categories are: general limitation income, passive income, income re-sourced by treaty, and Section 901 ( j ) income.

3 For comparability purposes, money amounts in this article are adjusted to 2006 constant dollars. The Consumer Price Index was the mechanism utilized in determining

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these adjustments. The word “real” indicates that money amounts have been adjusted.

International Tax Overview
Statistics of Income Bulletin | Summer 2010

Figure A
Foreign-Source Taxable Income of Corporations with a Foreign Tax Credit, Compared to Worldwide Taxable Income for All Corporations, for Selected Tax Years, 1986–2006
Trillions of dollars 1.4

1.2

1.0

0.8

0.6

0.4

0.2

0.0 1986 1988 1992 1994 1996 1998 2001 2002 2003 2004 2005 2006
Tax year

Worldwide taxable income

Foreign-source taxable income

Traditionally, corporations in the manufacturing industry and the finance, insurance, real estate, and rental and leasing industry have composed the two largest percentages of foreign-source taxable income for corporations that claimed a foreign tax credit. However, Figure B demonstrates that, for corporations in the manufacturing industry, which traditionally has composed the largest percentage, this percentage, although still the highest, has decreased during the past 20 years, from 74 percent of foreignsource taxable income in Tax Year 1986 to 60 percent of foreign-source taxable income in Tax Year 2006. During the past 20 years, corporations in the finance, insurance, real estate, and rental and leasing industry had the second largest proportion of foreign-source taxable income, from 16 percent in Tax Year 1986 to 13 percent in Tax Year 2006.
Six countries that traditionally account for large percentages of the foreign-source taxable income from corporations with a foreign tax credit are shown in Figure C. In Tax Year 2006, the largest percentage

(14.9 percent) of foreign-source taxable income was earned by corporations with operations in the United Kingdom, an increase from 12.6 in Tax Year 1986. Although the percentage of foreign-source taxable income for corporations with operations in Canada has steadily decreased over the years (a high of 16 percent in Tax Year 1986), it was still responsible for the second largest percentage in Tax Years 1996 and 2006, 10 percent and 9 percent respectively. The percentage from corporations with operations in Japan increased from 1.8 percent for Tax Year 1996 to 4.2 percent for Tax Year 2006.
Controlled Foreign Corporations For U.S. income tax purposes, a foreign corporation is “controlled” if U.S. shareholders own more than 50 percent of its outstanding voting stock, or more than 50 percent of the value of all its outstanding stock (directly, indirectly, or constructively) on any day during the foreign corporation’s tax year. To facilitate data collection, SOI defines a corporation as
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Figure B

Foreign-Source Taxable Income of Manufacturing and Finance Industry Corporations Compared to Total Foreign-Source Taxable Income, Selected Tax Years, 1986–2006

Billions of dollars 400
336 350

300

250
200 121
150 90
100
50 20
0 1986

194 128 39 1996

202 45
2006

Total foreign-source taxable income

Manufacturing

Finance, insurance, real estate, and rental and leasing

NOTE: For comparability, amounts have been adjusted for inflation to 2006 constant dollars.

Figure C

Percent of Foreign-Source Taxable Income, by Selected Country, for Selected Tax Years, 1986–2006

18.0% 16.0% 14.0% 12.0% 10.0%
8.0%

14.9% 13.2% 12.6%

16.0%

10.0% 9.0%

8.6%

8.2% 6.9%

6.0% 4.0% 2.0%

4.2% 1.8%

2.4% 2.2% 2.6%

2.2%

4.0% 3.7% 1.7%

0.0% United Kingdom

Canada

Japan

Switzerland

Germany

France

1986

1996

2006

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Statistics of Income Bulletin | Summer 2010

