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

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  • David F. Bradford

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 transfer-pricing problem.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9843.

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Date of creation: Jul 2003
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Publication status: published as Bradford, David F. "Addressing The Transfer-Pricing Problem In An Origin-Basis X Tax," International Tax and Public Finance, 2003, v10(5,Sep), 591-610.
Handle: RePEc:nbr:nberwo:9843

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  1. Auerbach, Alan J. & Bradford, David F., 2004. "Generalized cash-flow taxation," Journal of Public Economics, Elsevier, vol. 88(5), pages 957-980, April.
  2. 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.
  3. 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.
  4. David Bradford, . "Consumption Taxes: Some Fundamental Transition Issues," EPRU Working Paper Series 95-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  5. David F. Bradford, 1998. "Transition to and Tax-Rate Flexibility in a Cash-Flow-Type Tax," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 151-172 National Bureau of Economic Research, Inc.
  6. Boadway, Robin & Bruce, Neil, 1984. "A general proposition on the design of a neutral business tax," Journal of Public Economics, Elsevier, vol. 24(2), pages 231-239, July.
  7. Feldstein, Martin, 1976. "On the theory of tax reform," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 77-104.
  8. Paul Krugman & Martin Feldstein, 1989. "International Trade Effects of Value Added Taxation," NBER Working Papers 3163, National Bureau of Economic Research, Inc.
  9. 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.
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Cited by:
  1. 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.
  2. Howell H. Zee, 2006. "A Superior Hybrid Cash-Flow Taxon Corporations," IMF Working Papers 06/117, International Monetary Fund.
  3. Peter Birch Sørensen, 2006. "Can Capital Income Taxes Survive? And Should They?," CESifo Working Paper Series 1793, CESifo Group Munich.
  4. David F. Bradford, 2003. "The X Tax in the World Economy," Working Papers 109, Princeton University, Department of Economics, Center for Economic Policy Studies..
  5. George Zodrow, 2006. "Capital Mobility and Source-Based Taxation of Capital Income in Small Open Economies," International Tax and Public Finance, Springer, vol. 13(2), pages 269-294, May.
  6. Michael Devereux, 2004. "Debating Proposed Reforms of the Taxation of Corporate Income in the European Union," International Tax and Public Finance, Springer, vol. 11(1), pages 71-89, January.
  7. George R. Zodrow, 2007. "Should Capital Income be Subject to Consumption-Based Taxation?," Working Papers 0715, Oxford University Centre for Business Taxation.

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