Corporation tax as a problem of MNC organisational circuits: The case for unitary taxation
Research Highlights and Abstract Contextualises and clarifies the case for unitary taxation In so doing sets out the structural and institutional constraints of the current system of taxation for multinational corporations (separate entity status and the arms length principle) Explores the limits and potentials of current policy initiatives that are shaping the ongoing response to issues of taxation for multinational corporations (from the Organisation for Economic Co operation and Development (OECD) within the UK and the EC) 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.