controlled only if one U.S. corporation satisfies either of the above 50-percent ownership requirements for a minimum of 30 consecutive days during the foreign corporation’s tax year.
In general, U.S. shareholders of a foreign corporation are not taxed on its foreign-source income until such income is repatriated. In 1962, Congress created the Subpart F provisions of the Internal Revenue Code that deny this deferral of current U.S. taxation on certain types of income earned by CFCs, including types of passive income that are highly mobile and can be easily transferred to low-tax jurisdictions, and payments between related parties, which can be used to shift income for tax advantage. CFC income subject to Subpart F rules is treated as if it were a dividend repatriated to U.S. shareholders and, thus, becomes subject to current U.S. tax.4
Figure D depicts selected items from the major industrial sectors reported by all controlled foreign corporations for Tax Years 2004 and 2006. In particular, real total receipts of all CFCs increased 19 percent from $4.05 trillion in 2004 to $4.82 trillion in 2006. This is consistent with an 11.5-percent increase in real total receipts of all active corporations

from Tax Year 2004 to 2006.5 Controlled foreign corporations engaged in goods production, which includes manufacturing and construction, accounted for the largest percentage of total receipts (43 percent) for 2004. However, the percentage decreased to 39 percent for Tax Year 2006. Corporations in this industry accounted for 25.4 percent of total Subpart F income in 2004 and 16.0 percent in 2006. Although corporations engaged in the finance, insurance, real estate, and rental and leasing industry accounted for a relatively small amount of total receipts (9.4 percent in 2004 and 10.7 percent in 2006), they accounted for the largest percentage of Subpart F income, having 28 percent of the total for Tax Year 2004 and 33 percent for Tax Year 2006. This outcome can be attributed to the fact that a large amount of this industry’s total receipts is made up of interest and dividend income.
Figure E compares selected items of income by CFC country of incorporation for Tax Years 2004 and 2006. Together, these eight countries accounted for 53 percent of the total receipts reported by CFCs for Tax Year 2004 and 50 percent of the total for Tax Year 2006. Of these, receipts

Figure D

Selected Items From Controlled Foreign Corporations, by Major Industrial Sector, for Tax Years 2004 and 2006
[Money amounts are in millions of dollars]

Major industrial sector

Number of foreign corporations

Total receipts

Dividends paid to controlling U.S.
corporation

Current earnings and profits (less deficit) before income taxes

Total Subpart F income

2004 (1)

2006 (2)

2004 (3)

2006 (4)

2004 (5)

2006 (6)

2004 (7)

2006 (8)

2004 (9)

2006 (10)

All industries Raw materials and energy production

74,676 2,744

78,249 2,502

4,051,051 135,795

4,819,871 231,754

49,774 8,976

61,556 11,514

386,550 35,408

509,528 64,077

Goods production

19,359

19,917 1,742,915 1,878,080

18,788

16,648 133,560 142,387

Distribution and transportation of goods

16,215

16,191 1,031,604 1,264,350

4,302

8,102

56,034

69,134

Information

3,740

4,551 101,569 109,640

4,595

3,062

8,616

9,210

Finance, insurance, real estate, and rental and leasing

8,743

9,828 379,981 513,378

3,541

6,099

61,761

94,022

Services

23,418

25,039 657,792 822,330

9,573

16,120

91,209 130,730

NOTES: For comparability, money amounts have been adjusted for inflation to 2006 constant dollars. Detail may not add to totals because of rounding.

51,008 995
12,698
9,291 724
14,414 12,879

60,028 1,372 9,621
8,630 961
19,868 19,576

4 Currently, a U.S. shareholder of a CFC may be required to include in gross income the shareholder’s ratable share of the CFCs: ( 1 ) subpart F income; ( 2 ) increase in earnings invested in U.S. property; ( 3 ) previously excluded subpart F income withdrawn from “qualified investments” in less developed countries and in “foreign base company” shipping operations; ( 4 ) previously excluded export trade income withdrawn from investment in export trade assets; and ( 5 ) factoring income (income derived from the acquisition of a trade or service receivable).

