Toward a 21st-Century International Tax Regime
“Toward a 21st-Century International Tax Regime,” Tax Notes International, Aug. 26, 2019, pp. 839-849.
13 Pages Posted: 4 Dec 2019 Last revised: 13 Feb 2020
Date Written: August 26, 2019
The OECD has been struggling to respond to countries that wish to tax large US technology companies on the basis of where their consumers live. The current OECD work program on digitalization is unlikely to produce a stable consensus or prevent countries from following the lead of France, India, Italy and the United Kingdom toward digital services taxes. The United States response should not be to target French, Indian, Italian or British companies for retaliation. Instead, the United States should consider adopting a sales-based formulary apportionment (SFA) solution that would apply to all large enterprises. Such a move is more likely to lead to a stable outcome than the OECD proposals. SFA also has important advantages relative to other proposals such as Residual Profit Allocation by Income (RPA-I) or the Destination Basis Cash Flow Tax (DBCFT).
Keywords: international taxation, formulary apportionment, base erosion, profit shifting
JEL Classification: H25
Suggested Citation: Suggested Citation