Key Issues in Taxing Profit

This chapter sets out the key conceptual issues that arise in designing a business-level tax on profit in an international setting. It is in four parts—each addressing a basic question. First, what is meant by a tax on profit? We identify different approaches to taxing profit and show that there are a number of equivalences between taxes. Second, what criteria should be used for evaluating a business-level tax on profit in an international setting? We set out five criteria in some detail: economic efficiency, fairness, robustness to avoidance, ease of administration, and incentive compatibility. Third, given these criteria, is a business-level tax on profit a useful addition to the set of taxes that can be employed by national governments? We consider different possible underlying rationales for taxing business profit, especially in an international context. Fourth, is taxation at both the business and the owner-level problematic? We consider whether there is need for relief from this form of double taxation.