Currently, we know that U.S. government employs the worldwide tax system to tax corporations and citizens on their worldwide income. While most developed countries use the territorial tax system to tax only the income within the countries’ borders. In order to avoid high overseas income tax, some U.S. corporations move their headquarters abroad, which obviously would cause decline of tax revenue in America. In my opinion, one way to stop this “flight of capital and tax base” is to pivot toward the territorial tax system.

In the first place, the worldwide tax system should be abandoned because it drives American business outside home country. Under worldwide tax system, U.S. corporations have to pay tax to U.S. government wherever they are in the world. Although there are some provisions to alleviate the double taxation, such as the foreign tax deduction and the foreign tax credit, it still reduce the earnings from investing in foreign country. Corporations have to consider their potential earnings before they decide to invest in a new market. Therefore, corporate inversion is not surprise to see. On August 6th, 2015, a fertilizer manufacturer, and Coca-Cola Enterprises, a drinks bottler, both said they would move their domiciles to Britain after concluding mergers with non-American firms. [1] On August 26th, 2014, Fast food chain Burger King announced its plan to change the headquarter to Canada and, potentially, save on corporate income taxes about $275 million. [2]

Furthermore, after turning into non-American company, its market in U.S. might have a minimal effect, but the whole company would be more profitable because of lower tax rate in foreign country. As a matter of fact, the tax revenue of U.S. government is significantly reduced by corporate inversion that is caused by the worldwide tax system.

The second point worth talking is that the worldwide