5 For more information on total receipts of all active corporations, see the Corporation Source Book, Publication 1053.

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Figure E

Selected Items From Controlled Foreign Corporations, by Selected Country, for Tax Years 2004 and 2006
[Money amounts are in millions of dollars]

Selected country

Number of foreign corporations

Total receipts

Dividends paid to controlling U.S.
corporation

Current earnings and profits (less deficit) before income taxes

Total Subpart F income

2004 (1)

2006 (2)

2004 (3)

2006 (4)

2004 (5)

2006 (6)

2004 (7)

2006 (8)

2004 (9)

2006 (10)

All countries

74,676

78,249 4,051,051 4,819,871

Mexico

4,618

4,701 163,684 203,605

Canada

8,227

8,688 564,303 644,482

United Kingdom

6,559

6,935 449,491 580,653

France

3,857

3,381 163,317 140,198

Germany

4,121

4,160 239,017 225,492

Netherlands

3,151

3,123 307,759 305,678

China

2,264

3,426

51,354

82,098

Japan

2,265

2,554 212,688 211,533

NOTE: For comparability, money amounts have been adjusted for inflation to 2006 constant dollars.

49,774
807 4,706 14,364 1,216
846 2,696
617 1,375

61,556
2,010 3,510 11,404
950 1,608 5,901
488 1,616

386,550
13,094 43,397 40,077 10,034
8,865 44,478
4,626 16,121

509,528
19,073 42,247 47,747 10,308 14,042 36,779
6,093 15,476

51,008
401 4,825 4,340
899 1,085 6,322
145 2,334

60,028
491 8,244 2,284 1,168 1,572 4,304
307 1,866

from corporations in France, Germany, the Netherlands, and Japan experienced an overall decrease of real total receipts between 2004 and 2006. Conversely, those incorporated in Canada, the United Kingdom, China, and Mexico realized an overall increase in real total receipts.
Foreign Partnerships Controlled by U.S. Partners A controlled foreign partnership is a partnership in which five or fewer U.S. persons each own a 10 percent or greater interest and whose combined interest in the partnership exceeds 50 percent. U.S. persons with an interest in a controlled foreign partnership must report to the IRS income and balance sheet items of the partnership as well as certain transactions between U.S. partners and the partnership.
U.S. corporations or partnerships account for the majority of U.S. persons with control of foreign partnerships. For Tax Tear 2004, U.S. corporations reported 4,647 controlled foreign partnerships with $1.3 trillion in assets and $418 billion in total receipts. Corporation-owned partnerships in Luxembourg earned almost one-fifth of the total receipts; followed by Canada (14.6 percent) and the United Kingdom (10.2 percent). Moreover, U.S. partnerships reported 1,990 controlled foreign partnerships with $186 billion in assets and $36 billion in total receipts for Tax Year 2004. Partnerships in France, the Cayman Islands, and Germany had the largest

portion of total receipts for this group (15.5, 15.4 and 13.5 percent, respectively).
The One-Time Received Dividend Deduction Congress created the one-time dividend received deduction in the Homeland Investment Act, incorporated into the American Jobs Creation Act of 2004, to encourage U.S. corporations to repatriate their foreign earnings and place them in investments that would promote U.S. job growth. The provision allowed a one-time deduction from their U.S. taxable incomes of 85 percent of the extraordinary dividends received from their CFCs, subject to certain limitations, provided that the repatriated earnings were used to fund allowable domestic investments.6 Allowing the 85-percent deduction lowered the effective tax rate on qualifying dividends for corporations taxed at the highest rate from 35 percent to 5.25 percent.
From Tax Year 2004 to 2006, 843 corporations repatriated almost $362 billion. Of that, $312 billion qualified for the deduction, creating a total deduction of $265 billion. Corporations in the manufacturing industry accounted for just more than half the total corporations, but 81 percent of the total qualifying dividends ( Figure F ). Corporations in the pharmaceutical and medicine manufacturing industry brought home roughly 29 percent of the repatriated dividends. Another 19 percent was brought home by

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6 For more information on the provisions of this deduction, see Internal Revenue Code section 965 and Notice 2005–20, Notice 2005–35, and Notice 2005–64.

