Naomi Fowler ■ Unitary taxation for multinational companies: what it is and why it matters

City of London skyline

We blogged recently that the UK’s main opposition party has committed to introducing unitary taxation by the end of the next parliamentary term. As we’ve said, it represents an important further normalisation of unitary taxation, and a potentially important step to ending the great damage done by corporate tax abuse internationally. In addition to our infographic here explaining unitary taxation, we think it’s useful to share an article for Open Democracy by one of our senior advisors, emeritus professor of law at Lancaster University, Professor Sol Picciotto. He was co-author of an important report whose recommendations have been adopted by the UK Labour Party.

In this article Professor Sol Picciotto addresses two important questions: could a UK government implement unitary taxation, and what would be the benefits? As he writes in his article:

adoption by a country such as the UK of a policy of moving towards unitary taxation with formula apportionment could accelerate the growing momentum for a more effective and comprehensive international solution. Indeed, earlier this year the Indian government put forward proposals to adopt fractional apportionment unilaterally, explaining how it could be compatible with its tax treaties. Even if not all countries follow, governments bold enough to lead the way could create a new consensus for reform of the rules to make them fit for the 21st century.”

In his view, unitary taxation is

a bold, visionary plan for taxing multinationals from the Labour Party – but it is also workable and necessary.”

You can read his full article here on the Open Democracy website.

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Comments • 2

  • December 1, 2019 - 10:41 am

    I study the structure and creation of holding companies, their taxation and the best countries for their creation. Your article is very informative and helpful. Thanks.

  • Geoff Thorpe
    May 8, 2020 - 9:57 pm

    I am a (now retired) US tax lawyer with work experience in both a private sector multinational corporation and the taxing agency of a US state that employs unitary taxation. California for decades was a leader in unitary taxation, and the UK government objected strenuously against it until it was upheld by the US Supreme Court in the Barclays Bank decision in 1994.

    I can assure you that unitary combined reporting and formulary apportionment are not a panacea in income taxation. The terms of debate will shift from intercompany pricing in the present system to the scope of the unitary enterprise subject to combination, and the minutiae of the apportionment factors. In formulary apportionment, there is a tug of war for revenue between the home jurisdiction of an enterprise and the market jurisdictions where it sells, with contradictory interpretations between them of the same legal provisions. Let the games begin!

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