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Why “foreign” subsidiaries of American companies should pay American income taxes; UF Law professor available for media comment

GAINESVILLE, Fla. – The $17 billion bond offering by Apple Inc. April 30 highlighted the ability of U.S. companies to defer paying taxes by keeping their money offshore in so-called “foreign” subsidiaries. Rather than repatriate the $102 billion it holds in its overseas subsidiaries, Apple has taken out loans to pay shareholders part of its cash reserves.

In a forthcoming article in the Boston College Law Review (“Jurisdiction to Tax Corporations”), University of Florida Law Professor Omri Marian proposes a new policy-perspective for international corporate taxation, questioning whether foreign subsidiaries of U.S. companies, such as many of Apple’s, should indeed be viewed as “foreign.” The paper can be downloaded at

“Apple’s strategy is perfectly legal,” Marian notes. “It simply highlights the U.S. tax code failure in treating companies incorporated offshore as ‘foreign’ for tax purposes, even though many of such companies, wholly owned by U.S. parents, do not exist except on a piece of paper in some tax haven jurisdiction.”

Marian suggests that the United States should adopt a functional approach to corporate taxation by defining corporations “domestic” for tax purposes using a two-pronged corporate tax-residence test: the place where the corporation’s securities are listed for public trading, or the place of the corporation’s central management and control.

Affirming that corporations are nothing more than imaginary entities, this approach asks what the policy purpose is for taxing corporations rather than becoming bogged down in the usual question of a “territorial system” or of “worldwide consolidation.”

Since we primarily care about the taxation of publicly traded corporations, Marian suggests making the public listing the test for residency of the parent, and to treat the subsidiaries managed by the parent as domestic. Under the approach, all “foreign” subsidiaries where the earnings are trapped will become domestic, and as such subject to tax in the United States. This will be an important first step toward a much necessary broadening of the U.S. corporate tax base, whether the U.S. keeps its global system of taxation, or adopts a territorial one.

Marian specializes in international taxation, comparative taxation and taxation of financial instruments. He joined the UF Law faculty in 2012 after leaving the firm of Sullivan & Cromwell LLP in New York.

Omri Marian, Assistant Professor of Law
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Published: May 6th, 2013

Category: News

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