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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. MINTZ, Jacques & TULKENSÂ , Henry, 1994. "Optimality Properties of Alternative Systems of Taxation of Foreign Capital Income," CORE Discussion Papers 1994078, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Johannes Becker, 2014. "Strategic Trade Policy through the Tax System," The World Economy, Wiley Blackwell, vol. 37(9), pages 1237-1246, 09.
  3. 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.
  4. Michael P Devereux, 2008. "Taxation of Outbound Direct Investment: Economic Principles and Tax Policy Considerations," Working Papers 0824, Oxford University Centre for Business Taxation.
  5. Mihir A. Desai & C. Fritz Foley & James R. Hines Jr., 2005. "Foreign Direct Investment and the Domestic Capital Stock," American Economic Review, American Economic Association, vol. 95(2), pages 33-38, May.
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  7. Janeba, Eckhard, 1992. "Corporate income tax competition, double taxation treaties, and foreign direct investment," Discussion Papers, Series II 194, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
  8. 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.
  9. Johannes Becker & Clemens Fuest, 2010. "Taxing Foreign Profits With International Mergers And Acquisitions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(1), pages 171-186, 02.
  10. Johannes Becker, 2009. "Taxation of Foreign Profits with Heterogeneous Multinational Firms," CESifo Working Paper Series 2899, CESifo Group Munich.
  11. Helen Simpson, 2009. "Investment abroad and adjustment at home: evidence from UK multinational firms," Working Papers 0903, Oxford University Centre for Business Taxation.
  12. 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.
  13. 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.
  14. 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.
  15. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
  16. Thomas Horst, 1980. "A Note on the Optimal Taxation of International Investment Income," The Quarterly Journal of Economics, Oxford University Press, vol. 94(4), pages 793-798.
  17. 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.
  18. Homburg, Stefan, 2005. "Internationale Kapitaleinkommensbesteuerung nach dem Wohnsitzprinzip oder dem Quellenprinzip," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 14-27.
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