Beyond Territorial and Worldwide Systems of International Taxation

The dialogue regarding the international taxation of multinational firms should move beyond the rhetoric of comparing supposedly territorial and worldwide systems of taxation. Among major countries, there are no pure territorial or pure worldwide systems, just systems that lie on a spectrum between these extremes. Once one recognizes the characteristics that determine where on the spectrum particular countries lie, it is far from clear that purportedly worldwide countries are further to the “pure worldwide” end of the spectrum than are many purportedly territorial countries. Still, along the spectrum, tradeoffs between “competitiveness” and efficient capital allocation (with attendant effects on the home country tax base) are inevitable. Thus, I describe international tax system design proposals that might transcend this tradeoff, examining several such options. Finally, I discuss the current efforts of the BEPS process.