Unilateral introduction of destination-based cash-flow taxation

  • Johannes BeckerEmail author
  • Joachim Englisch


We analyze the unilateral introduction of a destination-based corporate cash-flow tax system (DBT), as proposed by Auerbach and Devereux (AEJ Policy 2018). We show that, first, the DBT rate is decision-neutral only if the source tax country makes the DBT payments deductible from its tax base. Second, a unilateral DBT introduction is, in many aspects, equivalent to completely abolishing the corporate tax and, instead, taxing domestic investors based upon their worldwide profit income, net of foreign taxes and on accrual. In this sense, the DBT is actually a pure residence-based tax. This implies that, from a foreign investor’s perspective, the DBT country is like a zero-rate tax haven and has the same gravitational power on taxable profits and economic activity. Third, the location of profit and activity within its borders is, however, without any fiscal value for the DBT country. Fourth, the introduction of a DBT system reduces national income. Fifth, the DBT country can only individually benefit from its new tax system if public goods provision is substantially increased. Finally, it is optimal to complement a unilateral DBT system with a source-based tax.


Business taxation Destination taxation Tax competition 

JEL classification

H25 H32 H87 



We thank referees as well as participants of the 2017 Summer Symposium of the Oxford University Centre for Business Taxation and the CESifo Venice Summer Institute 2018 for helpful comments.


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© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.University of MuensterMuensterGermany

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