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Taxation of multinational banks : using formulary apportionment to reflect economic reality (Part 1)

Sadiq, Kerrie (2011) Taxation of multinational banks : using formulary apportionment to reflect economic reality (Part 1). Journal of International Taxation, 22(5), pp. 46-58.

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Abstract

Formulary apportionment does not attempt to undertake a transactional division of a highly integrated multinational entity. Rather, it allocates income to the jurisdictions based on an economically justifiable formula. Opposition to formulary apportionment is generally based on the argument that it is not a theoretically superior (or optimal) model because of the implementation difficulties. The conclusion that the unitary taxation model may be theoretically superior to the current arm's-length model that applies to multinational banks, despite significant implementation, compliance, and enforcement issues, is based on the unitary taxation model providing greater alignment with the unique features of these banks. The formulary apportionment model looks to the economic substance of the multinational entity and, in this sense, adopts a substance-over- form approach. Formulary apportionment further recognizes the impossibility of using arm's-length pricing for economically interdependent multinational entities. A final advantage to formulary apportionment, which is also a consequence of this model achieving greater inter-nation equity, is the elimination of double taxation.

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ID Code: 49733
Item Type: Journal Article
ISSN: 1049-6378
Subjects: Australian and New Zealand Standard Research Classification > COMMERCE MANAGEMENT TOURISM AND SERVICES (150000) > ACCOUNTING AUDITING AND ACCOUNTABILITY (150100) > Accounting Auditing and Accountability not elsewhere classified (150199)
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Current > Schools > School of Accountancy
Deposited On: 08 May 2012 11:07
Last Modified: 08 May 2012 11:07

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