If we need a destination-based corporate income tax, do we also need a production-based consumption tax?

The research question of this chapter is:

If we need a destination-based CIT, do we also need a production-based consumption tax in order to preserve or to attain a balanced comprehensive international tax system in respect of the allocation of tax jurisdiction?

In order to answer this question, pros and cons of a destination-based CIT have been balanced. From the perspective of the character of a multinational firm, the direct benefit principle, investment location neutrality, tax revenue, inter-nation equity, BEPS and economic growth, the author concludes that the prevailing arguments are not to adopt a destination-based CIT. Actually, this is also his position if the concept of the ‘source’ of profit is taken into account. However, if it is accepted that the ‘source’ of profit is (partly) the customer market and that an MNE indirectly benefits from the infrastructure of the customer market state, the destination state, it can be argued that a destination-based CIT is justified.

If such a tax is adopted, a production-based consumption tax should also be adopted in order to attain a balanced comprehensive international tax system in respect of the allocation of tax jurisdiction. The result will be that international tax systems become needlessly complicated. The author believes that it is also not necessary to introduce destination-based CIT and production-based consumption taxes, because the current distribution of taxing rights has already been based on the distinction between the production of added value (income and profit taxes) to be allocated to the state where the income is actually produced (the source/origin state) and the consumption or use of added value (VAT and sales and use tax) to be allocated to the state of consumption/use (consumption/use state). What should be done is a restructuring of CIT and tax treaties in order to better align them with the principle of origin.

If, nevertheless, the introduction of the combination of destination-based CIT and production-based consumption taxes is contemplated, further research is necessary, inter alia in respect of potential impact on individual tax positions of MNEs, investment locations, tax revenue for states, inter-nation equity and economic growth. In respect of pros and cons in respect of production-based consumption taxes, extensive research already exists, but this research is also frequently limited to consumption taxes only and not in relation to destination-based CIT.