1. TAXING CORPORATE INCOME
Review of paper and Comments by Jack Mintz

2. Main Points of Paper
Meade report considered three forms of rent taxes on corporations - R, R+F and S bases
Authors focus on two main issues
How economies have changed since 1978 affecting corporate tax policy (source vs residence base taxation)
Examine different tax systems with emphasis on “what to be taxed” and “where to tax it”

3. Background UK corporate tax system
generally move to income base with lower rates and broader bases since 1978
ECJ cases affected ACT, treatment of outbound and inbound investment
Around world -- today compared to 30 years ago
falling general statutory tax rates (48% to 28%)
CIT revenues have been buoyant as a share of GDP across OECD countries
falling importance of manufacturing and rising importance of services, some tradable like financial (and business services).
(greater use of profit-insensitive taxes on businesses)

4. WHAT HAS CHANGED Globalization of economic activity
Tax competition -- for capital or profits?
statutory rates -- income shifting and acquire rents
Financial innovations and debt vs equity distinction
Relationship of PIT and CIT
residence of owners vs residence of corporation
influence of PIT on investment
Organizational form -- choice at small business level (but also within corporate groups)

5. Role of Corporate Tax
Backstop to personal tax (withholding for residence tax)
Taxing foreign income (source -- crediting)
Rent tax (source role)
(Surrogate benefit tax-- source role)

6. Alternative Tax Bases Source-based Residence-based
Tax on return to equity (problems of attribution to jurisdiction)
formula apportionment
Corporate flow of funds (R, R+F, S bases)
Allowance for corporate equity (Croatia, Belgium)
Comprehensive Business Income Tax
Dual Income taxes (schedular, lower tax on capital income, CIT)
Business value taxes (Michigan, Italy, Hungary)
Residence-based
Shareholder tax on accrued worldwide profit (problem of tracking)
Residence-base corporate tax on accrued worldwide profit
Destination-based tax
Corporate cash flow tax (VAT with wage deduction)
Destination-based income tax (income-based VAT)

7. Comments
Emphasis on globalization is important but many issues with corporate tax are also domestic.
treatment of capital gains -- payout, investment, income stripping, (relevance to withholding role)
treatment of losses (constraint -- loss-dumping in a jurisdiction)
financial derivatives -- differential tax rates on capital gains versus other income (dividends)
role of tax-exempts (pension plans, charities, non-for-profit)-- recent private equity acquisitions with debt
consolidation -- corporate group membership
organizational structures - limited partnerships, special purpose entites, public-traded trusts or partnerships.
small versus large business taxation (tax planning)

8. Comments
But globalization magnifies many problems with international tax arbitrage
dual residency problems (double deductions)
multiple dip deductions through indirect financing (conduit) structures (interest and leasing)
financial derivatives and withholding taxes

9. Comments: Corporate Tax Incidence
Who pays corporate tax?
Importance to evaluating its purpose
Large public corporations (source, rent role?)
Foreign-owned (tax crediting)
Small business (withholding role)
Large private corporations (withholding role)
Plea for research

10. Evaluation of UK System
Impact of corporate tax on efficiency (intertemporal, interasset, interindustry, organizational choice distortions)
Influence on FDI -- outbound and inbound
Impact on distribution of incomes

11. Meade Report Recommendations
Did Meade report business tax recommendations fail?
Any role in UK corporate tax (seems little)
Has played some role elsewhere
Cash flow taxes in resource sector to tax rents (Australia, Canada)
ACE systems in some countries
VAT systems -- move to consumption base, treatment of financial flows, VAT as substitute for income tax revenues

12. COMMENTS
What do we do? No tax base seems satisfactory - rather depressing
Corporate tax revenues still pretty strong -- maybe muddling through makes sense
Alternative approaches to future to stem tax rate cutting
Worldwide co-operation -- transfer prices, some global apportionment (EU discussions)
New approaches to taxing businesses
profit-insensitive taxes, user fees
interest deduction elimination, comprehensive BIT, BVT