This week, David Elkins (Netanya; Google Scholar) reviews a new work by Yariv Brauner (Florida; Google Scholar), Income and Territoriality: A Purpose-Based Reform of Income Sourcing Rules, _ Can. Tax J. _ (forthcoming 2026):
It is commonly noted in the literature on international taxation that the international tax regime instituted in the wake of the First World War is no longer viable in the globalized, digitalized economy of the twenty-first century. Attempts to reform or replace the current model, particularly the OECD’s BEPS project in its various guises, have hitherto failed to fundamentally modify the underlying structure.
Under current international usage, countries tax the worldwide income of their residents (both individual and corporate and, in the case of the United States, nonresident citizens) and the domestic-source income of nonresidents. To mitigate the specter of double taxation, home countries ordinarily exempt foreign-source income from tax where foreign income taxes have been paid or grant a credit for such taxes. In recent years, measures have also been implemented to prevent double nontaxation, the phenomenon of income being taxed neither in the source country nor in the taxpayer’s home country.
Prof. Brauner argues that residence can no longer be used as a basis for taxation. The first reason is technical: the increasing difficulty of determining residence. For corporations, the very concept of residence is incoherent. Even for individuals, the phenomenon of digital nomads and the maintenance of ties with numerous countries have challenged the traditional means of assigning residence. The second reason is more fundamental: even where an individual can be properly classified as a resident, there does not appear to be a theoretically sound justification for taxing the individual’s worldwide income.
While the right of countries to tax income deriving from their territory does have strong intuitive appeal, the underlying concept of source taxation has been challenged in the literature as an ambiguous, incoherent, and arbitrary idea, smacking of countries imposing tax simply because they can. Furthermore, the specific source rules have been subject to criticism as not comporting with economic reality and favoring the interests of developed countries. Therefore, whereas members of the OECD (often described as the club of the richest states) strongly favor retention of the current source rules, they also need the cooperation of the rest of the world for the system to operate efficiently, and poorer countries are unlikely to continue supporting rules that act to their detriment. Brauner therefore proposes the elimination of residence taxation, a reliance exclusively on source taxation, and a revamping of the source rules. He reviews the various source rules—for business income, employment income, and investment income—describes their weaknesses, and suggests how they might be modified or what should replace them. In several instances, he notes that what appear to be technical source rules in U.S. tax law are actually reflective of substantive connections and suggests that they, or something similar to them, might be adopted more universally.
With regard to whether his proposal is implementable in practice, and in particular whether wealthy countries are likely to agree to waiving their right to tax on the basis of residence, Brauner argues not only that wealthy countries need to compromise in order to gain from developing countries the support necessary for the international tax system to function, but also that many traditional residence countries are also source countries (the United States itself has been a net importer of capital since the 1980s). He further discusses the form that such a reformed international tax regime could take and how the world might transition to such a regime.
What I found particularly noteworthy in the article was a conceptual dilemma that the author identifies but does not fully resolve. On the one hand, for source rules to be sustainable, they must be perceived as normatively grounded and as reflecting underlying economic reality; the imposition of tax simply because a state has the power to do so is unlikely to command broad acceptance. Accordingly, when examining existing source rules and proposing alternatives, the author carefully considers where income can plausibly be said to arise and acknowledges the difficulty of doing so where geographic connections are attenuated, as in the case of digital services. On the other hand, the article also implicitly depicts the international tax regime as the product of strategic interaction among states, each seeking to advance its own interests while recognizing the need for a workable collective arrangement. From this perspective, source rules need not track any underlying economic “truth,” but rather reflect negotiated compromises among competing claims. These two perspectives point in different directions: the former calls for increasingly refined efforts to locate income geographically, while the latter suggests that the task is instead to identify a distribution of taxing rights that can secure sufficiently broad agreement. One possibility is that the latter ultimately drives outcomes, while states invoke the former to frame their positions as principled rather than self-interested. If so, a more explicit two-level analysis may be warranted, one that distinguishes between the political economy of reaching agreement and the normative vocabulary through which that agreement is justified.
The international tax regime is undergoing a long overdue reexamination and, possibly, a reworking of its basic concepts and constructs. Residence and source, the mainstays of the current system, have both been under attack as viable nexuses upon which to impose tax. This article’s comprehensive presentation of an idea to abandon residence altogether and in its place adopt a viable system of purely source taxation is an important contribution to the discourse. If international actors take notice of it, it might push them in that direction in constituting a new international tax order. Even if they do not, the article could nevertheless prove predictive regarding the evolution of the international tax regime.
Here is the rest of this week’s SSRN Tax Roundup:
Mateja Andric (Melbourne), Mohamed Genedy (Stockholm) & Mattias Nordqvist (Stockholm), The Impact of Abolishing the Gift and Inheritance Tax on Firm Strategic Decisions and Outcomes: The Case of Sweden (2026)
Md Arif Ansari (Warwick), Can the Trump Administration’s Decision Not to Participate in BEPS 2.0 Be Justified in Terms of Political Right? (2026)
Reuven S. Avi-Yonah (Michigan), The Largest Tax Fraud? (2026)
Jason Bangert (Cincinnati), Trent Krupa (Penn. State) & Joe López-Vilaró, Insider Tax Trading and Corporate Risk-Taking: Evidence from the Rule 10b5-1 Gift Disclosure Amendment (2026)
William G. Gale (Brookings), Benjamin Page (Tax Policy Center), Elana Patel (Brookings) & Joseph W. Rosenberg (Brookings), One Big Beautiful Bill? A Preliminary Assessment (2026)
Fei Gao (Sydney) & Richard Krever (West. Australia), Can Sales Destination Reclaim Taxing Rights on Profits from Cross-Border Sales of Goods on Digital Platforms?, [2025] Brit. Tax Rev. 363
Dhruv Janssen-Sanghavi (Maastricht), Tax Treaty Interpretation and Tunnel Vision: The Supreme Court of India’s American Express Decision, 121 Tax Notes Int’l _ (Mar. 2, 2026)
Donald J. Kochan (George Mason), When Tax Law, Textualism, Property Law, and M&A Law Converge: AbbVie Inc. v. Commissioner of Internal Revenue, _ Wake Forest J. Bus. Intel. Prop. L. _ (forthcoming 2026)
Luke Maher (Seattle), Perverse Tax Incentives and the Destruction of Creative Works, 71 Vill. L. Rev. 167 (2026)
Victor Mwangi, Tax Dispute Resolution and Data Protection (2026)
Anand Raj (Boston Univ.), Ease of Doing Business in the U.S. – A Tax Perspective (2025)
