The Case for a Destination-Based Corporate Tax
6 Pages Posted: 23 Jul 2015
Date Written: July 22, 2015
In 1993, I published a paper advocating a destination-based corporate income tax (DBCT) (Avi-Yonah, 1993). Under DBCT, multinational enterprises (MNEs) would be treated as unitary businesses and taxed based on where they sell their goods or services, i.e., on a destination basis rather than (as in current corporate taxes) primarily on an origin basis. I have subsequently elaborated on this proposal with Kim Clausing and Mike Durst (Avi-Yonah, Clausing and Durst, 2009).
In recent years, DBCT has attracted some support by economists, such as Alan Auerbach and Mike Devereaux (Auerbach, Devereux and Simpson, 2008; Devereux and de la Feria, 2014). While the economists tend to advocate a cash flow DBCT, i.e., a corporate tax that is more consumption than income based because MNEs will be allowed to expense capital outlays, both types of taxes apply to corporate rents in the same way. Moreover, the economists’ proposals raise similar issues as mine, e.g., in regard to compatibility with treaties or with WTO rules.
These proposals have attracted significant critiques, e.g., from Rosanne Altshuler, Harry Grubert and Susan Morse (Altshuler and Grubert, 2010; Morse, 2010). I would like to use this opportunity to restate the case for DBCT and reply to some of the common objections to it.
Keywords: unitary taxation, destination based corporate tax
JEL Classification: H26
Suggested Citation: Suggested Citation