How Foreign Income Is Taxed
Here's some discouraging news for companies interested in diversifying into international operations: Thanks to some financial disadvantages imposed by U.S. tax laws, it may be tough to compete on price and services against corporations headquartered in Europe, Japan, and Canada. According to a recent survey by Price Waterhouse, the United States' effective tax rate* on foreign income is, on average, a hefty 6% higher than that of competing countries. Combine that with the tax surcharges many foreign countries apply to funds earned in their countries, and overall tax rates may rise higher still -- making it clear that U.S. companies must aggressively plan to control international tax bills.
Parent Corporation Effective Tax Rate
Headquarters on Foreign Income
United States 35.2%
United Kingdom 29.3
Average, excluding U.S. 29.2
Source: "U.S. International Tax Policy for a Global Economy," Price Waterhouse, April 1991.
*The effective tax rate is measured as total federal income taxes paid to home and host countries as a percentage of pretax source-country earnings and profits.