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

Research output: Chapter in Book/Report/Conference proceedingChapterScientificpeer-review

Abstract

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.
Original languageEnglish
Title of host publicationInternational Taxation in a Changing Landscape - Liber Amicorum in Honour of Bertil Wiman
EditorsJérôme Monsenego , Jan Bjuvberg
Place of PublicationAlphen aan den Rijn
PublisherKluwer Law International
Chapter11
Pages147-164
Number of pages18
ISBN (Electronic)9789041192691
ISBN (Print)9789041192349
Publication statusPublished - 2019

Fingerprint

Corporate income tax
Consumption tax
Destination
Tax
Tax system
Profit
Tax revenues
Equity
Income
Jurisdiction
Added value
Economic growth
Multinational enterprises
Multinational firms
Neutrality
Tax treaties
Market states

Cite this

Kemmeren, E. (2019). If we need a destination-based corporate income tax, do we also need a production-based consumption tax? In J. Monsenego , & J. Bjuvberg (Eds.), International Taxation in a Changing Landscape - Liber Amicorum in Honour of Bertil Wiman (pp. 147-164). Alphen aan den Rijn: Kluwer Law International.
Kemmeren, Eric. / If we need a destination-based corporate income tax, do we also need a production-based consumption tax?. International Taxation in a Changing Landscape - Liber Amicorum in Honour of Bertil Wiman. editor / Jérôme Monsenego ; Jan Bjuvberg. Alphen aan den Rijn : Kluwer Law International, 2019. pp. 147-164
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abstract = "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.",
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Kemmeren, E 2019, If we need a destination-based corporate income tax, do we also need a production-based consumption tax? in J Monsenego & J Bjuvberg (eds), International Taxation in a Changing Landscape - Liber Amicorum in Honour of Bertil Wiman. Kluwer Law International, Alphen aan den Rijn, pp. 147-164.

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

International Taxation in a Changing Landscape - Liber Amicorum in Honour of Bertil Wiman. ed. / Jérôme Monsenego ; Jan Bjuvberg. Alphen aan den Rijn : Kluwer Law International, 2019. p. 147-164.

Research output: Chapter in Book/Report/Conference proceedingChapterScientificpeer-review

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N2 - 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.

AB - 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.

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PB - Kluwer Law International

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Kemmeren E. If we need a destination-based corporate income tax, do we also need a production-based consumption tax? In Monsenego J, Bjuvberg J, editors, International Taxation in a Changing Landscape - Liber Amicorum in Honour of Bertil Wiman. Alphen aan den Rijn: Kluwer Law International. 2019. p. 147-164