Are We Heading Towards a Corporate Tax System Fit for the 21st Century?

26 Pages Posted: 3 Dec 2014  

Michael P. Devereux

Centre for Business Taxation, Oxford University; CESifo (Center for Economic Studies and Ifo Institute); Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR); University of Oxford - Said Business School; University of Oxford - Said Business School

John Vella

Oxford University Centre for Business Taxation; University of Oxford - Faculty of Law

Date Written: November 20, 2014

Abstract

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

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

Michael P. Devereux

Centre for Business Taxation, Oxford University ( email )

Said Business School
Park End Street
Oxford, OX1 1HP
United Kingdom
+44 1865 288507 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Centre for Economic Policy Research (CEPR)

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

John Vella (Contact Author)

University of Oxford - Faculty of Law ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

HOME PAGE: http://www.law.ox.ac.uk/profile/john.vella

Oxford University Centre for Business Taxation ( email )

Saïd Business School
Park End Street
Oxford, OX1 1HP
United Kingdom

HOME PAGE: http://www.sbs.ox.ac.uk/community/people/john-vella

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