De la Feria, Rita and Michael P. Devereux (2014)
Oxford University Centre for Business Taxation WP 14/07. 
The current international tax system based upon the principles of source and residence is no longer suited to a globalised world economy, and the fundamentals of the international tax system need to be re-examined. An R+F based cash-flow tax based on the principle of destination has been proposed as a suitable alternative to taxing corporations in an international setting. The aim of this paper is to discuss the legal and practical issues which would arise in the implementation of such a tax, namely how a destination-based tax could be effectively designed and implemented. For this purpose we draw on experiences with designing VAT systems worldwide. It is proposed that the destination principle should be implemented through use of the customers’ location as the main legal proxy. We argue that the country where the customer is located has both the substantive jurisdiction to tax, i.e. the legitimacy to impose tax, and enforcement jurisdiction to tax, i.e. the effective legal and implementing means of collecting the proposed tax. As regards enforcement jurisdiction to tax, we propose that a one-stop-shop system similar to that being experimented in VAT as the most effective means of collecting tax. Other potential implementing issues are addressed, namely deductibility of expenses and tax credits, susceptibility to avoidance and fraud, treatment of financial transactions, and treatment of small businesses. We conclude that, if it were applied in an international cooperation setting, it would indeed be legitimate and administratively possible to implement a destination-based corporate tax.
Keywords: destination-based corporate income tax, international tax reform