We model the effects of cash-flow taxes, differing according to the location of the tax, on the behavior of a multinational producing and selling in two countries with three sources of economic rent: a fixed basic-production factor (located with initial production), mobile managerial skill, and a fixed final production factor (located with consumption). In general, governments face trade-offs in choosing between alternative taxes. A source-based cash-flow tax creates welfare-impairing production and consumption distortions, but falls partially on firm owners who may be nonresident. By contrast, a destination-based cash-flow tax does not distort behavior, but falls only on domestic residents.
Auerbach, Alan J., and Michael P. Devereux.
"Cash-Flow Taxes in an International Setting."
American Economic Journal: Economic Policy,
Multinational Firms; International Business
Business Taxes and Subsidies including sales and value-added (VAT)
International Fiscal Issues; International Public Goods