Transnational corporations(TNCs)act as unitary firms in an increasingly globalised economy,but taxes on their profits are levied by national states.Hence,international tax rules have from the start been riven by contr...Transnational corporations(TNCs)act as unitary firms in an increasingly globalised economy,but taxes on their profits are levied by national states.Hence,international tax rules have from the start been riven by contradictory approaches:ei-ther to determine the taxable profits attributable to each separate constituent entity of the TNC in their jurisdiction by comparing them with independent firms conducting a similar business,or to tax an appropriate share of the TNC’s global profits appor-tioned by factors reflecting its activities within the jurisdiction.The separate entity principle became dominant,especially with the adoption of the OECD Transfer Pricing Guidelines in 1995,but it gave a perverse incentive to TNCs to devise tax avoidance strategies,based on attributing high levels of profit to entities in countries where they would be taxed at low rates.The project on base erosion and profit shifting(BEPS)was mandated by the G20 to reform these rules so that TNCs could be taxed where their activities occur,signaling a return to the unitary principle.The latest proposals now adopt the principle of unitary taxation of TNCs,together with technical standards for formulary apportionment,but only as an overlay on top of existing rules based on the incompatible independent entity principle.A stable foundation for international tax depends on resolving this dilemma and agreeing a fair and balanced allocation of rights to tax TNCs’profits based on their real activities in each jurisdiction.展开更多
文摘Transnational corporations(TNCs)act as unitary firms in an increasingly globalised economy,but taxes on their profits are levied by national states.Hence,international tax rules have from the start been riven by contradictory approaches:ei-ther to determine the taxable profits attributable to each separate constituent entity of the TNC in their jurisdiction by comparing them with independent firms conducting a similar business,or to tax an appropriate share of the TNC’s global profits appor-tioned by factors reflecting its activities within the jurisdiction.The separate entity principle became dominant,especially with the adoption of the OECD Transfer Pricing Guidelines in 1995,but it gave a perverse incentive to TNCs to devise tax avoidance strategies,based on attributing high levels of profit to entities in countries where they would be taxed at low rates.The project on base erosion and profit shifting(BEPS)was mandated by the G20 to reform these rules so that TNCs could be taxed where their activities occur,signaling a return to the unitary principle.The latest proposals now adopt the principle of unitary taxation of TNCs,together with technical standards for formulary apportionment,but only as an overlay on top of existing rules based on the incompatible independent entity principle.A stable foundation for international tax depends on resolving this dilemma and agreeing a fair and balanced allocation of rights to tax TNCs’profits based on their real activities in each jurisdiction.
