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The taxation of foreign profits — The old view, the new view and a pragmatic view

  • Johannes Becker
  • Clemens Fuest

In this short paper, we review the criticism of the standard view (the ’old view’) of foreign profit taxation which goes back to Peggy Musgrave (née Richman, 1963). This ?new view of international taxation is based on recent empirical studies and favours a system where foreign profits are exempt from tax. We critically discuss the debate between old view and new view proponents and, finally, confront the two with a ?pragmatic view on foreign profit taxation which crucially builds on compliance and tax administration cost.

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File URL: http://hdl.handle.net/10.1007/s10272-011-0369-4
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Article provided by Springer in its journal Intereconomics.

Volume (Year): 46 (2011)
Issue (Month): 2 (March)
Pages: 92-97

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Handle: RePEc:spr:intere:v:46:y:2011:i:2:p:92-97
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  1. Johannes Becker & Clemens Fuest, 2007. "Taxing Foreign Profits with International Mergers and Acquisitions," Working Papers 0719, Oxford University Centre for Business Taxation.
  2. Dhammika Dharmapala & C. Fritz Foley & Kristin J. Forbes, 2011. "Watch What I Do, Not What I Say: The Unintended Consequences of the Homeland Investment Act," Journal of Finance, American Finance Association, vol. 66(3), pages 753-787, 06.
  3. Homburg, Stefan, 2005. "Internationale Kapitaleinkommensbesteuerung nach dem Wohnsitzprinzip oder dem Quellenprinzip," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 14-27.
  4. Mintz, J. & Tulkens, H., . "Optimality properties of alternative systems of taxation of foreign capital income," CORE Discussion Papers RP -1212, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Helen Simpson, 2008. "Investment Abroad and Adjustment at Home: evidence from UK multinational firms," The Centre for Market and Public Organisation 08/207, Department of Economics, University of Bristol, UK.
  6. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  7. Johannes Becker, 2009. "Taxation of Foreign Profits with Heterogeneous Multinational Firms," CESifo Working Paper Series 2899, CESifo Group Munich.
  8. Keen, Michael & Piekkola, Hannu, 1997. " Simple Rules for the Optimal Taxation of International Capital Income," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(3), pages 447-61, September.
  9. Ronald B. Davies, 2004. "Tax Treaties and Foreign Direct Investment: Potential versus Performance," International Tax and Public Finance, Springer, vol. 11(6), pages 775-802, November.
  10. Fuest, Clemens & Huber, Bernd, 2004. "Why do countries combine the exemption system for the taxation of foreign profits with domestic double taxation relief?," Journal of International Economics, Elsevier, vol. 62(1), pages 219-231, January.
  11. Michael P. Devereux, 2008. "Taxation of outbound direct investment: economic principles and tax policy considerations," Oxford Review of Economic Policy, Oxford University Press, vol. 24(4), pages 698-719, winter.
  12. Desai, Mihir A. & Hines, James R. Jr., 2004. "Old Rules and New Realities: Corporate Tax Policy in a Global Setting," National Tax Journal, National Tax Association, vol. 57(4), pages 937-60, December.
  13. Michael P. Devereux, 2004. "Some Optimal Tax Rules for International Portfolio and Direct Investment," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(1), pages 1-, April.
  14. Johannes Becker, 2010. "Strategic Trade Policy through the Tax System," CESifo Working Paper Series 3066, CESifo Group Munich.
  15. Mihir C. Desai & C. Fritz Foley & James R. Hines Jr., 2005. "Foreign Direct Investment and the Domestic Capital Stock," NBER Working Papers 11075, National Bureau of Economic Research, Inc.
  16. Janeba,Eckhard, 1991. "Corporate income tax competition,Double taxation treaties, and foreign direct investment," Discussion Paper Serie A 361, University of Bonn, Germany.
  17. Horst, Thomas, 1980. "A Note on the Optimal Taxation of International Investment Income," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 793-98, June.
  18. Huizinga, Harry & Laeven, Luc, 2007. "International Profit Shifting within European Multinationals," CEPR Discussion Papers 6048, C.E.P.R. Discussion Papers.
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