The global taxation of corporations

This paper suggests that there needs to be a global approach to the taxation of corporate profits. National taxing authorities apply transfer pricing rules to Multinational Enterprises in an attempt to apportion corporate profits based on a notion of ‘arm’s length’ dealings. As multinational enterprises grow larger and control ever greater levels of world trade finding ‘arm’s length’ values for trade becomes more difficult. Multinational Enterprises are taking advantage of their corporate personhood and the free global movement of capital to take advantage of the transfer pricing rules and so, avoid tax. There needs to be an alignment of corporate profits and taxation to the jurisdictions in which corporations actually earn the profits. There also needs to be recognition of the fact that MNEs are using the current transfer pricing rule to legally avoid their tax obligations in the taxing jurisdictions where their business is conducted. The US formula apportionment method of allocating profits between jurisdictions is based on sales made, property owned and people employed in a particular jurisdiction this apportionment recognises the physical impact of corporations in a jurisdiction and attempts to apportion profits recognizing this impact. The apportionment is not perfect but at least it takes into account some of the realities of the operation of a corporation. Apportioning corporate profits grounded in a physical reality, even if not perfect, attempts to acknowledge the impact corporations, artificial people, have on real people where they physically live and work.