The Role of Border Adjustments in International Taxation
Border adjustments are taxes or tax reductions that apply when payments for goods and services cross international borders. At present, they are used primarily in the context of the value added tax (VAT). Border adjustments have other effects as well, notably to limit the extent to which companies operating across borders can manipulate the location of their tax base. This enhances the attractiveness of border adjustments as part of a well-functioning tax system.
On the other hand, border adjustments can, in some circumstances, advance protectionist policies. Ultimately, they can play an important role in tax reform, but that role is to help generate a more efficient, equitable, and administrable system of business taxation; they should not influence international trade, either by discouraging imports or encouraging exports.