US to Consult Destination-Based Taxation And Border Adjustments

The House Committee on Ways and Means published a document prepared by the staff of the Joint Committee on Taxation that provides an overview and analysis of destination-based taxation and border adjustments. The document has been published ahead of a public hearing on border adjustments and international tax reform that takes place on May 23.

Destination-Based Taxation

With respect to cross-border transactions, the Organization for Economic Co-operation and Development (“OECD”) has recommended that the destination principle be adopted for all indirect taxes. A tax base for a country with a destination-based tax is built on the sale of goods and services to purchasers located in that country, regardless of where the goods and services were produced. "The taxation of cross-border sales of goods and services under a destination-based tax is accomplished through border adjustments, whereby imports are taxed and exports are exempt from tax," The Joint Committee on Taxation explained.

Three Main Parts

The destination-based taxation and border adjustments document consists of three main parts. Part I describes international principles that are applied to taxation and presents an overview of the U.S. present law related to the taxation of cross-border income. "As policymakers deliberate reforms to the U.S. system of taxing cross-border income, some have considered establishing a destination-based tax as a way of promoting certain economic policy goals and addressing problems arising from the more origin-based U.S. tax system," The Joint Committee on Taxation informed.

Part II describes the economic rationale for implementing a destination-based tax and summarizes some recent proposals that would move the United States toward a destination-based tax. Part III provides an economic analysis of the border adjustment mechanism of a destination-based tax.

Source: The Joint Committee on Taxation

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