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Statistics of Income Bulletin | Summer 2010

Figure F

Repatriated Dividends: Selected Items, by Selected Major and Minor Industry of Parent Corporation, Tax Years 2004–2006
[Money amounts are in billions of dollars]

Selected industry

Number (1)

Returns

Percent of total
(2)

Cash dividends

Amount

Percent of total

(3)

(4)

Qualifying dividends

Amount

Percent of total

(5)

(6)

All industries
Manufacturing Computer and electronic equipment Pharmaceutical and medicine
Wholesale and retail trade Information Finance, insurance, real estate, and rental and leasing All other industries

843

100.0

361.9

100.0

312.3

100.0

465

55.2

289.4

80.0

252.2

80.8

85

10.1

68.6

18.9

57.5

18.4

29

3.4

105.5

29.2

98.8

31.6

133

15.8

14.7

4.1

12.9

4.1

49

5.8

14.6

4.0

13.2

4.2

49

5.8

13.3

3.7

11.9

3.8

147

17.4

29.8

8.2

22.1

7.1

corporations in the computer and electronic equipment industry. Most corporations, 86 percent, reported the deduction for Tax Year 2005, while 7.7 percent reported it for Tax Year 2004, and the remaining 6.8 percent reported it for Tax Year 2006.
Figure G shows that CFCs incorporated in Europe were responsible for 62 percent of the total repatriated cash dividends. CFCs incorporated in the Western Hemisphere, excluding Canada and Latin America, accounted for 11.4 percent, as this country group includes many small Caribbean nations known to have favorable tax policies. Figure H displays the percentage of CFCs and the percentage of cash dividends repatriated, distributed by country of incorporation for the seven countries with the largest percentages of cash dividends. The Netherlands tops the list, with about 6 percent of the CFCs, but more than 26 percent of the cash dividends.
Interest Charge Domestic International Sales Corporations In 1984, Congress created Interest Charge Domestic International Sales Corporations (IC–DISCs). To elect IC–DISC status, a domestic corporation must be able to classify at least 95 percent of its assets as “qualified export assets” and must have “qualified export receipts” that constitute at least 95 percent of its gross receipts. Qualified export assets consist of property related to exporting. Qualified export receipts are gross receipts from the sale of qualified export assets and other types of income related to exporting. The benefit of an

Figure G
Cash Dividends from Controlled Foreign Corporations, by Geographic Area of Incorporation, Tax Years 2004–2006

Asia 7.7%

All other 4.3%

Canada 7.1%

Latin America
7.6%

Other Western Hemisphere 11.4%

E
IC–DISC is that it allows companies a tax deferral on some of their export related income. While a small portion of the income of an IC–DISC is deemed distributed to the shareholder, the rest is not taxed until it is actually distributed, although the interest accrued on the tax deferred income must be paid annually.
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Figure H
Cash Dividends from Controlled Foreign Corporations, Tax Years 2004–2006
Percent of total 30
26.1 25

20

15
10 6.0
5

9.9 3.7

0 Netherlands Switzerland

9.7 1.9

7.6 2.6

10.0 7.1

7.0 2.0

Bermuda

Ireland

Canada Luxembourg

Country of incorporation

Percent of CFCs

Percent of cash dividends

7.8 6.2
United Kingdom

5.5 2.4
Cayman Islands

Now that exporters can no longer claim the benefits of Foreign Sales Corporations ( FSCs) or the Extraterritorial Income Exclusion, IC–DISC activity is on the rise.7 After falling from 1,185 for Tax Year 1987 to 727 for Tax Year 2000, the total number of IC–DISCs filed rose to 1,209 for Tax Year 2006 ( Figure I ). Likewise, taxable income of IC–DISCs, in constant 2006 dollars, fell from $458 million for Tax Year 1987 to $382 million for Tax Year 2000, a drop of 16.7 percent, but jumped more than 350% to $1.7 billion for Tax Year 2006. However, tax deferred income reported to shareholders dropped from about $827 million for Tax Year 2000 to $520 million for Tax Year 2006, a decrease of 37 percent.

Figure I

Selected Items from IC-DISC Returns, Selected Tax Years 1987–2006
[Money amounts are in thousands of dollars]

Tax Number Taxable Tax deferred year of returns income income reported
to shareholders

(1)

(2)

(3)

1987 1991 1996 2000 2006

1,185 980 773 727
1,209

458,090 329,102 412,247 381,739 1,729,897

474,402 784,162 689,521 827,374 519,557

NOTE: For comparability, money amounts have been adjusted for inflation to 2006 constant dollars.

