The equity argument is discussed in detail in Kirsch, supra note 2 and Renee Judith Sobel, United States Taxation
of Its Citizens Abroad: Incentive or Equity, 38 VAND.
Article VI(1) limited United States source taxation of portfolio dividends to 15 per cent and limited United States taxation
of non-portfolio dividends (in relation to holdings of 95 per cent or more) to five per cent.
However, an exception applies "to any amount that is income of a related foreign person with respect to which the related foreign person is exempt from United States taxation
on the amount owed pursuant to a treaty obligation of the United States," except for interest.
To settle this dispute, GATT established a Panel to examine the effects of DISCs on United States taxation. (146) The GATT Panel concluded its study by stating that this lack of taxation on DISCs was not a mere deferral on income, but instead constituted "remissions or exemptions." (147) In reaching its conclusion, the Panel looked to the fact that the United States did not charge interest on the deferred income, (148) and also to the fact that the United States could not state when the deferred 42.5% profit would ever be subjected to income tax.
(164) Because foreign trade income was treated as foreign source income not effectively connected to the parent corporation, it was not subjected to United States taxation. (165)
(215) Codified in Section 114 of the Code, ETI is defined as "the gross income of the taxpayer attributable to foreign trading gross receipts (216) of the taxpayer." (217) Any income considered ETI is excluded from gross income, thus avoiding United States taxation. (218)
The Journal of International Taxation provides in-depth coverage of United States taxation
issues relating to international transactions as well as foreign taxation matters.
(74) Foreign individuals exempt from United States taxation under treaty threshold rules for personal services may be exempt from United States social security contribution requirements under these provisions in a few tax treaties.
(113) Under these treaties, residents of these countries are not subject to United States taxation on United States benefits they receive.