This article appears in the following Oxford Review of Economic Policy issue: BUSINESS TAXATION IN A GLOBALIZED WORLD [View the issue table of contents]
Business taxation in a globalized world
* Centre for Business Taxation, Saïd Business School, Oxford University, e-mail: michael.devereux{at}sbs.ox.ac.uk
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Abstract |
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This paper addresses broad issues concerning taxes on company profit in a globalized world in which companies, capital, and profit can move easily between countries. It considers reasons for national taxation of company profit in such a world, and reviews the development of such taxes in the OECD. The role played by tax havens is discussed and evidence on the responsiveness of companies to differences in taxation across countries is presented. A central issue is the allocation of taxable profit between countries. Existing practice has no clear rationale. Recent proposals for fundamental reform in the EU are discussed.
Key Words: corporation tax • optimal international taxation
1 For recent empirical evidence on the effective incidence of corporation tax, see Arulampalam et al. (2008).
2 These arguments are discussed in more detail by Bond (2000).
3 See Bond and Devereux (2002), and Auerbach et al. (2007).
4 The exceptions are: Ireland, which in 1982 had a special 10 per cent tax rate on manufacturing, shown here; Italy, with a very small increase; and Spain, which had the same rate in 1982 and 2007.
5 These are taxes levied by the country from which the payment is made; such taxes can be levied on payments of dividends, interest, and royalties.
6 As well as having a lower corporation tax rate, Ireland has a much simpler taxation structure. For example, the UK has complex anti-avoidance rules, known as the controlled foreign company (CFC) regime. Ireland does not have an equivalent. To be tax resident in Ireland typically must involve moving the effective management and control of the company to Ireland. However, exactly what this means in practice remains unclear.