Revenue Implications of Destination-Based Cash-Flow Taxation


We estimate the revenue implications of a destination-based cash-flow tax (DBCFT) for 80 countries. On a global average, DBCFT revenues under unchanged tax rates would remain similar to the existing corporate income tax (CIT) revenue, but with sizable redistribution of revenue across countries. Countries are more likely to gain revenue if they have trade deficits, are not reliant on the resource sector, and/or—perhaps surprisingly—are developing economies. DBCFT revenues tend to be more volatile than CIT revenues. Moreover, we consider the revenue losses resulting from spillovers in case of unilateral implementation of a DBCFT. Results suggest that these spillover effects are sizeable if the adopting country is large and globally integrated. These spillovers generate strong revenue-based incentives for many—but not all—other countries to follow the DBCFT adoption.

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  1. 1.

    See: A Better Way Forward—Our Vision for a Confident America, Tax, June 24, 2016.

  2. 2.

    There are other forms of a destination-based business profit tax. For example, Hebous and Klemm (2020) discuss a destination-based allowance for corporate equity (DBACE), including its revenue implications and how they deviate from those of a DBCFT in the short (greater revenue for the DBACE) and long run (no difference in present discounted value terms, but less volatility in case of a DBACE).

  3. 3.

    This point is made in several papers. For a particularly clear exposition, see, e.g., Auerbach (2017a).

  4. 4.

    Barbiero et al. (2018), for example, argue that the dynamics of adjustment are complex and, depending on anticipation and the exact implementation of the reform, can be incomplete.

  5. 5.

    Except if the currency is used as foreign reserve currency. Moreover, even under a balanced current account, trade imbalances can be financed from the income account, which also has tax consequences as will be discussed.

  6. 6.

    We assume introduction of a pure DBCFT. The US proposal did not include this feature.

  7. 7.

    See Ueda (2018) for a discussion of the relationship between national accounts concepts and CIT bases.

  8. 8.

    Carryforward, even with interest, would not be effective, because some firms, notably exporters, are likely to be in a systematic tax loss position and would not benefit from it.

  9. 9.

    In principle, Eq. (1) should add deposit and transaction fees and other non-interest income since these would remain taxable under a DBCFT, whereas cost of employment in the financial sector should be deducted. However, for most countries, as both effects are in opposite directions, they would likely (to a large extent) offset making a potential bias rather negligible (possibly except for a few financial centers). Internationally comparable data on the subcategories of financial fees and cost of employment in the financial sector are not available for most countries.

  10. 10.

    See Carton et al. (2019) for an analysis of the impact on investment using a multi-region forward-looking DSGE model.

  11. 11.

    See Klemm and Liu (2019) for a discussion and further references.

  12. 12.

    Despite the theoretically compelling argument by Auerbach (2017b), if data on the gross operating surplus are collected differently from trade data, then changes in profit shifting could affect measures of both items differently. As a robustness check, we therefore repeat the analysis in this paper, with data published by Tørsløv et al. (2018) that correct for profit shifting. While there is an active and so far unsettled debate about the magnitude of recent profit-shifting estimates (Blouin and Robinson 2020) and hence these adjusted data, we have used them as a robustness check and obtained very similar results from those on unadjusted data.

  13. 13.

    United Nations Statistics Division: National Accounts Official Country Data: Non-financial corporations.

  14. 14.

    See Danie et al. (2010) for options on efficient resource-sector taxes.

  15. 15.

    Some confusion may occur because the terms pro and countercyclicality can be used to describe association with the cycle or the policy impact. Hence, a procyclical income tax (whose revenues rise with greater amplitude than GDP) has a counter-cyclical impact.

  16. 16.

    See Appendix in Klemm (2014) for a table summarizing the specifications used in the literature.

  17. 17.

    For example, Gavin and Perotti (1997) and Alesina et al. (2008).

  18. 18.

    The covariance between profit shifting and real investment can be of either sign. There can be a colocation of real assets and paper profits (e.g., because the presence of capital makes profit shifting easier) and/or a decoupling (as raising tax rates discourages investment less strongly when profits can be shifted). See Klemm and Liu (2019) for a discussion of the interaction between investment and profit shifting.


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We are grateful for comments by participants at the IMF Seminar, the Cnossen Forum in Rotterdam, the annual conference of the Oxford Center for Business Taxation, Alan Auerbach, Benjamin Carton, Ruud de Mooij, Michael Keen, Aiko Mineshima, Jiri Podpiera, Rafael Portillo, Dinar Prihardini, two anonymous referees, and the editor Linda Tesar. The views expressed in this paper are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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Hebous, S., Klemm, A. & Stausholm, S. Revenue Implications of Destination-Based Cash-Flow Taxation. IMF Econ Rev 68, 848–874 (2020).

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  • Tax revenue
  • Destination-based cash flow tax
  • Border adjustment tax

JEL Classification

  • H25
  • H87