Taxing According to Value Creation

8 Pages Posted: 24 Aug 2018

Date Written: June 18, 2018


Currently at the forefront of internationals discourse is the notion that income should be taxed “where value is created.” Far from being a well-worn tax mantra, this paper shows that the intuitively appealing but deceptively misleading claim plays on approximately a century of political compromise, equating the goal of assigning a ‘primary’ right to tax to assigning an economically ‘correct’ jurisdiction to tax. In so doing, the claim camouflages as neutral and apolitical the highly political and distributive nature of the international tax system. The paper therefore observes that promoters of the value creation mantra are seeking to garner agreement on what is an essentially distributive exercise with likely significant disparate impact across countries. Demonstrating with the so-called “smile curve” supply chain valuation model, the paper explains why the logic of value creation will always assign virtually all of the credit for international cooperation to wealthy countries. The paper concludes that dealing with the distributional effects of the tax system has never been easy within countries and has been all but impossible multilaterally, but if the ultimate implication of taxing income in accordance with value creation is that tax revenues will be allocated much in the same way as they always have been, with the major gains going to the wealthiest countries, there should be no expectation of continued acceptance and equilibrium. Instead, the value creation mantra merely defers difficult questions to another day.

Keywords: Taxation, Tax Policy, Transfer Pricing, Value Creation, OECD, Smile Curve, Valuation, Allocation, Formulary Apportionment, Cooperation

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

Suggested Citation

Christians, Allison, Taxing According to Value Creation (June 18, 2018). Tax Notes International, Vol. 90, 2018, Available at SSRN:

Allison Christians (Contact Author)

McGill University - Faculty of Law ( email )

3644 Rue Peel
Montréal, Quebec

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