The Centre has made two central contributions to the business taxation aspects of the IFS Mirrlees review of the fundamental structure of the tax system. One contribution concerns international issues, and questions whether the existing international standards for the allocation of corporate profit between countries can any longer be justified in such a globalised world. It explores conceptual issues of such allocation, and explores basic alternatives, such as an allocation based on the destination of a sale to a final consumer. Related research has re-examined the optimal structure of international tax on business from the perspective both of the world at large and of an individual country. This research identifies the key concepts of “market neutrality” and ‘capital export neutrality’ mentioned above.
The other contribution considers the taxation of small, owner-managed businesses, focusing on the difficulties created by treating employees, unincorporated and incorporated businesses differently for tax purposes. These difficulties cannot be ignored when designing a system for taxing corporations more generally. We argue against some commonly-made proposals – for example, for blanket tax incentives for small firms and differentiation between legal forms. Instead, we examine methods of aligning the effective tax treatment of different legal forms.
