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Addressing the Transfer-Pricing Problem in an Origin-Basis X Tax

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David Bradford ()

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Abstract

In a previous paper I described how the tax design called the X Tax would facilitate an international tax system free of many of the complexities and avoidance opportunities plaguing the existing international tax regime and also have neutrality properties generally deemed desirable. A choice must, however, be made between two basic treatments of transborder business transactions -- the origin and destination principles. The destination-principle approach sidesteps the need to identify arm's length terms of transborder transactions between related business entities -- the transfer-pricing problem. This serious problem remains in the origin-principle approach, which, however, presents fewer challenges of monitoring the flow of goods and services across borders, obviates what I call the "tourism problem" whereby people can reduce their taxes by consuming in a low-tax jurisdiction and, arguably most important, avoids transition effects associated with introduction of the tax and subsequent tax rate changes that occur in the destination approach. In this paper I explore possible special rules for transborder transactions between related parties in an origin-based system to eliminate the transferpricing problem.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 997.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_997

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Find related papers by JEL classification:
H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Bondonio, Daniele, 2002. "Evaluating the Employment Impact of Business Incentive Programs in EU Disadvantaged Areas. A case from Northern Italy," P.O.L.I.S. department's Working Papers 27, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  2. David F. Bradford, 1997. "Fixing Capital Gains: Symmetry, Consistency and Correctness in the Taxation of Financial Instruments," NBER Working Papers 5754, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Robin Boadway & Neil Bruce, 1982. "A General Proposition on the Design of a Neutral Business Tax," Working Papers 461, Queen's University, Department of Economics.
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  4. Robert E. Hall, 1996. "The Effects of Tax Reform on Prices and Asset Values," NBER Chapters, in: Tax Policy and the Economy, Volume 10, pages 71-88 National Bureau of Economic Research, Inc. [Downloadable!]
  5. David F. Bradford, 1998. "Transition to and Tax Rate Flexibility in a Cash-Flow Type Tax," NBER Working Papers 6465, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Auerbach, Alan J. & Bradford, David F., 2004. "Generalized cash-flow taxation," Journal of Public Economics, Elsevier, vol. 88(5), pages 957-980, April. [Downloadable!] (restricted)
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  7. Martin S. Feldstein & Paul R. Krugman, 1990. "International Trade Effects of Value-Added Taxation," NBER Chapters, in: Taxation in the Global Economy, pages 263-282 National Bureau of Economic Research, Inc. [Downloadable!]
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  8. Feldstein, Martin, 1976. "On the theory of tax reform," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 77-104. [Downloadable!] (restricted)
  9. Zodrow, George R., 1995. "Taxation, uncertainty and the choice of a consumption tax base," Journal of Public Economics, Elsevier, vol. 58(2), pages 257-265, October. [Downloadable!] (restricted)
  10. Gordon, Roger H. & Hines, James Jr, 2002. "International taxation," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 28, pages 1935-1995 Elsevier. [Downloadable!] (restricted)
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  11. Dr. Peter Kenning & Hilke Plassmann, 2004. "NeuroEconomics," Experimental 0412005, EconWPA. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. George R. Zodrow, 2007. "Should Capital Income be Subject to Consumption-Based Taxation?," Working Papers 0715, Oxford University Centre for Business Taxation. [Downloadable!]
  2. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. David F. Bradford, 2004. "The X Tax in the World Economy," NBER Working Papers 10676, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Howell H. Zee, 2006. "A Superior Hybrid Cash-Flow Tax on Corporations," IMF Working Papers 06/117, International Monetary Fund. [Downloadable!]
  5. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," EPRU Working Paper Series 06-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics. [Downloadable!]
  6. Michael Devereux, 2004. "Debating Proposed Reforms of the Taxation of Corporate Income in the European Union," Asia-Pacific Financial Markets, Springer, vol. 11(1), pages 71-89, January. [Downloadable!] (restricted)
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