Interjurisdictional Issues in the Design of a VAT

Posted: 1 Sep 2010

See all articles by Walter Hellerstein

Walter Hellerstein

University of Georgia School of Law

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS)

Date Written: August 31, 2010


This article considers the key interjurisdictional design issues that the United States would confront if it were to adopt a VAT at the national level, including issues that would arise at the subnational level in light of preexisting state retail sales taxes. The article first considers the economics of the basic choice between the destination and origin principles for the taxation of cross-border trade in goods and services. It concludes that there is a very strong case for the destination principle because it is more conducive to efficient production patterns and less vulnerable to transfer pricing difficulties. The article then considers the more controversial issues of implementation. There are relatively effective methods of assuring that cross-border trade in goods is taxed at destination (at least when there are true fiscal frontiers between countries). Assuring that the increasingly significant cross-border trade in intangible services is taxed at destination is considerably more challenging. The article reviews possible approaches to this problem in both the business-to-business and business-to-consumer contexts, taking account of the OECD’s current initiative to develop international guidelines for addressing them. The article also considers the additional problems that the United States will confront in light of its federal structure and the history of a robust retail sales tax regime at the state level. Various solutions to these problems are described, including forms of state-level VATs coordinated with or reinforced by action at the federal level.

Keywords: VAT

Suggested Citation

Hellerstein, Walter and Keen, Michael, Interjurisdictional Issues in the Design of a VAT (August 31, 2010). Tax Law Review, Vol. 63, No. 2, 2010. Available at SSRN:

Walter Hellerstein (Contact Author)

University of Georgia School of Law ( email )

209 Hirsch Hall
Athens, GA 30602
(706) 542-5175 (Phone)
(706) 542-5556 (Fax)

Michael Keen

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679


Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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