Monday, October 11, 2021
Michael Devereux (Oxford; Google Scholar) presents Taxing Profit in a Global Economy and Comparing Proposals to Tax Some Profit in the Market Country (with Richard Collier (Oxford) & John Vella (Oxford)) at Loyola-L.A. today as part of its Tax Policy Colloquium:
Taxing Profit in a Global Economy
This book undertakes a fundamental review of the existing international system of taxing business profit. It steps back from the current political debates on how to combat profit shifting and how taxing rights over the profits of the digitalized economy should be allocated. Instead, it starts from first principles to ask how we should evaluate a tax on business profit—and whether there is any good rationale for such a tax in the first place. It then goes on to evaluate the existing system and a number of alternatives that have been proposed. It argues that the existing system is fundamentally flawed, and that there is a need for radical reform. The key conclusion from the analysis is that there would be significant gains from a reform that moved the system towards taxing profit in the country in which a business made its sales to third parties. That conclusion informs two proposals that are put forward in detail and evaluated: the Residual Profit Allocation by Income (RPAI) and the Destination-based Cash Flow Tax (DBCFT).
The book is authored by group of economists and lawyers—the Oxford International Tax Group, chaired by Michael P. Devereux. It draws insights from both economics and law—including economic theory, empirical evidence on the impact of taxes, and an examination of practical issues of implementation—to assess the existing system and to consider fundamental reforms. This book will be useful to tax policy makers, tax professionals, academics, and anyone interested in tax policy.
Comparing Proposals to Tax Some Profit in the Market Country
This paper compares and contrasts three specific proposals that allocate taxing rights to market countries: the OECD’s “Unified Approach” (“Pillar One”), the United Nations’ “Article 12 B”; and Devereux et al.’s “Residual Profit Allocation by Income”. It aims to identify the similarities and differences of these proposals, and their consequent strengths and weaknesses. More specifically, the paper has two objectives. First, we aim to identify strengths and weaknesses that are particular to each proposal. We distinguish between features that are inherent to each proposal (that cannot be altered without altering its fundamental nature) and those that are not inherent (that can be altered without altering its fundamental nature). This exercise lays the foundations for the second objective: to show how these proposals can be improved by drawing on the most useful features of each other, or how alternative proposals can be designed by combining these features.
Commentator: Reuven Avi-Yonah (Michigan; Google Scholar)