Multinational enterprises can, if they want, avoid paying their taxes and the ‘trillion dollar question’ is how we can change that? 

Professor Sara McGaughey from the Department of Business Strategy and Innovation, Griffith University and Pascalis Raimondos (Queensland University of Technology) argue that a radical reform is long overdue.

The current “Separate Accounting” taxation of corporations gives governments the right to tax the national incomes of firms operating within their borders. However, multinational and increasingly digital business models beg the question:

What is national taxable income?

A move away from a separate taxation of national corporate income to a taxation of global corporate income allocated via “Formula Apportionment” – where countries tax an activity-based share of a firm’s global profit – is long overdue. 

Global corporate income as a basis for taxation is supported by recent theoretical developments and corroborating empirical evidence, with the European Union and emerging economies (including China) already considering its adoption.

Interestingly, it is not a new idea: formula apportionment of global corporate income was used a century ago before commercial and political interests promoted separate accounting, thereby providing both precedent and experience to inform its re-adoption.  

Please click here to read the full “Taxing global profits: A ‘back to the future’ reform” published at Austaxpolicy, written by Professor Sara McGaughey and Professor Pascalis Raimondos.