‘Sharing the Pie’; Taxing Multinationals in a Global Market
497 Pages Posted: 16 Feb 2015
Date Written: January 15, 2015
The current international corporate tax regime for taxing the business proceeds of firms operates arbitrarily. The aggregates of the nation states’ international corporate tax systems seem to distort a global efficient allocation of resources. The model is ill-suited to current market realities. As a result multinational business decisions are distorted by tax considerations. The arbitrage may work to the benefit or detriment of nationally and internationally active firms. It also seems to put pressure on nation state corporate tax revenue levels. This may lead to spill-over effects and welfare losses at the end of the day. Matters seem to worsen in today’s increasingly globalizing economy.
The question arises as to whether a proper alternative for taxing multinationals can be modeled. How should business proceeds of multinationals be taxed? This study seeks to set forth an alternative to the corporate taxation framework currently found in international taxation. The aim is to develop some building blocks for an optimal approach towards taxing the business proceeds of multinationals, i.e., a ‘corporate tax 2.0’. The study discovers the following components for a ‘Corporate Tax 2.0’: Tax Payable by ‘Firm A’ in Country X = Tax Rate * ‘Firm A’s Worldwide Rents * (Domestic Sales/Worldwide Sales).
Keywords: Fairness, Corporate Taxation, Globalization, Tax Competition, Tax Planning, European Union, Formula Apportionment, Common Consolidated Corporate Tax Base, Factor Manipulation
JEL Classification: H21, H25, K34
Suggested Citation: Suggested Citation