7 Congress enacted a repeal of the FSC in 2000, when it introduced the Extraterritorial Income Exclusion. That was repealed in 2004. However, the provisions of both repeals permitted exceptions for corporations with binding contracts. Congress subsequently removed these exceptions for all tax years beginning after May 17, 2006.
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Individual Foreign Tax Credit and Foreign Earned Income Currently, qualifying U.S. individuals living abroad can exclude up to a certain amount of foreign income ($91,500 for 2010, indexed to inflation in subsequent years) earned while performing a service ( primarily wages, salaries, commissions, and fees) and exclude or deduct a certain amount of excess foreign housing costs when calculating their U.S. income tax liability. Foreign income earned by individuals living abroad rose substantially between Tax Years 2001 and 2006. For 2001, about 295,000 taxpayers reported $27.4 billion of foreign earned income (in constant 2006 dollars), while for 2006, about 335,000 taxpayers reported almost $37 billion, an increase of about 18 percent.
U.S. individuals living in the United Kingdom historically have accounted for the largest percentages of the reported total foreign earned income.

Of the total number of U.S. individuals reporting foreign earned income for 2006, 8.4 percent lived in the United Kingdom and earned 17 percent of the total foreign earned income reported. One noticeable shift, however, is the growth of foreign income earned in Iraq. While no taxpayers listed Iraq as a tax home for 2001, 18,325 did so for 2006, reporting a total of $1.8 billion of foreign earned income ( Figure J ). Other countries with large increases in foreign earned income include China, with a real increase of 110.2 percent, and the United Arab Emirates, with a real increase of 80.2 percent. However, foreign earned income from taxpayers with a tax home in China or the United Arab Emirates accounts for less than 7 percent of the total.
U.S. taxpayers, regardless of their residency, can also claim a foreign tax credit for foreign taxes paid, as long as the taxes were not paid on income

Figure J
Foreign Earned Income, by Selected Countries, 2001 and 2006
Billions of dollars 7

6

5

4

3

2

1

0 United Kingdom

Canada

Japan Country

2001

2006

[1] No data was reported for Iraq in 2001.
NOTE: For comparability, money amounts adjusted for inflation to 2006 constant dollars.

Hong Kong

Iraq [1]
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excluded under the foreign earned income provisions described above. Also, like the corporate foreign tax credit, this credit is subject to a limitation computed separately for different categories of income.
In recent years, foreign-source income for individuals has outpaced the growth of worldwide income. Inflation-adjusted foreign-source gross income reported by all U.S. individuals on Form 1116, used to compute the foreign tax credit, rose from $64 billion for 2001 to $120 billion for 2006 (an 86.6 percent increase), while real worldwide income grew just 14.3 percent during the same period. As expected, the United Kingdom and Canada together accounted for the largest percentage of foreign-source gross income for 2006, 10 percent and 8 percent, respectively. The amount of real foreign tax credit claimed by individuals, not surprisingly, also grew substantially. For 2006, U.S individual taxpayers paid $13.9 billion in foreign taxes and were able to credit nearly $11.0 billion of that amount against their U.S. tax liability, a real increase of 53.9 percent from the amount claimed for Tax Year 2001. Nevertheless, this credit remained a small fraction, just 1 percent, of the total U.S. income tax before credits for 2006.
International Boycotts The international boycott provisions require U.S. persons to report their business operations in countries known to participate in a boycott of a foreign country not sanctioned by the U.S. The U.S. Department of Treasury maintains a list, published quarterly, of those countries known to participate in unsanctioned boycotts. Most of these operations are in countries known to participate in the Arab League’s boycott of Israel. Taxpayers must also report certain types of requests to participate in an international boycott, any agreements to comply with those requests, and any tax consequences. Per Internal Revenue Code 999(a), taxpayers report these operations on Form 5713, International Boycott Report, filed annually with their Federal income tax returns. Those taxpayers who participate in such boycotts lose a portion of

