How Should Business Profit Be Taxed? Some Thoughts on Conceptual Developments During the Lifetime of the IFS*

Abstract

This paper reviews developments since the 1970s in economic thinking about the design of taxes on business profit. It charts developments from proposals for a cash flow tax from the Meade Committee, to refinements of this in the form of an ‘Allowance for Corporate Equity’ and the levying of the cash flow tax in the country of destination. It describes how the development of international trade and investment has led to ever-increasing problems in the international tax system with respect to economic efficiency, profit shifting, complexity and tax competition. It also identifies why a response to these problems requires a major reform in the location of taxation.