Thank you for the article. Regarding possible solutions:

I agree that some sort of worldwide unitary apportionment of income would probably be helpful in providing a uniform method of taxing corporate income in various countries. This would be ok even though each country has different corporate income tax rules. In the United States, the state/local jurisdictions “share” the income by allowing taxpayers to apportion income to each state based on sales, payroll and property in each state. Then, the tax rules in State A, B, C and D apply to the share of the income “apportioned” to A, B, C and D. However, it gets complex because each state has their own method of defining sales, payroll and property. Because of the complex rules, then there are sales that don’t getting taxed anywhere, or even worse, get taxed in two different states. So if the United States can’t figure out apportionment in a fair way, getting different countries to figure it out is a whole new animal. Regardless, the United States has international tax treaties with many countries to make sure that cross-border income will be taxed in only one jurisdiction (not taxed both places but at least taxed somewhere).

The key issue that sometimes may lead to perceived tax avoidance is transfer pricing. Sometimes, for a multinational company, the cost of producing goods/services occurs in Country A, while the corporation’s sales are made through various entities to customers in Countries A, B and C. How does one correctly assign costs between Countries A, B, and C? In order to do this, an “arm’s length” standard has to be applied to “cross charge” the expenses between the different countries, through intercompany arrangements. Same issue comes up if Country A holds the cash, but Country B and C need cash for their operations, then is the cash really a loan or equity, and is there interest on the loan, etc.? Each country has their own set of rules to determine the “arm’s length” standard. This is where the perceived abuse lies, more expenses end up in the low tax countries.