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Unitary Taxation with a Global Formulary Approach as a Realistic and Appropriate Option for Developing Nations: A Chinese Case Study

Journal of Chinese Tax and Policy

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Title Unitary Taxation with a Global Formulary Approach as a Realistic and Appropriate Option for Developing Nations: A Chinese Case Study
 
Creator Kerrie, Sadiq
 
Description China’s transfer pricing regime and investigations into transfer pricingissues gained momentum in the late 1990s. Since then, China has indicated that itis of the view that because of its developing country status, with its uniqueeconomic and geographic factors, it faces a number of difficult challengesincluding a lack of appropriate comparables, quantification and allocation oflocation-specific advantages, and identification and valuation of intangibles. In theUnited Nations Practical Manual on Transfer Pricing, China highlights andexpands its view on each of these challenges and of the four countries withcommentary in Chapter 10, provides the most comprehensive discussion on theunique issues faced by developing and emerging economies. Interestingly, Chinagoes so far as to mention formulary apportionment as a possible solution to thedifficulties it faces in applying the arm’s length principle. Consistent with theconcerns expressed by China, this article proposes that unitary taxation based onformulary apportionment should be considered as a more accurate method ofdetermining China’s ‘fair share’ of profits to be taxed. There is already evidencethat the current jurisdiction and allocation rules do not work for multinationalentities and China has clearly expressed concern about the application of thecurrent transfer pricing rules. As such, acceptance of an alternative modelproposed as superior for multinational entities may not be as onerous as previouslythought. To demonstrate this proposition the article establishes that a unitarytaxation approach which reflects economic reality and is theoretically superiorwould, from a practical perspective, more easily and effectively ensure that theprofits of multinational entities are taxed in the jurisdictions which give rise tothose profits. In doing so, the article examines the commentary provided by Chinain the UN Practical Manual and compares that to Brazil, India and South Africa. Itthen considers the practicalities of the implementation of unitary taxation fordeveloping nations in terms of the key components of such a regime arguing that itis a viable alternative to the current regime.
 
Publisher Journal of Chinese Tax and Policy
 
Contributor —
 
Date 2018-05-22
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
—
 
Identifier https://openjournals.library.sydney.edu.au/index.php/JCTP/article/view/12741
 
Source Journal of Chinese Tax and Policy; Vol 6, No 1 (2016): Chinese Tax and Policy 10
1839-065X
2205-2550
 
Language en
 
Rights Copyright (c) 2018 Sadiq Kerrie