Abstract
The current approach for sourcing income suffers from two related problems. First, the source rules lack coherence in that they fail to advance a consistent normative tax policy. The second problem is the variation in the source rules used worldwide.
This Article addresses both of these problems by offering an approach for sourcing income that has the potential for being adopted by countries on a multilateral basis. The Article develops an equity-based standard for sourcing that would allow for the derivation of source rules for various types of income. The core idea underlying the proposed sourcing standard is the benefits principle, which calls for the sourcing of income on the basis of related government benefits. To an extent, the proposed approach is somewhat consistent with source rules currently used in the United States and elsewhere. However, unlike the U.S. rules and those of some other countries, the proposed approach would not take into account other policy concerns, with the exception of administrability. Moreover, the suggested approach would divide the income between geographical sources where more than one country provides significant governmental benefits that contribute to the earning or enjoyment of the income, whereas the current rules typically assign income to a single geographical source. By basing the source rules on a benefits principle-based standard that allows source to be divided when appropriate, this Article seeks to rationalize and harmonize the provisions used to source income for purposes of taxing cross-border investment and business activities.
This Article differs from prior work in this area in two important respects. First, it offers a multilateral approach for sourcing income, whereas earlier studies of significance have taken a national approach, evaluating for reform the source rules of the United States. Second, unlike other scholarship devoted to the source rules, the Article develops a single standard for sourcing income that promotes equity by dividing the income tax jurisdiction of countries based on the provision of government benefits that relate to the income. Thus, the Article is important in that it develops an equity-based standard for sourcing income that may gain international acceptance.
Recommended Citation
Fred B. Brown,
An Equity-Based, Multilateral Approach for Sourcing Income Among Nations,
11 Fla. Tax Rev.
(2011).
Available at: https://scholarship.law.ufl.edu/ftr/vol11/iss1/8