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Destination-Based Income Taxation and WTO Law: A Note

18 Pages Posted: 4 Feb 2016  

Wolfgang Schoen

Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law

Date Written: January 2016

Abstract

In recent years, there is a growing tendency in international taxation to move the right to tax the corporate income of multinational enterprises to the jurisdiction where their customer base is located. One widely discussed proposal applies a sales-only formula to group-wide profits of multinationals (or to the residual profit of the firm after allocating routine returns to local production factors). A more recent proposal pleads for a “destination-based corporate income tax” including border adjustments for value transfers between countries. This article lays out the constraints existing under WTO law, in particular the non-discrimination rules of the GATT and the prohibition on export subsidies under the ASCM. It turns out that while the general move towards a destination basis is not a problem under WTO law (even for direct taxes), border adjustments are more critical due to their tendency to benefit local production.

Keywords: International taxation, multinationals, destination-based taxation, WTO law, GATT, ASCM

JEL Classification: F13, F15, F23, H25, K34

Suggested Citation

Schoen, Wolfgang, Destination-Based Income Taxation and WTO Law: A Note (January 2016). Working Paper of the Max Planck Institute for Tax Law and Public Finance No. 2016-3. Available at SSRN: https://ssrn.com/abstract=2727628 or http://dx.doi.org/10.2139/ssrn.2727628

Wolfgang Schön (Contact Author)

Max Planck Institute for Tax Law and Public Finance, Department of Business and Tax Law ( email )

Marstallplatz 1
Munich, 80539
Germany

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