The Case Against Income Taxation of Multinational Enterprises

62 Pages Posted: 23 Aug 2017

See all articles by David Elkins

David Elkins

Netanya College School of Law

Date Written: January 21, 2017


Probably the most uncontroversial thing that one can say about international taxation is that it is a mess. Sophisticated planning techniques, which seem beyond the power of taxing authorities to control, enable highly profitable multinational enterprises (MNEs) to pay little or no tax on their income. Efforts by transnational organizations to coordinate action in an attempt to rescue the international tax regime from collapse have hitherto proven ineffective. Some commentators have speculated that any attempt to impose tax on MNEs in a globalized economy is doomed to failure.

The focus of this article is in the taxation of foreign MNEs by the countries in which they operate, and its thesis is that the choice of income as a base for taxing foreign MNEs is inappropriate both normatively and practically. It asserts that the normative grounding for income tax in the domestic arena is inapplicable to foreign MNEs. It suggests that, relative to other tax bases, income tax increases the chances that the host country will deter investments that could have contributed to the welfare of its residents and that it will attract investments that constitute a net drain on its economic resources. It posits that, relative to alternative tax bases, income tax destroys economic value. Perhaps most importantly, it argues that the planning techniques exploited by MNEs are essentially an agency cost deriving from the use of income as a tax base and that the best, perhaps the only, way to prevent this agency cost is to abandon the income tax and to adopt an alternative tax base.

Keywords: tax, taxation, international, international taxation, globalization, efficiency, welfare, global welfare, competition, tax competition, investment, race to the bottom, BEPS, base erosion, profit shifting, distributive justice, income tax, tax base, corporations, agency cost, transfer pricing

JEL Classification: K34, H21, H25, H20, F00, F60

Suggested Citation

Elkins, David, The Case Against Income Taxation of Multinational Enterprises (January 21, 2017). Virginia Tax Review, Vol. 36, p. 143, 2017, Available at SSRN:

David Elkins (Contact Author)

Netanya College School of Law ( email )


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