Replacing corporation tax with an extra value added tax is one of the options put forward by independent think-tank, the Institute for Fiscal Studies (IFS), to resolve the growing difficulties HM Treasury face when taxing international businesses.
The proposal is part of a submission to an ambitious review of the tax system undertaken for the IFS, the Financial Times reports.
Researchers from IFS and the UCLA at Berkeley said the growing mobility of capital and profits had created increased tax competition, making it very difficult to tax corporate income where it was earned or where investors lived.
A radical alternative designed to reduce avoidance and distortions to investment would be to tax the value added by business, with exemptions for the cost of labour, by increasing VAT and cutting national insurance contributions. However, they warned this reform might be hampered by EU rules and the risk of fraud.
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