Document Type

Article

Publication Date

1997

Abstract

The Sixteenth Amendment took effect on February 25, 1913, permitting Congress to tax income "from whatever source derived,"' and on October 3rd of that year, Congress approved a tax on the net income of individuals and corporations.2 The United States regime for taxing international income took shape soon thereafter, during the decade 1919-1928. In the Revenue Act of 1918, the United States enacted, for the first time anywhere in the world, a credit against U.S. income for taxes paid by a U.S. citizen or resident to any foreign government on income earned outside the United States.' The Revenue Act of 1921, the first major tax enactment following World War I, introduced a limitation on this foreign tax credit (FTC) to ensure that a taxpayer's total foreign tax credits could not exceed the amount of the U.S. tax liability on the taxpayer's foreign source income.4 While details of the mining the foreign tax credit limitation has varied from time to time, these two provisions still constitute the linchpin of U.S. law taxing income earned abroad by U.S. citizens and residents.

A few years later, in 1928, the League of Nations issued draft model bilateral income tax treaties for the reciprocal relief of double taxation of international income.5 Today, the League of Nations model still serves as the basis for the model income tax treaties of the Organization for Economic Cooperation and Development (OECD), the United Nations, and the United States.6 Although treaty articles have become more complex, commentaries more detailed, and some apparent loopholes have been closed, almost all the major industrial nations-the members of the OECD-have bilateral tax treaties with one another based on the 1928 League of Nations model.7 Indeed, the fundamental structure for international taxation of income announced nearly seven decades ago in the 1928 League of Nations Model Treaty forms the common basis for more than twelve hundred bilateral tax treaties now in force throughout the world.8

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