July 2016

A tax on turnover would tax profitable and loss-making firms equally, potentially posing an insurmountable hurdle to struggling firms, and eliminating the tax benefit of normally beneficial capital expenditure.

A destination-based corporation tax does not take account of intangible assets, which play a growing role in firms’ value creation. It is also questionable that sales are an adequate proxy for profit generation.

Formulary apportionment also ignores intangibles, but in addition it fails to take account of firm diversity, imposing a one-size-fits-all formula instead. Formulary apportionment would create powerful incentives for corporate lobbying.

An efficient alternative to the status quo is a tax on distributed profits levied at the firm level. It would curb incentives and opportunities for tax avoidance, whilst also encouraging investment and discouraging excessive leverage.