Taxing Income Where Value Is Created

36 Pages Posted: 3 Mar 2018

See all articles by Allison Christians

Allison Christians

McGill University - Faculty of Law

Laurens van Apeldoorn

Leiden University

Date Written: March 1, 2018

Abstract

Subscribing to the core idea that income should be taxed where value is created, the international community has devised a set of tax base protecting rules to counter a world in which highly profitable multinational companies like Apple, Google, and Amazon pay very little in taxation. But these rules rely on assumptions about value that tend to allocate most revenues from international trade and commerce to rich countries while, whether intentionally or not, depriving poorer countries of their proper share. This article argues that a rigorous examination of what we mean by value would prompt changes in this allocation. To demonstrate with a concrete example, the article examines wages paid to workers in low income countries and reveals a clear and well-documented gap between market price and fair market value resulting from labor exploitation. It then demonstrates how to apply this knowledge to existing international tax rule sets to reallocate profits to align more closely to the value-based ideal. If accepted in principle, the proposed approach could be expanded beyond wages to consider other areas in which prices do not align with value creation. Ultimately this could provide a more detailed template to reallocate multinational revenues in a way that does not inappropriately benefit richer countries at the expense of poorer ones.

Keywords: Taxation, International Tax, Tax Policy, Beps, Transfer Pricing, Value, Allocation, Development

JEL Classification: D63, D78, E62, F02, F21, F23, F42, H20, H25, H87, K33, K34, O19, O23

Suggested Citation

Christians, Allison and van Apeldoorn, Laurens, Taxing Income Where Value Is Created (March 1, 2018). Florida Tax Review, 2018. Available at SSRN: https://ssrn.com/abstract=3132538

Allison Christians (Contact Author)

McGill University - Faculty of Law ( email )

3644 Rue Peel
Montréal, Quebec
Canada

Laurens Van Apeldoorn

Leiden University ( email )

Postbus 9500
Leiden, 2300 RA
Netherlands

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