Destination-Based Cash Flow Taxation

Destination-Based Cash Flow Taxation

Michael Devereux

Oxford University Centre for Business Taxation


This paper summarises the concept and properties of a destination-based cash-flow
tax (DBCFT). In principle, a DBCFT has several highly attractive properties: it does not
distort the scale and location of investment, assures neutral treatment of debt and equity as sources of finance, is robust against avoidance through inter-company transactions, and provides long term stability due to its incentive compatibility and its resistance to tax competition amongst states. A DBCFT thus addresses many of the ailments afflicting current tax systems in both domestic and international settings.

A DBCFT does raise a number of significant implementation issues – both administrative and legal – and requires substantial changes, both conceptually and in application, from current practice in corporate taxation. Neither of its two principal design features, a cash flow tax base and taxation on a destination basis, are common amongst existing corporation taxes

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