26 Pages Posted: 3 Dec 2014
Date Written: November 20, 2014
The most significant problems with the existing system for taxing the profit of multinational companies stem from two related sources. First, the underlying “1920s compromise” for allocating the rights to tax profit between countries is both inappropriate and increasingly hard to implement in a modern economic setting. Second, because the system is based on taxing mobile activities, it invites countries to compete with each other to attract economic activity and to favour “domestic” companies. The OECD Base Erosion and Profit Shifting (BEPS) initiative essentially seeks to close loopholes rather than to re-examine these fundamental problems. As a consequence, it is unlikely to generate a stable long-run tax system. We critically examine the principle guiding the OECD’s reform proposals in its BEPS initiative and outline some more fundamental alternative reforms.
Keywords: International Tax, BEPS, OECD, Transfer Pricing, Intangibles, Tax Avoidance, Tax Competition, Tax Havens, Profit Shifting
JEL Classification: H25, H32, H87
Suggested Citation: Suggested Citation
Devereux, Michael P. and Vella, John, Are We Heading Towards a Corporate Tax System Fit for the 21st Century? (November 20, 2014). Fiscal Studies, Forthcoming; Oxford Legal Studies Research Paper No. 88/2014. Available at SSRN: https://ssrn.com/abstract=2532933