November 8, 1985

Since early in this administration, we have been working with the States, the business community, and foreign governments in an effort to resolve issues related to State use of the worldwide unitary method of taxation. At this time I believe it appropriate for the Federal Government to state its support for the concept of legislation that would:

1. Effect a requirement that multinationals be taxed by States only on income derived from the territory of the United States (``the water's edge requirement''); and

2. Address the question of equitable taxation of foreign source dividends.

We hoped that by this time these principles would have been enacted by the various States that have unitary taxation. Since States have not universally accepted these principles, I am instructing the Secretary of the Treasury to initiate the process of crafting Federal legislation to incorporate these principles into law and to work with the Congress for passage and also, where appropriate, to enter into negotiations to amend double taxation agreements. I am also instructing the Secretary of the Treasury to pursue enactment of the domestic ``spreadsheet'' legislation, which has been previously proposed and which is designed to assist nonunitary States with tax enforcement respecting multinational corporations in order to promote full taxpayer disclosure and accountability. Further, I am instructing the Attorney General to ensure that the United States interests are represented in appropriate controversies and cases consistent with this approach.

 

Date
11/08/1985