Destination Taxation of Corporate Income and the Emerging Implications

Chidozie George Chukwudumogu

Abstract


The international tax regime for the taxation of corporate income is undergoing reform and moving further towards destination taxation. This article highlights the new blueprints for the destination-based taxation of corporate profit, namely the Organisation for Economic Co-operation and Development (OECD)’s blueprint, the United Nations’ (UN) blueprint and the destination-based cash-flow tax (DBCFT) blueprint. Furthermore, it examines the seemingly overlooked implications of these blueprints for international tax policy and for nation-states. Arguably, the current move towards the destination-based taxation of the corporate income of multinational enterprises (MNEs) will lead to: (a) the expansion of the source principle, diverging unilateral actions, and challenges to the standardisation of the expanded source principle; (b) avertible costs; (c) distributional impact without the resolution of inter-nation equity issues and (d) tax competition by affluent states for sales factors. These implications provide lessons for international tax policymakers and nation-states. International tax policymakers should coordinate the processes of incorporating destination taxation into the international tax system. Low-income states need to evaluate matters further before adopting any blueprint for destination taxation as part of their domestic legislation. Affluent market states may require expanded country-by-country reporting (CBCR) and anti-tax avoidance rules to regulate their tax competition for sales factors.


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