The taxation of foreign profits (CEN, CON and all that)

Lockwood, Ben, Devereux, Michael and Fuest, Clemens (2011) The taxation of foreign profits (CEN, CON and all that). In: Annual Symposium 2011.

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Abstract

This paper attempts to reconcile in a unified framework different approaches to the question of the optimal taxation of foreign source income. The main finding
of the analysis is that the key variables are (i) whether there is full or limited de-ductibility of capital expenses, and (ii) how foreign investment impacts on domestic economic activity. With full deductibility (a cash flow tax) and with a tradeoff between foreign investment and domestic economic activity, the "standard" results
regarding the optimal taxation of foreign income hold: national optimality requries full taxation after deduction of foreign taxes and the global optimality requires
a full credit system. In the reverse case, i.e. with limited deductibility and no tradeoff, exemption is optimal. Finally, with limited deductibility and a tradeo¤,
there is no first-best rule for taxing foreign source income. These results do not depend on whether the foreign investment takes the form of greenfield investment
or acquisition.

Item Type: Conference or Workshop Item (Speech)
Keywords: Corporate Taxation, Multinational Firms, Repatriation
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 30 May 2012 10:22
Last Modified: 23 Oct 2015 14:07
URI: http://eureka.sbs.ox.ac.uk/id/eprint/3665

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