The Distinct Advantages of a Sales-Apportioned Corporate Cash Flow Tax

28 Pages Posted: 30 Jun 2016 Last revised: 9 Sep 2016

See all articles by M. Kevin McGee

M. Kevin McGee

University of Wisconsin - Oshkosh

Date Written: September 7, 2016


This paper explores the impacts of adopting two corporate income tax reforms simultaneously: the conversion to a cash-flow tax, that would allow the expensing of investment while disallowing interest deductions, and the switch to sales-based formula apportionment, that would tax worldwide profits in proportion to domestic sales revenue. I find that the two reforms are complementary, each eliminating different distortionary impacts of the corporate income tax. Worldwide adoption of both reforms would result in the taxation of supernormal profits with only minimal tax distortions.

However, just as multinational corporations can easily manipulate separate accounting to minimize tax burdens, by shifting profits across national boundaries, sales-formula-apportionment is also potentially vulnerable to tax avoidance, through shifting profits across industry boundaries. Thus, the attractiveness of the combined reform probably hinges on how well sales-formula-apportionment’s natural boundaries, between unrelated economic activities, can be established and maintained.

Keywords: International Corporate Taxation, Cash Flow Tax, Formula Apportionment

JEL Classification: H25, H32, H87

Suggested Citation

McGee, M. Kevin, The Distinct Advantages of a Sales-Apportioned Corporate Cash Flow Tax (September 7, 2016). Available at SSRN: or

M. Kevin McGee (Contact Author)

University of Wisconsin - Oshkosh ( email )

800 Algoma Blvd
Oshkosh, WI WI 54901
United States

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