Polity: Taxing multinationals via sales

notices and features
10 years ago
Categories: Economy, tax, us politics
Tags: multinational corporations

An interesting idea out of the US for how to fairly tax multinationals around the world:

First, have them declare a worldwide profit, netting off worldwide sales and worldwide qualifying expenses¹

Second, find out where they made their sales.

Third, apportion the profit to various jurisdictions based on whatever portion of the sales took place in that country.

So if Facebook made $10 billion worldwide, and made 30% of its sales in the USA, then the US government would collect tax from Facebook on the basis of a $3 billion nominally-USUS profit.

I’m sure there are issues to iron out, and you’ll need good multilateral government cooperation to make it work. But this kind of international cooperation sounds a lot fairer to me than an international race-to-the-bottom on corporate tax rates.

I am presuming using national rules in the country where the expense was paid to figure out what is a “qualifying expense.” This could be an area where the system gets gamed, so governments would need to plan carefully.