certain tax benefits related to the boycott income. These benefits include the foreign tax credit, the benefits for FSCs, the exclusion of extraterritorial income, and the tax-deferral available to U.S. shareholders of CFCs or IC–DISCs.8, 9
From Calendar Years 1997 to 2006, as shown in Figure K, there was a significant decrease in boycott participation. During this period, the number of persons receiving requests to participate in boycotts decreased from 193 in 1997 to 112 in 2006. The most significant decrease came from persons receiving requests from the United Arab Emirates, with 109 in 1997 and 58 in 2006. In addition, the number of boycott requests decreased from 6,055 to 2,270, more than 60 percent, during the same period, with the most significant decrease also coming from the United Arab Emirates. The number of agreements to participate in, or cooperate with, an international boycott decreased 70 percent, from 1,438 in 1997 to 421 in 2006. The number of boycott agreements with the United Arab Emirates decreased more than 80 percent during this same period. The removal of Bahrain, Iraq, and Oman from the Treasury list between 2004 and 2006 also contributed to the decline of received boycott requests and participation.
Foreign Persons with U.S. Income
Foreign-Controlled Domestic Corporations During the past few decades, the portion of total receipts earned by all U.S. corporations attributable to domestic corporations controlled by foreign persons has increased from about 2 percent for Tax Year 1971 to 14 percent for Tax Year 2006 (Figure L). (For SOI purposes, a company incorporated in the United States is foreign controlled if one foreign person owns 50 percent or more of the corporation’s voting stock or 50 percent or more of the value of all of the corporation’s stock at any time during the accounting period.) The percent of U.S corporations controlled by foreign persons, however, has remained relatively constant; around 1 percent since Tax Year 1990. For Tax Year 2006, 63,951 domestic corporations controlled by foreign persons reported a total of $9.7

8 The extraterritorial income exclusion allowed businesses to deduct qualifying foreign trade income from their U.S. gross incomes. Qualifying foreign trade income was defined as the greatest of the following income sources, that, when excluded, would reduce taxable income by (1) 1.2 percent of foreign trading gross receipts, or (2) 15 percent of foreign trade income, or (3) 30 percent of foreign sales and leasing income.

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9 On May 21, 2006, Congress repealed all remaining provisions of the FSC and extraterritorial income exclusion.

International Tax Overview
Statistics of Income Bulletin | Summer 2010

Figure K

Number of Persons Receiving International Boycott Requests and Agreeing to Participate for Selected Calendar Years, 1997–2006

Country

Number of persons receiving requests [1]

Number of boycott requests received [1]

Number of boycott agreements [1]

All countries
Treasury-listed countries
Bahrain Iraq Kuwait Lebanon Libya Oman Qatar Saudi Arabia Syria United Arab Emirates Yemen, Republic of Non-listed countries

1997 (1)
193
180 44
N/A 68 47 27 47 44 56 57
109 20 60

2002 (2)
116
107 26 10 39 30 16 26 25 38 32 65 16 24

2006 (3)
112
90 N/A N/A
31 29 30 N/A 22 23 19 58 14 54

1997 (4)
6,055
5,435 536 N/A 457 237 289 795 505 876 386
1,145 183 620

2002 (5)
3,421
2,894 101 15 242 140 102 138 528 295 566 628 139 527

2006 (6)
2,270
1,866 N/A N/A 226 98 210 N/A 213 193 201 464 261 404

1997 (7)
1,438
1,396 37
N/A 162 109 141 118
71 290
23 408
37 42

2002 (8)
489
480 3 3
77 49 19
9 43 72 25 154 26
9

2006 (9)
421
381 N/A N/A
48 31 25 N/A
4 107
65 81 20 40

[1] Data in these columns do not add to totals because persons could have received requests from, or made agreements with, more than one country.

Figure L
Total Receipts of Domestic Corporations Controlled by Foreign Persons and Total Receipts of All Corporations for Selected Tax Years, 1971–2006
Trillions of dollars 35
30

25 20 15

10
5
0 1971

1990

1997 Tax year 2000

2003

2006

All corporations

Domestic corporations controlled by foreign persons

NOTE: For comparability, money amounts have been adjusted for inflation to 2006 constant dollars.
181
IncomeCorporationsPersonsReceiptsTax Credit