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Territorial vs. Worldwide Corporate Taxation: Implications for Developing Countries?

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  • Thornton Matheson
  • Victoria Perry
  • Chandara Veung

Abstract

Global investment patterns mean that effective taxation of foreign investors is of increasing importance to the economies of lower income countries. It is thus of considerable concern that the historical framework for cross-border income tax arrangements is not always well suited to allow low-income countries effectively to generate tax revenues from profits on foreign direct investment. Several aspects of this framework contribute to the problem. This paper discusses, in particular, the likely effect of a shift by major economies from the system of worldwide corporate taxation toward a territorial system on the volume, distribution and financing of FDI, focusing on low-income countries (LICs). It then empirically analyzes bilateral outbound FDI data for the UK for 2002-2010 to determine whether the move to territoriality made corporations more sensitive to host-country statutory tax rates. Supporting evidence for this hypothesis is found for FDI financed from new equity.

Suggested Citation

  • Thornton Matheson & Victoria Perry & Chandara Veung, 2010. "Territorial vs. Worldwide Corporate Taxation: Implications for Developing Countries?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1316, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    • Handle: RePEc:ays:ispwps:paper1316
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    File URL: http://icepp.gsu.edu/files/2015/03/ispwp1316.pdf
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    References listed on IDEAS

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    1. Altshuler, Rosanne & Grubert, Harry, 2001. "Where Will They Go if We Go Territorial? Dividend Exemption and the Location Decisions of U.S. Multinational Corporations," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(4), pages 787-809, December.
    2. Rosanne Altshuler & Timothy J. Goodspeed, 2015. "Follow the Leader? Evidence on European and US Tax Competition," Public Finance Review, , vol. 43(4), pages 485-504, July.
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