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Aligning profit taxation with value creation

Author

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  • Wolfram F. Richter

Abstract

The OECD seeks to align transfer pricing and profit taxation with value creation but fails to provide a clear definition. This paper argues that value creation requires international cooperation and that the profit tax base should therefore be allocated according to standards commonly considered as fair when distributing the surplus of cooperation. The claim that current rules of international profit taxation are aligned with value creation is rejected. If anything, the OECD’s objective suggests a tax system in which profits are split between the involved jurisdictions. This result triggers the question of possible implementation which is discussed in some detail.

Suggested Citation

  • Wolfram F. Richter, 2019. "Aligning profit taxation with value creation," CESifo Working Paper Series 7589, CESifo.
    • Handle: RePEc:ces:ceswps:_7589
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp7589.pdf
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    References listed on IDEAS

    as
    1. Nash, John, 1950. "The Bargaining Problem," Econometrica, Econometric Society, vol. 18(2), pages 155-162, April.
    2. Alan J. Auerbach & Michael P. Devereux, 2018. "Cash-Flow Taxes in an International Setting," American Economic Journal: Economic Policy, American Economic Association, vol. 10(3), pages 69-94, August.
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    Cited by:

    1. Wolfram F. Richter, 2019. "The Economics of the Digital Services Tax," CESifo Working Paper Series 7863, CESifo.

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    More about this item

    Keywords

    international corporate income taxation; intellectual property; value creation; Shapley value; profit splitting;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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