In a recent podcast, Professor Yariv Brauner of the University of Florida Levin College of Law discusses the challenges facing residence-based taxation and proposes a new way to tax individuals. He explains that historically, countries have taxed based on residency and only foreign income based on source income. The justification for this system was primarily based on benefits theory, ability to pay, and notions of efficiency, simplicity, and sovereignty.
Professor Brauner highlights the cracks in the current system, including the rise of residence by investment schemes, digital nomads, and remote work, which challenge the traditional idea of residence-based taxation. He argues that these changes make residence taxation increasingly less sensible in the 21st century. This has led to calls for a new deal in international taxation from developing countries and emerging economies.
Discussing the existing alternative of citizenship-based taxation, Professor Brauner acknowledges different proposals that have been put forward. However, he critiques the idea of citizenship-based taxation as a replacement for residence taxation, citing concerns about democracy and representation. Instead, he introduces the concept of source-based taxation for individuals as a possible solution to address the challenges of the current system.
Explaining his proposal for source-based taxation, Professor Brauner envisions a system where individuals are taxed based on where they earn their income rather than their residence. He argues that this approach would be fair, intuitive, and align with the concept of territoriality in international law. Although there are potential disadvantages, such as resistance from residence countries, Professor Brauner suggests solutions like minimal taxation or income reassignment to address these concerns.
Looking ahead, Professor Brauner acknowledges that replacing the existing residence-based system would be a significant challenge. He speculates on potential political developments, such as more regional arrangements or tax wars, as countries seek to protect their tax bases. Ultimately, he believes that his proposal for source-based taxation could inform future revisions to the international tax regime, preserving elements like progressivity and sovereignty while adapting to the changing landscape of global taxation.
