International Tax Neutrality: Reconsiderations

Posted: 27 May 2013

See all articles by Fadi Shaheen

Fadi Shaheen

Rutgers, The State University of New Jersey - School of Law, Newark

Date Written: 2006


Tax policy in general and international income tax policy in particular has long been a subject of discussion and argument by tax philosophers, economists, and lawyers. Theories have often been introduced to support the establishment of new tax systems, to justify existing ones, or to call for changes. Economists introduced “economic efficiency” as a criterion for evaluating tax systems. At the international level, tax neutrality theories were introduced as criteria for achieving economic efficiency. Different tax neutrality theories supported different theoretical international income tax systems. Some theories called for compromise, jeopardizing coherence, and increasing complexity. While reconsidering the classic tax neutrality analysis, this article argues that residence-based taxation has, at best, no advantages over source-based taxation in satisfying capital export neutrality. This article then introduces the idea of best satisfying capital export neutrality, simultaneously with the other tax neutrality theories, simply by source-based taxation (not necessarily with globally harmonized rates) that effectively cures the distortions resulted by its imposition.

Keywords: International tax, tax policy, efficiency, capital export neutrality (CEN), capital import neutrality (CIN), national neutrality (NN), capital ownership neutrality (CON), national ownership neutrality (NON), source-based taxation, residence-based taxation, territorial, worldwide

JEL Classification: D92, E62, F39, G15, H20, H21, H22, H25, H32, H87, K33, K34

Suggested Citation

Shaheen, Fadi, International Tax Neutrality: Reconsiderations (2006). Virginia Tax Review, Vol. 27, p. 203, 2007, Available at SSRN:

Fadi Shaheen (Contact Author)

Rutgers, The State University of New Jersey - School of Law, Newark ( email )

Newark, NJ
United States

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