destination-basedtaxation, with the aim to reduce or eliminate profit shifting and tax competition. This shift can be full, for example through a border adjustment, or it can be partial, for example if profits are allocated across countries through an agreed formula that contains destination elements, such as the destination of sales (see Chapter 14 ).
Under a border adjustment, a country taxes all domestic sales—with no requirement of a permanent establishment—allowing deduction of all local costs, such as labor and domestically purchased intermediates. A pure exporter
Ms. Victoria J Perry, Ms. Katherine Baer, and Mr. Emil M Sunley
In all of the new countries formed after the dissolution of the Soviet Union, other than the Baltics, the value-added taxes (VATs) adopted were “hybrid” VATs that treat CIS trade differently from trade with the rest of the world. This paper inquires whether this is appropriate. The paper concludes that it would be better if all CIS countries applied the destination principle to CIS trade as well as to trade with the rest of the world. The paper addresses the economic, administrative and revenue allocation considerations underlying this decision.
Conventional wisdom has it that the value-added tax is not a suitable instrument for lower-level jurisdictions (‘provinces’) in a federal system. The problems that arise when it is so used have become a serious constraint on the development of the VAT—and closer economic integration—in Brazil, the EU, India and elsewhere. This paper describes and compares two recent proposals for forms of VAT intended to alleviate these difficulties: the VIVAT and the CVAT. Both enable the VAT chain to be preserved on inter-provincial trade without compromising the destination principle (allowing provinces to tax consumption at different rates) or introducing new scope for game-playing by the provinces. The key difference between them is that the CVAT requires sellers to discriminate between buyers located in different provinces of the federation, whereas VIVAT requires them to discriminate between registered and non-registered buyers. Where the balance of advantage between the two lies is not entirely obvious.
Given the substantial rents involved in oil and gas trade and the incentives for noncooperative behavior, Russia and Ukraine have chosen to deviate from standard tax considerations, which suggest the use of a destination-based value-added tax (VAT) regime. Oil and gas trade is a major source of Russian tax revenue, which is collected partly through an origin-based VAT on energy trade within the Commonwealth of Independent States. This paper shows that, if nondistorting taxes were unavailable, Ukraine would benefit by taxing away the pure profits of the domestic seller of natural gas imports from Russia. The paper also assesses the circumstances under which Ukraine would benefit from simultaneously providing a credit for Russian VAT payments by importers.
Mr. Liam P. Ebrill, Mr. Michael Keen, and Ms. Victoria J Perry
Some of the deepest design issues for the VAT in the coming years are likely to be those arising from intensifying international economic integration and continued pressures to decentralize tax powers. These issues, which revolve around the interactions between the VATs of different jurisdictions, are the subject of this chapter.
Botswana, Lesotho, Namibia, and Swaziland (BLNS) receive significant government revenues in transfers from the Southern African Customs Union (SACU). As a percentage of GDP and total revenues, these transfers were very large and rising during 2007–09. In Lesotho and Swaziland, SACU transfers exceeded a third and a quarter of GDP, respectively, in 2008/09 (Figure 3.1).1 The magnitude of these transfers makes public finances in BLNS highly dependent on their evolution. The very high volatility of SACU transfers significantly complicates BLNS’s public financial management.2 In contrast, SACU transfers to South Africa (about 1 percent of GDP) are not nearly as important as they are for BLNS.
Mr. Shafik Hebous, Dinar Prihardini, and Nate Vernon
income tax revenues. The analysis suggests that international coordination would be desirable to mitigate the risks of profit shifting and tax com petition. Eventually, EPTs could mark an evolution of corporate taxation toward a non-distortionary rent tax.
JEL Classification Numbers:
Rent Taxes; Destination-basedTaxation; Allowance for Corporate Equity; Excess Profits Tax; COVID-19; Windfall Tax
Author’s E-Mail Address:
firstname.lastname@example.org ; email@example.com ; firstname.lastname@example.org
International Monetary Fund. External Relations Dept.
unqualified uses) and are difficult to justify on policy grounds. In most cases, better solutions exist elsewhere, and, in all instances, the authors stress, indirect tax incentives should be restricted to export industries only.
Export-oriented incentives are common worldwide and are frequently justified on the basis of destination-basedtaxation. For these incentives, then, the key question is not whether but what form the exemptions should take.
Tariff exemptions can be offered under two possible mechanisms—duty drawback schemes (refunds for the portion of imported