How It Works
- American Corporation sells $10 billion of its products to customers around the world.
- $6 billion of those sales (60% of total sales) are made to U.S. customers.
- American’s worldwide profit is $1 billion, therefore, $600 million of that profit would be taxed as U.S. profits.
- Where the company claims it earns its income would be irrelevant. U.S. taxable income would be determined solely by the percent of that company’s worldwide sales made to U.S. customers. Foreign MNEs would be taxed the same way on U.S. income, leveling the playing field between domestic firms and foreign and domestic MNEs.