The Taxation of Foreign Profits: a Unified View

Michael Devereux, Clemens Fuest (clemens.fuest@zew.de) and Ben Lockwood (b.lockwood@warwick.ac.uk)
Additional contact information
Clemens Fuest: Centre for European Economic Research (ZEW)
Ben Lockwood: Oxford University CBT, CEPR and Department of Economics, University of Warwick,

No 1303, Working Papers from Oxford University Centre for Business Taxation

Abstract: This paper synthesizes and extends the literature on the taxation of foreign source income in a framework that covers both greenfield and acquisition investment, and a general constraint linking investment at home and abroad for the multinational by introducing a cost of adjustment for the mobile factor. Unless the cost of adjustment is zero, the domestic tax on foreign-source income should always be set to ensure the optimal allocation of the mobile factor between domestic and foreign assets and should follow the classical rules in the literature; national optimality requires the deduction rule, and global optimality requires the credit rule. Only in the zero-cost case does exemption become optimal. Allowances can be set so as to ensure that domestic and foreign asset purchases are undistorted by the tax system: this requires a cash-flow tax on domestic investment in the greenfield case, and a cross-border cash flow tax on foreign investment in both cases. These basic results extend to various extensions of the model.

Keywords: Corporate Taxation; Multinational Firms; Repatriation (search for similar items in EconPapers)
JEL-codes: F23 H25 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The taxation of foreign profits: A unified view (2015)
Working Paper: The Taxation of Foreign Profits: a Unified View (2015)
Working Paper: The Taxation of Foreign Profits: A Unified View (2015)
Working Paper: The Taxation of Foreign Profits: a Unified View (2015)
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