Granting Market Countries the Right to Tax Profit without Physical Nexus

Wolfram Richter

No 9556, CESifo Working Paper Series from CESifo

Abstract: More than 130 countries have accepted the OECD invitation to reform the taxation of multinational enterprises (MNEs). One of two reform pillars aims at granting market countries the right to tax supernormal (“residual”) profit without requiring physical nexus. This paper examines the method of implementation proposed by the OECD and compares it with various discarded options. It concludes that intercountry tax equity, allocative efficiency, and practicality of negotiation speak against the OECD proposal to use a sales-based formula for allocating an MNE’s group profit. Simply splitting each market country’s residual profit contribution by an MNE-independent key is to be preferred.

Keywords: BEPS Project; Pillar One; residual profit allocation/splitting; tax withholding; destination-based cash flow taxation (search for similar items in EconPapers)
JEL-codes: F23 H25 M48 (search for similar items in EconPapers)
Date: 2022
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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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_9556

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