Journal Article

Taxation of outbound direct investment: economic principles and tax policy considerations

Michael P. Devereux

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 24, issue 4, pages 698-719
Published in print January 2008 | ISSN: 0266-903X
Published online January 2008 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/grn036
Taxation of outbound direct investment: economic principles and tax policy considerations

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This paper reviews economic principles for optimality of the taxation of international profit, from both a global and national perspective. It argues that for traditional systems based on the residence of the investor or the source of the income, nothing less than full harmonization across countries can achieve global optimality. The conditions for national optimality are more difficult to identify, but are most likely to imply source-based taxation. However, source-based taxation requires an allocation of the profits of multinational companies to individual jurisdictions; this is not only very difficult in practice, but in some cases is without any conceptual foundation. The taxation of interest income on a residence basis is also hard to justify if the aim of the tax system is to tax only the income arising from economic activity in a given country.

Keywords: corporation tax; optimal international taxation; H25; H32; H87

Journal Article.  12097 words. 

Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

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