ICTD Working Paper 25

Multinational financial institutions (MNFIs) play a significant role in financing the activities of their clients in developing nations. Consistent with the ‘follow-the-customer’ phenomenon which explains financial institution expansion, these entities are increasingly profiting from activities associated with this growing market. However, not only are MNFIs persistent users of tax havens, but also, more than other industries, have the opportunity to reduce tax through transfer pricing measures. This paper establishes a case for an industry-specific adoption of unitary taxation with formulary apportionment as a viable alternative to the current regime. In doing so, it considers the practicalities of implementing this by examining both definitional issues and possible formulas for MNFIs. This paper argues that, while there would be implementation difficulties to overcome, the current domestic models of formulary apportionment provide important guidance as to how the unitary business and business activities of MNFIs should be defined, as well as the factors that should be included in an allocation formula, and the appropriate weighting. This paper concludes that unitary taxation with formulary apportionment is a viable industry-specific alternative for MNFIs.


Kerrie Sadiq

Kerrie is a Professor of Taxation in the School of Accountancy at the QUT Business School, Queensland University of Technology, Australia, an Adjunct Research Fellow of the Taxation Law and Policy Research Group, Monash University, and a Senior Adviser to the Tax Justice Network (UK). She holds a Bachelor of Commerce from The University of Queensland, a Bachelor of Laws (Honours) from The University of Queensland, a Master of Laws from Queensland University of Technology, and a PhD from Deakin University. Kerrie is a Chartered Tax Adviser as designated by the Tax Institute. Prior to joining Queensland University of Technology, Kerrie spent 20 years at the University of Queensland, as a member of both their Law School and Business School.
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