A critical review of proposals for destination-based cash-flow corporate taxation as an international tax reform option

This article critically examines recent proposals for a destination-based, cash-flow corporate tax (DCT) as an option for international tax reform. I identify a range of exegetical issues the clarification of which would advance the evaluation of DCT proposals. These include whether DCT proponents have stated relevant and sufficient normative criteria for comparing the current international tax system with reform alternatives, as well as the relationship of the DCT to individual taxation. Moreover, I argue that (i) three versions of the DCT proposal should be distinguished; (ii) it may be misleading to label the most plausible versions of DCT as a tax on corporate profits; (iii) the proposals give rise to concerns about trade distortions; and (iv) an overly abstract approach to corporate losses have prevented DCT proponents from elaborating crucial institutional design issues. I then offer a fundamental critique of the DCT project. DCT proponents tend to be skeptical about residence-based taxation of individuals. Yet they aim to introduce information about individuals qua final consumers into the design of the corporate tax. This is ironic, because individual residency and the location of individuals as consumers are mostly the same. Moreover, market structures and the legal and regulatory apparatus built upon them are more likely to transmit information about individuals as residents than as final consumers. Thus if corporate income is to be taxed by reference to a relatively immobile factor, considering shareholder residence is an at least equally, and probably more, promising approach.