Original document was submitted as an honors thesis requirement. Copyright is held by the author.

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One of the most current and highly debated issues facing the Obama Administration is: - the restructuring of the present corporate income tax system. More specifically, congress and the president’s administration are pressed with a decision as to whether to consider plans to reform the deferral of overseas income earned by US multinational corporations and ultimately move the US from a worldwide system of international taxation towards a territorial tax system. This paper highlights a current problem upon which the US taxes multinational corporations. Many in favor of a territorial tax argue that it is a much needed change to a system that has not seen significant amendment since the Tax Reform Act of 1986 and that the US adheres to a system designed when its own economy dominated the world. Additionally, supporters claim that a shake up to international tax system is necessary if US multinational companies are to compete in a global environment. They assert that if no drastic changes are made, US companies will suffer a competitive disadvantage.

In assessing whether this new territorial tax system is plausible this paper will highlight four main issues that face US multinational corporations, those being (1) Controlled Foreign Corporations (CFC) rules, (2) foreign tax credits (3) Transfer pricing and Accounting Principles Board Opinion 23 – Accounting for Income Taxes – Special Areas (APB 23). Moreover, this paper encompasses the pros and cons of this new territorial tax system proposal. Finally, this paper draws from the writer’s work experience and gives alternative considerations that can also be adopted for US multinationals.