The issues raised in this paper explores the international tax rules of explicitly treating multinational enterprises (MNEs) as single or unitary firms. Firstly, it briefly explains why reform of international corporate taxation is important particularly for developing countries, then outlines the flaws in the current system. It discusses the impetus created for reforms, and the political and institutional dynamics of the tax treaty system. An evaluation is provided of the
results of the G20/OECD project on base erosion and profit shifting (BEPS), focusing essentially on the extent to which they moved towards a unitary approach, and the problems created by their continued adherence to the independent entity principle. Several proposals are then outlined which, in different ways, would apply a unitary approach to MNEs. The remainder of the paper focuses more particularly on one variant: unitary taxation with
formulary apportionment – this was the focus of the ICTD’s research programme, which resulted in the outputs discussed here. It outlines the main findings on optimal design of an international formulary apportionment system, evaluates the evidence about its possible effects on national tax revenue, and considers the possibilities and prospects for adoption of such a system regionally.
