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Are We Heading towards a Corporate Tax System Fit for the 21st Century?

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  • Michael P. Devereux
  • John Vella

Abstract

The most significant problems with the existing system for taxing the profit of multinational companies stem from two related sources. First, the underlying “1920s compromise” for allocating the rights to tax profit between countries is both inappropriate and increasingly hard to implement in a modern economic setting. Second, because the system is based on taxing mobile activities, it invites countries to compete with each other to attract economic activity and to favour “domestic” companies. The OECD Base Erosion and Profit Shifting (BEPS) initiative essentially seeks to close loopholes rather than to re-examine these fundamental problems. As a consequence, it is unlikely to generate a stable long-run tax system. We briefly outline some more fundamental alternative reforms.
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Suggested Citation

  • Michael P. Devereux & John Vella, 2015. "Are We Heading towards a Corporate Tax System Fit for the 21st Century?," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(04), pages 03-07, January.
    • Handle: RePEc:ces:ifodic:v:12:y:2015:i:04:p:03-07
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    Cited by:

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    3. Kari Seppo, 2015. "Corporate tax in an international environment – Problems and possible remedies," Nordic Tax Journal, Sciendo, vol. 2015(1), pages 1-16, September.
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    5. Kudrle, Robert T., 2021. "Moves and countermoves in the digitization challenges to international taxation," Technology in Society, Elsevier, vol. 64(C).
    6. Hayley Reynolds & Ludvig Wier, 2016. "Estimating profit shifting in South Africa using firm-level tax returns," WIDER Working Paper Series wp-2016-128, World Institute for Development Economic Research (UNU-WIDER).
    7. Richard M. Bird, 2016. "Reforming International Taxation: Is the Process the Real Product?," Hacienda Pública Española / Review of Public Economics, IEF, vol. 217(2), pages 159-180, June.
    8. Ernesto Crivelli & Ruud De Mooij & Michael Keen, 2016. "Base Erosion, Profit Shifting and Developing Countries," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 72(3), pages 268-301, September.
    9. Ludvig Wier, 2018. "Tax-motivated transfer mispricing in South Africa: Direct evidence using transaction data," WIDER Working Paper Series 123, World Institute for Development Economic Research (UNU-WIDER).
    10. Gabriela-Adina Păun, 2025. "Charting the Future of Base Erosion and Profit Shifting: A Bibliometric Insight into Emerging Trends and Research Gaps," GATR Journals jfbr227, Global Academy of Training and Research (GATR) Enterprise.
    11. Hayley Reynolds & Ludvig Wier, 2016. "Estimating profit shifting in South Africa using firm-level tax returns," WIDER Working Paper Series 128, World Institute for Development Economic Research (UNU-WIDER).
    12. Michael Lennard, . "Act of creation: the OECD/G20 test of “Value Creation” as a basis for taxing rights and its relevance to developing countries," UNCTAD Transnational Corporations Journal, United Nations Conference on Trade and Development.
    13. Richard Collier & Seppo Kari & Olli Ropponen & Martin Simmler & Maximilian Todtenhaup, 2018. "Dissecting the EU’s Recent Anti-Tax Avoidance Measures: Merits and Problems," EconPol Policy Reports 8, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    14. Nicolai J Foss & Ram Mudambi & Samuele Murtinu, 2019. "Taxing the multinational enterprise: On the forced redesign of global value chains and other inefficiencies," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 50(9), pages 1644-1655, December.
    15. Petutschnig, Matthias & Rünger, Silke, 2017. "The effects of a tax allowance for growth and investment: Empirical evidence from a firm-level analysis," arqus Discussion Papers in Quantitative Tax Research 221, arqus - Arbeitskreis Quantitative Steuerlehre.
    16. Büttner Tim & Thiemann Matthias, 2017. "Breaking Regime Stability? The Politicization of Expertise in the OECD/G20 Process on BEPS and the Potential Transformation of International Taxation," Accounting, Economics, and Law: A Convivium, De Gruyter, vol. 7(1), pages 1-17, April.
    17. Nicola Branzoli & Antonella Caiumi, 2020. "How effective is an incremental ACE in addressing the debt bias? Evidence from corporate tax returns," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(6), pages 1485-1519, December.
    18. Anne Vijver, 2022. "Morality of Lobbying for Tax Benefits: A Kantian Perspective," Journal of Business Ethics, Springer, vol. 181(1), pages 57-68, November.
    19. F. De Sloover & Y. Saks, 2018. "Is job polarisation accompanied by wage polarisation?," Economic Review, National Bank of Belgium, issue iii, pages 79-90, september.
    20. Wier, Ludvig, 2020. "Tax-motivated transfer mispricing in South Africa: Direct evidence using transaction data," Journal of Public Economics, Elsevier, vol. 184(C).
    21. Carpentieri, Loredana & Micossi, Stefano & Parascandolo, Paola, 2019. "Overhauling corporate taxation in the digital economy," CEPS Papers 25090, Centre for European Policy Studies.
    22. Ludvig Wier, 2018. "Tax-motivated transfer mispricing in South Africa: Direct evidence using transaction data," WIDER Working Paper Series wp-2018-123, World Institute for Development Economic Research (UNU-WIDER).
    23. Soufiene Assidi & Khaled Hussainey, 2021. "The effect of tax preparers on corporate tax aggressiveness: Evidence form the UK context," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 2279-2288, April.
    24. Patrick Emmenegger, 2017. "Swiss banking secrecy and the problem of international cooperation in tax matters: A nut too hard to crack?," Regulation & Governance, John Wiley & Sons, vol. 11(1), pages 24-40, March.

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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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