Toward a 21st-Century International Tax Regime

The OECD has been struggling to respond to countries that wish to tax large US technology companies on the basis of where their consumers live. The current OECD work program on digitalization is unlikely to produce a stable consensus or prevent countries from following the lead of France, India, Italy and the United Kingdom toward digital services taxes. The United States response should not be to target French, Indian, Italian or British companies for retaliation. Instead, the United States should consider adopting a sales-based formulary apportionment (SFA) solution that would apply to all large enterprises. Such a move is more likely to lead to a stable outcome than the OECD proposals. SFA also has important advantages relative to other proposals such as Residual Profit Allocation by Income (RPA-I) or the Destination Basis Cash Flow Tax (DBCFT)