Further reports supporting combined reporting, unitary
We'd like now to draw attention to a couple of other reports that we haven't yet pointed to, advocating this approach. One, published last month, comes from the U.S. Congressional Research Service (CRS), and is authored by tax expert Jane Gravelle, which looks at profit apportionment as one of several possible recipes for change:
"Another approach to addressing income shifting is through formula apportionment, which would be a major change in the international tax system.The report notes (as have we) that the system is no panacea and not without its problems. Tax writer David Cay Johnston, writing in Tax Analysts, discusses this:
With formula apportionment, income would be allocated to different jurisdictions based on their shares of some combination of sales, assets, and employment. This approach is used by many states in the United States and by the Canadian provinces to allocate income.Studies have estimated a significant increase in taxes from adopting formula apportionment. Slemrod and Shackleford estimate a 38% revenue increase from an equally weighted three-factor system. A sales-based formula has been proposed by Avi- Yonah and Clausing that they estimate would raise about 35% of additional corporate revenue, or $50 billion annually over the 2001-2004 period."
"The Gravelle report recommends single company accounting for multinational corporations: ‘‘Treating the parent and subsidiary companies of a multinational corporation as one corporation for the purpose of calculating taxes . . . would eliminate the tax benefits of shifting profits to tax havens such as Bermuda or Ireland.’’Single company accounting is, we are sure, Johnston's term for combined reporting. Finally, here is another report written for the U.N. Economic Commission for Africa (UNECA), entitled "A proposal for unitary taxes on the profits of transnational corporations."
Single company accounting would be a significant reform, which is why multinational companies his- torically have fought it. But the best thing about single company accounting is that it can be ex- plained easily, and that means ordinary voters can grasp a simple way to imbue state-level tax systems with integrity and fairness."
"This paper presents empirical evidence and a proposal for applying a unitary tax system on the profits of TNCs. Such a system would eliminate one of the most powerful mecha- nisms at the disposal of TNCs for illegally avoiding tax payments— transfer pricing."These will be added to the TJN transfer pricing page, which contains various other reports looking at unitary taxation.