Working Paper: NBER ID: w9843
Authors: David F. Bradford
Abstract: In a previous paper I described how the tax design called the X Tax would facilitate an international tax system free of many of the complexities and avoidance opportunities plaguing the existing international tax regime and also have neutrality properties generally deemed desirable. A choice must, however, be made between two basic treatments of transborder business transactions --the origin and destination principles. The destination-principle approach sidesteps the need to identify arm's length terms of transborder transactions between related business entities -- the transfer-pricing problem. This serious problem remains in the origin-principle approach, which, however, presents fewer challenges of monitoring the flow of goods and services across borders, obviates what I call the tourism problem' whereby people can reduce their taxes by consuming in a low-tax jurisdiction and, arguably most important, avoids transition effects associated with introduction of the tax and subsequent tax rate changes that occur in the destination approach. In this paper I explore possible special rules for transborder transactions between related parties in an origin-based system to eliminate the transfer-pricing problem.
Keywords: No keywords provided
JEL Codes: H20; H25; H87
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| X tax (H26) | reduced complexities in international tax systems (H87) |
| origin-based tax treatment (H24) | mitigates transfer pricing issues (F16) |
| destination-based tax treatment (H20) | complicates monitoring of cross-border transactions (F38) |