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Are We Heading towards a Corporate Tax System Fit for the 21 st Century?
Author(s) -
Devereux Michael P.,
Vella John
Publication year - 2014
Publication title -
fiscal studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.63
H-Index - 40
eISSN - 1475-5890
pISSN - 0143-5671
DOI - 10.1111/j.1475-5890.2014.12038.x
Subject(s) - base erosion and profit shifting , compromise , multinational corporation , profit (economics) , economics , corporate tax , tax reform , market economy , international taxation , finance , tax avoidance , neoclassical economics , political science , law
The most significant problems with the existing system for taxing the profit of multinational companies stem from two related sources. First, the underlying ‘1920s compromise’ for allocating the rights to tax profit between countries is both inappropriate and increasingly hard to implement in a modern economic setting. Second, because the system is based on taxing mobile activities, it invites countries to compete with each other to attract economic activity and to favour ‘domestic’ companies. The OECD Base Erosion and Profit Shifting (BEPS) initiative essentially seeks to close loopholes rather than to re‐examine these fundamental problems. As a consequence, it is unlikely to generate a stable long‐run tax system. We briefly outline some more fundamental alternative reforms.