There has been growing attention among policymakers and the general public to the taxation of multinational corporations (MNCs) in recent years. This reflects widespread concern about the capacity of the international tax regime – which originated in the 1920s – to accommodate recent developments such as the growth of digital services across borders. In particular, it focuses on what the Organisation for Economic Co-operation and Development (OECD) and the G-20 group of governments have termed “base erosion and profit shifting” by MNCs. Recently, this widespread concern over MNC taxation has been combined with an earlier strand of discussion regarding the divergence between financial statement income (FSI) and taxable income among corporations.
My paper on “The Tax Elasticity of Financial Statement Income: Implications for Current Reform Proposals,” analyzes aspects of current reform proposals that seek to tax MNCs’ FSI as a response to the various concerns highlighted above. It develops a conceptual framework that is grounded in the principles of tax policy design, as well as taking account of the wider financial and business ramifications of these proposals. The paper also discusses the available evidence on the responsiveness of FSI to taxation.
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