Some thoughts on a Fair Allocation of Corporate Tax in a Globalizing Economy

Today we live in a globalizing economy: national open markets are steadily developing towards a global market. Within the European Union (EU), the internal market without internal frontiers has been established. However, the fiscal sovereignty of nation states (hereinafter: ‘states’) remains limited to economic activities taking place within their territory. Fiscal sovereignty is purely a domestic matter. The combination of a globalizing economy and the geographically restricted fiscal sovereignty of states lead to distortions in the allocation of tax among taxpayers and between states. These distortions are caused by obstacles, disparities and the inadequate ‘formula’ that is generally used by states to divide the ‘international tax pie’. In this article, I address the question of how these distortions may be dissolved with respect to the taxation of corporate business income in a global market.