Corporation tax as a problem of MNC organisational circuits: The case for unitary taxation

The tax practices of multinational corporations have become a matter of significant public and political concern. The underlying issues are rooted in the capacity of multinational corporations (MNCs) to construct organisational circuits that shift where sales, revenue and profit are reported. This capacity in turn becomes a focus because of the way MNCs are treated as a series of separate entities, subject to the arm’s length principle. This has become a classic example of a system whose current form and consequences were not foreseen when the original principles were set out. The continued existence of that system owes more to specific interests and inertia than it does to the absence of a viable alternative. Unitary taxation based on formula apportionment clearly resolves the underlying issues and unitary taxation may well ultimately emerge as a new generalised basis for corporate taxation. However, for it to do so, the problems of the current system and the advantages of the alternative need to be more clearly understood within academia, business and on a societal basis. This paper is a contribution to such an understanding.

http://bpi.sagepub.com/content/18/2/463.short